Viable Financial Models for Accrediting/Grading Voluntary Organisations Task Force on Accreditation of Voluntary Organisations September 23, 2009

2. Key Messages Pricing is a key determinant of penetration of a grading product Various Financing options explored Pricing has to be a fine balance between the Capability of the VOs to pay and the Cost structure of Grading/Accreditation Subsidy from government can help in critical success

3. Importance of Pricing VOs have to see ‘Value’ at the price point Pricing can be linked to the size of the VO Pricing to be differentiated between Accreditation and Grading Accreditation Product should be at a very nominal price, while Grading (an optional product) should be priced higher

4. Various Financing Models Self Financing Models –VO pays for the Accreditation/Grading exercise –A cess is levied on all grants received by VO and this cess funds the pool which finances the accreditation agency GoI Supported Financing Models – National Accreditation agency carries it out free and GoI funds the accreditation agency (through grants) –GoI subsidises the accreditation/grading agency for each exercise done. (partial GoI support)

5. Various Financing Models (contd.) GoI support (in financing accreditation) will be critical –Lower cost to the VO –Impart credibility to the exercise –Especially important in initial stage to gather critical mass –Will help in bridging the Gap between VOs capability to pay and Cost structure of accreditation/grading agency

6. A Case Study - Rating of SSIs (Small Scale Industries) BACKGROUND GoI focused on increasing the penetration of ratings in this sector Estimated no. of SSI entities – over 1 lakh entities Benefit to SSIs– Access to lower cost funding from Banks –Much improved visibility in the markets Benefit to Banks – Independent credit report of high quality –Better decision Making for lending decisions Key Participants in process– SSIs, Banks, Rating Agencies, NSIC – (Nodal Agency of GoI)

7. A Case Study - Rating of SSIs (Small Scale Industries) FINANCING MODEL ADOPTED GoI reimbursed 75% of the Rating fees directly to Rating agencies (through NSIC) Rating agencies entered into MoUs with Banks in order to reach out to the banks’s customers Rating Agencies – designed a special product suited for SSIs and engineered the process to cut costs Rating Fees – reduced to Rs. 60,000 (1/3 rd of standard fees of Rs. 2 lakhs) Cost to SSI – Around Rs. 15,000 (because of GoI subsidy)

8. Take away from Case Study The concept proved to be very successful, as more than ratings have been done in last 2-3 years Strong parallels between SSI and VOs –Huge nos., Unorganized sector, small size units, scope to scale up, critical for nation’s success) GoI focus on both sectors Need for accreditation/Grading Price sensitive market Need to explore if a similar model will work for VOs/NGOs.

9. CRISIL Limited