Diversifying Funding for International NGOs – Five Lessons for Executives

Forget unrestricted funding

This provocative tip has a deeper point – the restricted/unrestricted funding debate is often a fruitless one and misses the point. The question raised tends to be “Where do we find donors who’ll give us free money?” instead of “How do we become the type of organization which donors will want to partner with?” 

Unfortunately for iNGOs, funders have become more sophisticated – they are no longer wowed by glossy annual reports boasting about “people reached” and showcasing “human stories.” Donors, including governments, are beginning to ask difficult questions. What is your theory of change? How do your actions practically address the systemic problems of climate, racial justice, economic opportunity, preserving democracy, women’s empowerment? Why have you been working for 20 years already in country X and the problems there still persist? Why give money to you instead of to a local organization?

Organizations which can answer those questions successfully will become partners of choice; the rest will fight it out to the death for an ever more dwindling pool of traditional funding, and then slowly disappear.

Be clear about what your strengths are

Many international organizations find it difficult to argue for their own raison d’être in 2020. Think of the stereotype of expensive bureaucrats sitting in Western capitals far removed from the field but eager to apply obsolete top-down solutions to the evolving problems on the ground. No one wants to finance that. iNGOs must avoid this labeling by being clear about what their added value is. Presence in a hundred countries could be one. Ability to work with and through local partners could be another. Then there’s the ability to innovate and scale, or just sheer in-house talent and experience – indeed, the list is endless, but simply claiming competitive advantage is not enough – this needs to be backed up by your track record.

Furthermore, iNGOs need to understand differentiation. More and more organizations fundraise globally, in each other’s traditional markets. From a donor’s point of view, they seem to be doing largely similar things in similar ways. How is your organization different?

Local partnerships are key

The trend of localizations is here to stay. iNGOs used to move into a country after a natural disaster or the onset of a conflict, and then create their own infrastructure for assistance, in the process treating local organizations with suspicion, as a risk to be managed. 

Those days are over. Donors have invested for decades into such schemes, only to realize that they result in neo-colonial relationships and not much progress or upskilling. When the iNGOs leave, the situation often deteriorates again; problems of aid dependency remain real and widespread. 

Consequently, donors are turning to local organizations. This is specifically the model the Altruist League promotes and facilitates. Does this mean iNGOs are irrelevant in the process? No, but it does mean their role is changing – to stay relevant they must adapt. They may no longer be needed to do implementation on the ground, or even channel resources, but if they have the ability to advise on best practices, creating systems and efficiencies, cross-skill people between different regions, and if they can be the agents of change at the global level, representing the voices from the ground, then they may continue to have a role to play.

The good news is that this can be done. The bad is that, for many organizations, this will mean laying off staff and reconfiguring their business. The sooner executives face this reality the more strategically the process can be managed.

Adopt market-based approaches

Market based approaches (MBA) to development funding have grown in scale and importance exponentially over the past few years. Far from being the silver bullet or having reached maturity, they nonetheless present a fantastic opportunity for first-mover iNGOs. 

In a nutshell, MBAs involve deploying capital in a way that provides a financial return to the investor while at the same time creating positive change on the ground. Examples of MBA vehicles include impact investing funds and outcome buying schemes. They can open up a whole new class of potential partners, from venture capital firms to institutional investors such as pension funds and endowments. These investors can often be “patient” and happy to wait longer for returns, or accept lower rates, in exchange for creating positive change in a society.

Market based approaches are not a panacea. First of all, they require much organizational learning and hiring a new type of people on the part of the iNGOs, people who understand finance-speak and can be partner-facing in these conversations. Secondly, clearly not all projects are candidates for MBA financing – targets are usually social enterprises that charge for their goods or services and create revenue. Some organizations essential for real change, such as social movements and civil society organizations, will never return a profit, and are hence hard to support through MBAs. Finally, MBA philosophy, with its often simplistic and transactional view of creating social value, should not be running the organization. Concerns about return on investment and cost cutting are fine, but top management must keep the principles of the organization, as well as the non-financial KPI metrics, firmly in focus.

Executives: prioritise your own upskilling

It is up to the executives to help incorporate MBAs into a holistic approach with other activities of the organization funded by effectively philanthropic (if project-specific) or blended finance money. To do this successfully, much of the traditional iNGO leadership would do well to prioritize their own upskilling in the areas of development finance and modern social change theory. They must ultimately lead their organization through a period of often-difficult soul searching as it defines its competitive edge and adapts its model and structure to partnerships-based work in order to diversify its funding and boost its impact on the ground.