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Call for funders to move from Value for Money to Value of Ideas

July 27, 2022

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Jenna Thoretz

Government Affairs & Advocacy Intern

Humentum recently hosted a webinar to discuss the research and recommendations in the Breaking the Starvation Cycle report. Moderated by Dr. Christine Sow, CEO of Humentum, the panel brought together the following experts to discuss the report’s findings and their recommendations for the future:

  • Aidan Eyakuze, CEO, Twaweza
  • Kathy Reich, Director, Building Institutions and Networks (BUILD), Ford Foundation
  • Siham Bortcosh, Consultant, Humentum
  • Tim Boyes-Watson, Global Director Influence and Initiatives, Humentum

The current funding landscape

Aidan Eyakuze, CEO of Twaweza, spoke candidly about the struggles many NGOs face with funders. Although Twaweza has leveraged unrestricted funding to build its reserves, it is an exception in a sector where many organizations have unrestricted reserves that equal less than 21 days of annual expenditure. As Eyakuze points out, the Administration Costs Research (ACR) report mirrors what many peer organizations have experienced. Many donors aren’t willing to allocate their funds to build unrestricted reserves, so organizations are left vulnerable. According to Eyakuze, “if anything happens that is unexpected, then [organizations are] in crisis mode…with no time really to think about how to resolve it.”

Discussions with participating NGOs in the research reflected this reality. According to Siham Bortcosh, Humentum Associate and ACR project lead, many organizations expressed a sense of hopelessness about the funding landscape. Years of systematic ‘starvation’ had left many with the impression that “funders wouldn’t do much better… that [they] couldn’t actually build up [their] reserves, and this was…the nature of being an NGO.”

The widespread nature of this problem was the most striking finding for Kathy Reich, Director of Building Institutions and Networks (BUILD) at the Ford Foundation. As a member of the funder community herself, Reich stated that many donors know they are shortchanging grantees by expecting them to achieve ambitious goals without sufficient funding. In addition to full cost funding, funding partners must move beyond this and provide long-term unrestricted or general operating support and ensure their grantees can set and implement their own strategies. Funding partners should also pay more attention to how their funding contributes proportionally to building unrestricted reserves. Having the latter gives grantees confidence to take risks, innovate and make longer-term commitments to staff and their communities..

Echoing the title of the report, Reich argued that “NGOs have been malnourished and…simply paying the full cost, simply giving them a square meal, is not going to bring them back to health overnight, nor will it make up for the starvation of the past.” Funders can begin to address this issue by taking responsibility for the harm created through long-term historic underfunding of the core capabilities of their grantees. This requires much more direct investment into strengthening these core capabilities around financial management, fundraising and business development, IT, human resources, and institutional architecture and governance.

Ending the Starvation Cycle

This historic underfunding, known as the nonprofit starvation cycle, results from a widespread and misplaced expectation that nonprofits should have low overheads. According to report co-author Tim Boyes-Watson, Global Director at Humentum, funders often think that low overheads are a sign of efficiency. However, Boyes-Watson voiced “keeping overheads low is not a sign of efficiency at all” and that it is “a sign of risk.” Because of the chronic lack of funding, two-thirds of organizations surveyed struggled to recruit and maintain core staff. Inadequate cost coverage means that key organizational functions are under-resourced, such as the staff and processes needed to prevent sexual exploitation and safeguard affected populations. Therefore, instead of mitigating risk, donor refusal to fully fund nonprofits creates risk that is not “in the funders’ interest, [is] not in the NGO’s interest, and [is] certainly not in communities’ and people affected by crises’ interest.”

The Ford Foundation is one funder working to end the starvation cycle among its grantees. Through its BUILD initiative, Ford has increased the general or core support funding percentage from 26% in 2015 to 81% in 2021. The BUILD initiative also extends grant lifecycles by making five-year commitments of majority unrestricted support. The result is that organizations can execute their missions better, are more financially sustainable, and can compensate and support their staff. However, as the report’s findings reveal, this is not common practice across funders.

According to Reich, private donors are often more willing to cover overhead costs and provide unrestricted funding than bilateral funders, who are often responsible to legislative bodies and taxpayers. The challenges of Covid-19, however, signaled to many US funders that they should re-think their funding practices. This represents a huge opportunity to encourage US funders to commit to consistently covering administrative costs, providing full and unrestricted funding, and helping strengthen grantee financial management.

Standing up to funders

While attitudes towards funding are shifting in the US, funders from other parts of the globe are still reluctant to change their practices. While changing funder attitudes and practices is crucial to securing systemic change, Aidan Eyakuze encouraged local and national organizations to stand up to donors in the meantime. Unsurprisingly, due to the large power imbalances between funders and grantees, smaller NGOs “have tended to be quite timid about asking for this…kind of funding that will make [them] more resilient.” While donors are responsible for altering their practices, NGOs can work to shift their messaging. Twaweza, for example, was “intentional about crafting a strategy that is holistic, compelling, meaningful” to funding partners.

Eyakuze encouraged NGOs to “tell funders what they want to do over the next five years” and explain that their vision should be funded as a “complete package.” This can be difficult to do in the face of decades of systemic underfunding. Still, small NGOs must recognize the value of their experience navigating complex contexts and innovating along the way. NGOs bring a lot of value to the table with their ideas, and it is vital that donors not just recognize this value but support it financially.

The report and the discussion that followed highlighted the need for a fundamental shift in how funders view their relationships with their grantees. Concepts like Value for Money are over-emphasized, and funders sacrifice the Value of Ideas in favor of simplistic measures of financial efficiency and the top-down power dynamics that come with financial control, such as approving project budgets. It is time for the sector to move away from outdated and ineffective funding methods and embrace a new system of mutual accountability, where funding partnerships are more long-term  and equitable. In Reich’s words, this is possible if funders recognize that “influence is also power, a strong base of committed constituents is power, ideas are power, solutions are power, creativity is power,” and “NGOs have all of those things.” As Eyakuze concluded, funders can only unlock the Value of Ideas when they stop over-emphasizing Value for Money.

 

When it comes to finances, Humentum goes beyond short-term solutions to help organizations develop a sustainable financing strategy that aligns with your strategic goals and aims to end the grantee “starvation cycle.” Join our next Planning for Financial Sustainability online course to achieve financial sustainability while you, or your partners, meet your mission and objectives now and in the future. We also provide this course as an In-house offering and can train your team or organization at once, learn more here.