For many civil society organisations (CSOs), due diligence is associated with funder risk mitigation and a heavy compliance burden to receive funding. However, there is a growing awareness in the sector about unequal power dynamics, which are rooted in legacies of racism and colonialism, impacting funding relationships. This has led many to rethink risk and due diligence practices.
The sector’s emphasis on compliance and risk mitigation is increasingly seen as imposing external standards and controls on local organisations, undermining their autonomy and reinforcing unequal power dynamics. While risk management and compliance are still important to funders, these concerns must be navigated with humility, cultural sensitivity, and a genuine commitment to locally-led development.
In Humentum’s Operationalizing Locally-Led Development webinar on “Models to Transform Risk and Compliance,” we had the opportunity to represent TechSoup and Kenya Community Development Foundation (KCDF) and engage in a conversation about what reframing risk to support CSOs can look like in practice.
Reframing Risk:
Risk is often seen as something to be avoided, but it can also present opportunities for growth and learning. Embracing this perspective allows funders to support organisational development and proactively strengthen the CSOs they fund. Implementing strong risk and compliance practices can build trust and legitimacy for CSOs and the sector as a whole. Such practices offer reassurance to funders, stakeholders, and the communities they serve, demonstrating the organisation’s commitment to operating with integrity, accountability, and responsible management of resources.
For example, implementing robust financial controls, transparency measures, and ethical guidelines can demonstrate CSOs’ commitment to good governance. Conversely, neglecting effective risk and compliance practices may expose CSOs to financial mismanagement, corruption, or reputational risks. This in turn can undermine trust and jeopardise their long-term sustainability.
Introducing STEP: A risk management approach that supports CSOs
Many people feel deeply uncomfortable with the language around risk and compliance. As a result, they resist any form of standardised approach for concern of imposing external standards and structures. This is understandable, given the vast diversity of CSOs. Indeed, many attempts at issuing a standardised approach have negatively impacted smaller, grassroots organisations central to many locally-led development commitments.
While we understand these concerns, we believe a standardised, nuanced, and transparent approach to risk management can support the organisational development of local organisations. TechSoup’s STEP service aims to do just that. STEP is a tiered due diligence framework that assesses CSOs across multiple compliance streams. It identifies strengths and growth opportunities to meet the required standards among most institutional funders. Instead of a pass/fail due diligence, it examines an organisation across a more nuanced risk management spectrum. Our aim is to work closely with organisational development experts to ensure that CSOs going through the due diligence process feel that their local culture, laws, and sector norms are understood, respected, and represented.
KCDF: A Crucial Partner for STEP
Kenya Community Development Foundation (KCDF) has been a key partner in developing STEP. With years of experience partnering with grassroots organisations, KCDF developed its Participatory Organisation Capacity Assessment (POCA). This allows an organisation to evaluate themselves on a range of organisational capacity areas and functions. Crucially, KCDF ensures that the assessment will not affect funding decisions. This process fosters open conversations and a more horizontal power dynamic. From the POCA assessment, KCDF works with CSOs to develop an Institutional Strengthening Plan, which highlights all areas of risk as well as capacity growth areas to be worked on jointly.
Besides their role as evaluators for STEP, KCDF aims to explore the integration of its frameworks to ‘passport’ Kenyan CSOs who have already been through a POCA or vice versa. They also plan to build on KCDF’s insights and expertise to benefit CSOs outside the country.
STEP’s Impact:
Through the partnership between TechSoup and KCDF, STEP aims to reduce the time and costs imposed on CSOs through duplicative due diligence assessments for CSOs to reduce time and costs imposed. STEP also helps CSOs increase their visibility and democratise funding, especially for those who typically do not receive support from international donors. We also believe it has the potential to break down barriers between different types of funders, such as philanthropic organisations, government funding agencies, and international NGOs, who have their own expectations based on their respective mandates and funding models. By using a standardised reporting format, CSOs can provide comprehensive information that meets the requirements of various funders. It will also foster transparency, understanding, and collaboration among funders and promote more effective resource allocation for organisations striving for sustainable impact.
However, the STEP process does not solely benefit funders, however (a complaint we have often heard from civil society). CSOs own their data and evaluation reports, and we will not share any information with a third party without their consent. From the feedback we have received, we know that the evaluation process and reports offer real value to organisations, helping them gain a more comprehensive view to develop action plans based on their priorities, not those of their funders.
STEP also supports CSOs through its pilot ‘Resource Portal’, which sources a wide range of existing resources (templates, online courses, manuals, written guidance, videos etc.). These resources help CSOs improve their systems and policies based on the results of their STEP evaluation. The Resource Portal also acts as a community where CSOs, funders, and other subject experts can come together to share their perspectives and experiences on risk management, compliance expectations, pain points, and areas for future innovation.
Looking to the future of risk management
STEP’s final game-changing promise is its repository, inspired by TechSoup’s NGOsource service. This year marks NGOsource’s 10th anniversary, and it has revolutionised how equivalency determinations are conducted for US private foundations. It has served US private foundations’ needs while reducing friction and fragmentation for funding seekers. With the STEP repository, CSOs will have access to a platform that connects them with a network of international funders who trust the program’s rigorous due diligence process. This will make local organisations more visible and credible, levelling the playing field, make funding opportunities fairer. Ultimately, it will empower locally-led development initiatives.
Rather than burdening CSOs, we believe we can break down barriers with funders by collaborating with a global network of civil society experts and support organisations. While funders have typically controlled decision-making and the flow of information, STEP can enable more equitable partnerships where funders and local organisations work together. Doing so can foster true collaboration, enabling CSOs to articulate their priorities and drive their own development goals.
Interested in continuing the conversation? Join our Advocacy group on LinkedIn to connect with fellow peers on sector issues. Or register for one of our upcoming Operationalizing Locally-led Development webinars. See you there!
As a nonprofit or non-governmental organization, funder, or civil society CSO, do you have a structured, holistic approach to risk management? Humentum can help your team develop a defined and structured approach to risk management.