A version of this blog was originally published on LinkedIn.

I was in Uganda recently and met a growing faith-based NGO working across Uganda, which was scaling up its work on the northern border as part of the response to over 1 million refugees from South Sudan. They argued that to help refugees effectively that they needed to have the full involvement and support of the Ugandan communities that were hosting them. Therefore, they were working with local churches to promote the need to include and show compassion to refugees in community life, as well as organising the congregations to help in aid distribution. UNHCR had been impressed by their work and therefore asked them to apply directly for funding. But the NGO failed UNHCR’s due diligence tests because they did not have the basic capacity in areas like financial management and operational procedures. This leaves the NGO caught in a trap, with insufficient capacity to move to the next level of funding and scale, and no funding or support to build their capacity either.

In 2015, only 0.2% of the of the $25 billion spent on humanitarian assistance went directly to local NGOs. That is the stark reality of the existing humanitarian system which has led to growing calls for localisation. Localisation was the main driver for Mango, Humentum and LINGOs to join forces and create Humentum. A key aim of our strategy will be to try and shift more power and resources to those best placed to address the social and environmental problems the world faces.

This blog is structured in three parts. The first section looks at why localisation is important and why it is lack of trust rather than simply resources that we need to address. The second section explores whether a limited and divided world-view is trapping us in a zero-sum power struggle over resources and further undermining trust, when we should be adopting more holistic and inclusive approaches. Finally, I explore how Humentum is embracing disruption of our own business model as we seek to encourage localisation and build a trusted and thriving social sector.

An Issue of Trust

So why is such a small share of resources reaching national NGOs and other local actors? It’s certainly not because of evidence about effectiveness. Evaluation after evaluation has argued the case that local actors are usually both more effective and cost-effective in addressing local needs. Working through local actors is more sustainable provided they can maintain their capacity after the immediate crisis and continue to maintain communities’ preparedness and resilience. It’s true that there can be challenges to achieving the humanitarian principle of neutrality when working with local actors in conflict zones. However, achieving neutrality has also been difficult for INGOs due to barriers to humanitarian access. Even if neutrality can be achieved by INGOs in practice, there may still be problems if INGOs are associated with governmental or other funders, who have an overt or covert role in the conflict.

So if the lack of money reaching national NGOs is not related to effectiveness, why is it happening? I’ve argued previously in the lead up to the World Humanitarian Summit that this is primarily an issue of trust.

Many funders, whether private individuals or large institutional donors, fear that their money will be lost to fraud and corruption. There is good justification for these fears especially when working in fragile states. However, I have yet to see a convincing study that shows that international organisations are any better at avoiding fraud and corruption, than those organisations who have been finding their own way of navigating it for years. The Anti-Bribery Principles and Guidance for NGOs that we developed with Transparency International and a group of INGOs, highlights that setting up a new humanitarian operation was likely to be more vulnerable than an established operation.

There are also legitimate concerns about aid diversion to combatants or terrorist groups. This is best prevented through due diligence and ongoing monitoring and evaluation involving the community concerned. It is again unlikely to be done any better by INGOs, especially when their access to communities is more constrained than local organisations.

Is the lack of trust therefore because local actors are simply further away and their trustworthiness is therefore less visible or recognisable? We believe what is needed is a badge of quality that is internationally recognised and will build trust. Mango and Humentum have been working for the last few years in a partnership with the African Academy of Sciences and a group of international funders to create the first international standard in due diligence for grant-makers. This is called the Good Financial Grant Practice Standard. A participative development process which started with national organisations from across Africa designing the scope of the standard has now led to the creation of pan-African standard. This standard can be applied globally, and could then be adopted as an ISO standard. Funders have been involved to ensure that the criteria and certification process will meet the majority of funder requirements. A free online self-assessment tool is in development and the standard is now being piloted across Africa, while being scrutinised and approved through the many national committees of the Africa Research and Standards Organisation.

Even when funders or NGOs trust local organisations enough to fund them, the lack of trust affects how they fund them. Only a tiny fraction of the funding provided is allowed to be spent on organisations vital core capabilities, which funders call “overheads”. And this isn’t just about institutional funders avoiding overheads, INGOs do it too. The excellent report that the START network recently published on localisation seemed somewhat embarrassed to admit that the 10% management fee charged by their members who are the prime recipients was hardly ever passed on as part of sub-grants.

You would be forgiven for thinking that overheads are some sort of code-word for fraud and corruption, given how funders seek to avoid them. When really it should be the opposite. Oliver May, the previous head of counter fraud at Oxfam and former police officer, has written a great book about fraud in the NGO sector. He argues that the lack of funding for core capabilities, or “overheads”, is a major cause of why fraud goes undetected.

That’s why as well as advocating to bridge the trust gap through simplified and harmonised due diligence, Humentum continues to advocate for fair cost recovery. I’m sad to report that after of four years joint advocacy by Mango and Bond, DFID has not yet implemented a practical method for allowing fair cost recovery. Our research has shown that it is small organisations and sub-recipients that suffer the most from DFID and other donors’ reluctance to fully fund indirect costs. Therefore, the organisations that are probably most trapped in what Bridgespan described as the “starvation cycle” – are national NGOs. The humanitarian funding system is very concentrated, with almost all funding flowing though just 4 donors who mainly cap so-called “overheads” at 7%. That funding system is therefore very unlikely to maintain, let alone develop, the core capabilities of smaller national organisations.

The absence of trust doesn’t just affect the funding available for national organisations. It affects the kind of capacity development the system provides as well. NEAR, the new network of southern-based NGOs, has argued that the capacity development being provided is often not what organisations need. NEAR argues that training and support is mostly focused on the funder’s needs, rather than on their core organisational capabilities like finance and people management. The Keystone Accountability Partnerships Survey has indicated that too much of capacity building is supply rather than demand driven.

So localisation is important if you want to improve effectiveness and sustainability. Therefore Humentum, like many others and the growing coalition behind Charter for Change, welcomes the aspiration behind the 25% target for direct funding of local actors by 2020 that was made at the World Humanitarian Summit. However, that target will never be reached unless we address the issue of trust and the negative implications that the lack of trust has on the core capabilities of national organisations.

The Zero-Sum World View

The 25% localisation target reveals a worldview which is probably part of the problem rather than part of the solution. This is a world view which involves funders in the global North peering through a telescope in order to better target their funding in the global South. Distressed at how little money reaches those working at the point of greatest need, they turn around the telescope and try and use it like some giant money funnel. Funders look for simplistic, mechanistic solutions to getting more money further down the pipe.

One problem with this worldview is that it limits the funding being considered to only the money already in the humanitarian system. It therefore sets up as zero-sum struggle for those resources between the funders, their intermediaries and local actors. This zero-sum struggle is being played out in the definition and redefinition of how the 25% target will be measured. And so “directly” has been replaced by “as directly as possible”, which is now being interpreted as “no more than one intermediary between original donor and actual aid provider.”

This tug-of-war is likely to undermine trust further rather than address it positively.

Instead we need to somehow turn the telescope into more of a kaleidoscope. Our telescopic view of the world emphasises divides: south vs north; local vs international; development vs humanitarian; public money vs private money. A kaleidoscopic view involves being more inclusive and holistic. The solutions and money to address the problems we face could come from anywhere in the world and from any sector: public, private or civil society. Those solutions will be more effective and sustainable if they are developed inclusively. We have to stop doing things “to” people or “for” people but “with” people. Nothing about us without us.

This is behind Humentum’s change of focus from working only with NGOs, to working with any individual or organisation working for social good. We will continue our historic focus on strengthening the core capabilities of individuals and organisations that are still undervalued in our current funding system. And we will showcase how these core capabilities drive operational excellence, which increases both trust and impact.

Embracing Disruption

At Humentum, we believe disruption will play a role in localisation. Clayton Christensen defined the concept of “disruptive innovation” in the 1990s, where dominant product or service providers could be unseated in the market by smaller rivals who offered solutions more simply or at less cost.

The concentration of power and resources within the humanitarian system suggests it is ripe for the sort of disruption that publishing, hotels and other industries have experienced.   Innovations such as mobile money and blockchain may mean that local NGOs can disintermediate INGOs and access much more funding directly. However, if we don’t embrace a more inclusive and holistic world view and address the issue of trust, it seems unlikely that that disruption will lead to lasting positive change. It is unclear whether technological disruptions in industries like transportation and publishing have led to a real reversion or rebalancing of unequal power dynamics between stakeholders in those industries.

However, that does not mean INGOs should resist the disruption that is affecting us. Rather it means we need to engage as effectively as we can to apply our values so that disruption does lead to more beneficial social outcomes. Humentum will actively seek to disrupt even our own business model, finding and nurturing local capacity development providers who will compete with and replace us in local contexts. This will need us to work to change the top-down nature of the current funding system, which determines what national organisations should learn and who from. We need to move away from this supply-driven market to one where national organisations have the agency and funds they need to purchase their own capacity development locally.

As Humentum disrupts its own business model, we will counter the growth dynamic, which has become such a powerful proxy for success in the INGO sector. We will instead try and use a combination of networks, technology and partnerships to scale our reach and impact, without scaling our organisational footprint.

In conclusion, funders and INGOs need to work much harder to shift more power and resources to those best placed to address the social and environmental problems the world faces. This requires addressing the systemic and structural reasons for inequalities in power and resources in our own sector, as we also seek to address these in the wider world. We have to build trust both in NGOs and between all actors in the system. We have to be more inclusive and holistic when working with people and organisations to address their needs. We will need to be open and adapt to disruption while seeking to use our values and diverse relationships to help these bring about positive change. That is what Humentum believes it will take if we are to have the sort of thriving social sector needed for a just and sustainable world. I would love to hear your views on these issues – so please comment and continue the conversation.