Today I stumbled across a great blog post (you can find the original blog post here) about the problem with restricted funding by donor agencies.
Today, I want to talk about unrestricted funding. A couple of weeks ago, Paul Shoemaker published this piece speaking against what he calls “Quite Damaging Dollars” (QDD), funds that come with burdensome restrictions and are not just unhelpful, but actually detrimental to nonprofits’ work.
Now this issue is actually something I was talking to a new friend at a few weeks ago at a party. We both expressed happiness about the great work that certain organizations are trying to do, but frustration about how inflexible some funders seem to be. For those readers who are not in the development sector, many NGOs get large portions of their money from foundations, governments, and other funders who can place certain restrictions (such as which contractors NGOs can use, which projects the money can be for, etc.). Although the goals are good (to increase transparency and fund great work), the outcome is a huge increase in the complexity of accounting and reporting for the NGOs.
Restricted funding also can sometimes be found with strict project guidelines. This means a large funder might say “Okay, go do this education/healthcare/income-generating project for X group of people, in Y location, but your methods must be exactly those written here.” The NGO and funder both agree that this is a good strategy and off the NGO goes off to carry this out. However, after a few months they realize it is not working and ask the funder if they can change some things to make it more effective. Inflexible funders will say “No, we agreed, you must do what is stated.” The NGO then has to complete the work, even though they know the impact won’t be as positive as it could be. The funder will often also ask for a report at the end, and if the report isn’t positive the NGO risks not getting more funding, and thus has an incentive to lie in the report – making it seem more positive than in actuality… a vicious circle.
He goes on to mention how tricky it is for organizations to go through all of the different restrictions placed on them by different projects and different donors. He mentions that only the largest NGOs have the time and resources to figure out how to finance everything, and how this disproportionately affects small organizations. The small organizations therefore spend time and money managing all the different funders, instead of doing their great work.
His blog mentions a great little scenario called the Baker’s Dilemma.
Basically, a group of five siblings want to pool their money together to buy a cake for their parents’ anniversary party, but each has restrictions on what his or her money can be spent on. John will pay up to $7, but his money cannot be used for eggs or electricity, and it will pay for no more than 1 stick of butter. Steven will contribute up to $5, and will pay for anything except flour, but only if another person contributes an equal amount. Sue will pay up to $5, but her money can only be used to buy eggs, sugar, or butter, but not the full amount of either. Etc. Your group, the pastry shop, has to figure out how much each sibling is paying for which ingredient of the cake.
He gave this scenario to a group of funders at a conference to try to figure out – and obviously they became very stressed and aggravated. It really helped them to understand the difficulty organizations face when trying to deal with only restricted funds. If you want, you can sit down and try to figure out the Baker’s Dilemma for yourself. Or try it at your next board meeting…
So if you’re a funder, and you think an organization is doing great work, sit down with them and figure out a plan for what they need to keep doing great work, instead of just giving some money with restrictions in place. It will be better for both of you.
I would totally recommend checking out this blog… It’s great to have people being honest about development, aid, and NGOs.