Opinion: Is philanthropy like MacKenzie Scott's changing aid delivery?

When philanthropist MacKenzie Scott announced she was giving over $2.7 billion to 286 organizations supporting the arts, racial and social justice, and other causes, the donation was inevitably going to make headlines.

Those of us in the aid community, however, were less interested in the amount that the former wife of Amazon founder Jeff Bezos gave away — this was, after all, her third major donation in less than a year — than how she did so.

Scott made all her funding unrestricted, which means that recipient organizations can essentially do what they want with it. With the average donation per organization coming to just under $10 million, that equals a lot of freedom.

Our experience as both donors and recipients has made us firm supporters of unrestricted funding over direct grants for specific projects. But too much aid, especially that given by major governmental donors, is still delivered as restricted funds.

Unrestricted funding encourages charities to compete for funds on the basis of their strategy, leadership, and impact, rather than their ability to say what a donor wants to hear in an application or to dream up an unnecessary project that meets a donor’s narrow concept of what is needed. It means money is allocated to where it’s required most and can be redirected if the situation on the ground changes. Unrestricted grants also reduce the time and cost of auditing and fundraising.

Such grants appear to be more popular with charities, too. In 2019, an unscientific but illustrative Twitter poll carried out among fundraising executives at charities showed that they would prefer to receive a $50,000 unrestricted grant than a $100,000 project grant by a 2-1 ratio.

Funders overwhelmingly prefer restricted funding because they want to avoid adding to charities’ reserves and make sure more money is spent on the “front lines” than on overhead. In our view, this exposes a lack of trust in charities to make good decisions and a tendency to want to quickly receive the credit that funders feel their generosity deserves.

The fixation on low overhead can represent a false economy, condemning charities to underfunding administration and preventing the professionalization of human resources, finance, audit, and other departments that are key to driving success. As we have sadly seen in recent crises at even large charities, dysfunctional internal structures can undermine the impact that donors are seeking to achieve.

While unrestricted funding gives organizations more freedom to operate on their own terms, some funders still require accountability for their dollars and not just for the success of organizations overall. When making large grants within any particular country, a donor may want to create a structure that encourages a coordinated approach. This is where outcomes-based funding comes in.

Outcomes-based funding renders the familiar restricted-versus-unrestricted debate largely redundant. It simply means making decisions about what to fund based on results and outcomes to a large extent, rather than on the process or inputs of a project or the activities or materials produced during a program.

It focuses on what a program achieves and not just what it says it is going to achieve. When designed well, outcomes-based funding means charities doing the work on the ground retain operational flexibility while receiving a free external evaluation of their impact.

Imagine a program to improve education for girls at primary schools in a deprived region or country. What matters most is how many girls then go on to attend secondary school, not simply how many workshops were delivered or books purchased during the course of the program.

Or take an educational technology job training program. It might look great, with lots of courses ticking all the funder’s boxes, but how many students went on to find a job in the appropriate field? Was their learning effective?

For example, the Quality Education India Development Impact Bond was set up in 2018 to improve literacy and numeracy outcomes for more than 200,000 primary school children in India over four years. It includes “training for teachers, leadership programmes for school principals, standalone schools in poverty-stricken areas, and technology-based learning solutions.” What it has shown is that partnerships and funding based on trust are key to success.

We need to give charities and service providers the space to act while holding them firmly accountable for the results, with world-beating monitoring and evaluation at the conclusion of a project rather than restricting them from day one by checking their work every step of the way.

This approach lets local governments, as well as organizations such as the U.S. Agency for International Development and the U.K. Foreign, Commonwealth & Development Office, create clear goals for their programming and allows for readjustment along the way if a project heads off target.

This coordination at the start increases the likelihood of sustainable local financing for the best programs over the long run. When done well, outcomes-based funding sets up a marketplace for results and creates projects with multiple stakeholders aligned around common objectives, enabling creative solutions to long-standing problems to emerge.

Importantly, it also allows the funders inclined to award restricted grants because of domestic politics — open-ended support often plays badly with sections of the media — to demonstrate results to taxpayers.

Outcomes-based funding is growing in popularity — but not fast enough. That needs to change quickly. It will yield more effective results while also helping to deliver the holy grail of results at scale.

With Scott and others now providing unrestricted funding, it’s time for “Big Aid” to follow suit and shift to outcomes-based funding. Let's see those nightmarish restricted grants relegated to their place in the history of aid.