The case for more unrestricted funding

Private giving to international causes went down in 2014. Despite raising $16.2 billion in 2014, the nonprofit sector in the United States saw a drop in giving for causes related to international affairs, according to the 2014 Charitable Giving Report. This was because there were no major disasters and high-profile fundraising events that year, according to the report. In the same year, individual donations from the U.K. public totaled 10.6 billion pounds ($16.4 billion), according to the Charities Aid Foundation’s latest private giving survey. Overseas giving ranked fourth in the list of causes individuals donated to that year — behind medical research, children’s interests, hospitals and animal welfare. The U.K.-based charity recalibrated data in this year’s report to take the change in methodology into consideration. Previous surveys were done three times in a year; the 2014 surveys ran four times that year. Based on recalibrated data that has not been adjusted for inflation, donations from the U.K. public dropped nearly 2 percent from 2013’s 10.8 billion pounds total. But that’s not the only change in this year’s report, as CAF also included one valuable piece of information: What keeps the U.K. public from giving to charity? The survey points to two main reasons. Seventy percent of respondents said they would probably give more if they know how their donations are directly helping the intended beneficiaries. Meanwhile, 68 percent said deciding who among the many charities to donate to has made giving difficult. Why should charities and nonprofits with access to funding from large agencies such as the U.K. Department for International Development be concerned? The importance of private donations Securing funding from DfID and other donor agencies is a lengthy process that involves a lot of work and negotiations. In addition, funding from these institutions is often earmarked for a certain purpose or program, or what is referred to as restricted funding. Further, in the U.K., the only funding mechanism where international nongovernmental organizations can access unrestricted funding is under review. Although DfID has extended its Program Partnership Arrangement to 2016 while the review is underway, only those that were able to win funding from the 2011-2014 round can benefit from the extension. And even then, DfID strategic funding accounts for just a portion of international NGOs’ unrestricted funds, based on a Devex comparison of four of the U.K. aid agency’s top partners and their overall unrestricted funding for the past four years. Of the four NGOs we analyzed, Sightsavers relies the heaviest on restricted funding — unrestricted funds accounted for just 15 percent of its 2013 budget. Becki Jupp, the charity’s director of individual giving, and Anna Massey, director of operations, told Devex that securing unrestricted funding “have so far been quite limited for our areas of work.” Sightsavers specializes in tackling medical conditions that can lead to blindness, such as cataracts and neglected tropical diseases like trachoma, but also works to ensure the rights of people with visual impairment and other people with disabilities. Unrestricted funding accounts for a larger share of Plan U.K.’s budget, but the DfID strategic grant covers only a small portion of this. For the year ending June 2014 for example, only 12.5 percent of its 32.7 million pounds in unrestricted funds came from the donor aid agency. And while Christian Aid’s 2013 budget increased 8.5 percent, its unrestricted funding dropped 4.2 percent, according to its latest available annual report. The significance of unrestricted funds Why is it important to grow unrestricted funds? As the very name suggests, unrestricted funding allows organizations flexibility in how they use the money. They can use it to cover overhead costs or test out an idea or concept, or invest in areas such as monitoring and evaluation, which is increasingly becoming a key metric of how donors measure value for money. Unrestricted funds also allow nonprofits to take risks, which are needed in development work, but often difficult to do because of the strings attached to development funds. “Probably one of the really smart things about strategic funding is we can be a little risky, maybe take on some initiatives and kind of test and learn and see if they work or not,” Dominic Brain, head of program funding at Christian Aid, told Devex. “It’s kind of [a] Silicon Valley approach. You try something, it doesn’t work, and everyone is quite happy because they know it’s how you get success and you learn. But often in development, that’s considered a bit of a failure.” Brain shared a number of instances when Christian Aid was able to flexibly use its unearmarked funding, or take part of it to expand a program and in turn create a bigger impact. In 2011, in the Democratic Republic of the Congo, the charity was supporting a community resilience project across three townships between North and South Kivu. Its local partner, the Central Africa Baptist Community, helped provide alternative crops to communities too dependent on a limited number of crops for their livelihood. But in 2012, the towns became mired in conflict and violence, and crop thefts and sexual attacks became widespread. This prompted the charity, its partner and the communities to change priorities, and in 2013, set up advocacy groups to address increasing violence and insecurity. The advocacy work paid off; the U.N Stabilization Mission in DRC granted the communities’ request to extend its patrols to the town of Kalungu, for example. In Bweremana, meanwhile, strong advocacy led to the national government relocating soldiers and surrendered combatants away from the town in 2014. In another example, the charity was able to expand its HIV-specific programming in a number of countries in sub-Saharan Africa and take on a wider health approach, such as ensuring the provision of quality health services to pregnant women — a feat the charity admitted would not have been possible without strategic funding from DfID. Its funding for its HIV work largely came from restricted funds. Christian Aid did not have an established track record in wider health programming, which made it difficult for the NGO to win funding for this type of work. Donors with which it has good relations with and are familiar with its work meanwhile fund mostly HIV-related interventions. “In theory, we could have used core income to maintain some capability and build up programming in health. However, in a highly challenging voluntary fundraising context, with no growth in donations, this would have meant taking the money from work that was currently core funded. By its nature, much of this work is harder to fund from restricted income (e.g., advocacy, human rights), so removing core funds would mean exiting from these priorities,” the charity explained in a document sent to Devex. Each year, Christian Aid dedicates 1.5 million pounds from its PPA funds to expand its health programming in six African countries. Even with just the small investment, the organization has been able to provide 5.8 million people with preventive health interventions, such as maternity services, and counseling, testing and treatment for HIV, tuberculosis and malaria. The key to unlocking restricted funding In 2014, VSO ventured into new territory. It opened its first office in Myanmar and conducted a needs assessment to understand how it can contribute to the once secluded nation — all using DfID PPA funding. Through the assessment, the organization found it could help train teachers across the country, which in turn would help improve the quality of education in Myanmar. And in the event, it was able to secure restricted funding for the program. “It was a good example of how unrestricted income provided us the flexibility to move and go and test a thesis, prove a concept or at least demonstrate the need, and then build the restricted funding, which is more conservative and risk averse,” VSO fundraising head Mark Rowland told Devex. Sightsavers, for its part, was able to begin interventions tackling neglected tropical diseases, invest in research capacity that allowed it to play an intermediary role between academic institutions from the north and south, and set up an innovation fund to support new partners in finding solutions to areas that aren’t often popularly tackled in development, such as the inclusion of people with disabilities in disaster mitigation projects. The downside of unrestricted funding But having significant unrestricted funding can lead to less financial discipline and limit creativity — at least that’s what VSO has experienced, which it now hopes to change. Unlike most NGOs, VSO has been receiving huge sums of unrestricted funding from the U.K. aid agency for years — a privilege that traces back to the organization’s founding. At one point, Rowland said 90 percent of VSO’s income came from government’s official development assistance. This allowed the organization to have the freedom to move and innovate, and send volunteers abroad. Recently, however, VSO realized the setup was curtailing innovation and hurting its ability to fundraise. “When other organizations were developing those functions, all the way through the ‘90s when fundraising became a lot more sophisticated and a lot more professional, VSO didn’t adapt as much as others — because it didn’t have to,” he said. “It was like a child in a sweet shop that had all the sweets provided for him.” VSO has since gone to work on diversifying its funding sources. Over the past four years, it was able to recruit over 40,000 new regular donors “who don’t give 22 million pounds, but they [each] give 120 pounds a year, or 10 pounds a month.” This is a more stable funding model, and has the added benefit of gaining ambassadors who can advocate on VSO’s behalf. But Rowland admits efforts to diversify funding are not moving “fast enough.” While DfID funding has gone down in recent years, it is “still very important to us.” The tough fundraising event Fundraising experts Devex spoke to all agree that the fundraising market has gotten more competitive, and while recruiting donors is already a challenge, retaining them and ensuring they stay for the long term — not one, three or five months — are bigger tasks. “We want them to stay with us for five, 10 years, and that in the end they get so inspired by the work of VSO that they are willing to put VSO in their will when they pass away,” Rowland said. And that’s not such a far-fetched goal: Just last week, VSO received a gift worth 130,000 pounds from a longtime supporter who recently died. “That gift in death is far greater than the sum total of all her gifts [since 1985] while she was alive. It was a testament to the fact the she believed so much in VSO, and that her relationship with [us] has really been an important part of her life,” he said. But getting to that level of relationship isn’t easy, and may get more difficult. In an interim report, the U.K. Fundraising Standards Board called for a review of the Code of Fundraising Practice in the country. The move was sparked by complaints the board received since May, following the death of an elderly British woman, who was reported to have committed suicide after being overwhelmed by charity solicitations. Although her family eventually debunked those reports, they created such a big uproar in the country that Prime Minister David Cameron himself called for an investigation. Letters of complaints flooded the FRSB soon after, noting grievances such as the frequency of charity communications and concerns over how contact information is shared among charities. Now FSRB is calling for a revision of the code that would include, among other things, limiting the frequency of charity approaches for donations per year, removing wording that allows charities to use “reasonable persuasion,” and preventing charities from doing cold calls. Rowland said VSO supports the move to ensure people are not harassed or exploited, but hopes the review won’t cultivate an environment where asking people for donations would be prohibited and generosity would be discouraged. “We can’t close that space too much … The U.K. is [among] the most generous countries in the world in terms of the average number of people giving to charity. But part of the reason for that is because of the success fundraisers have had in putting propositions to people,” he said. “What I always tell my team is that the most important and the most cited reason why people give is because somebody bothered to ask them. It’s not a rational selection very often of exactly which cause and which organization. It’s very often about someone hearing something, being moved and giving.” Check out more insights and analysis for global development leaders like you, and sign up as an Executive Member to receive the information you need for your organization to thrive.