Additional Concerns about Unrestricted Funding

Here are two other concerns that were passed on to us:

(1) Because most donors do not proactively ask for the full set of the NGOs accounts, they are unlikely to be able to identify duplicate allocations. We need to make sure that donors understand this problem and ask for the information. But because they probably do not have enough time to look over many records, either we will have to do it to provide assurance or train them how to do so. Ideally, we would like them to do it because it fosters a closer and more involved relationship, but practically, I don’t think it will happen until further into the relationship.

2) NGOs sometimes fail to utilize their funds at all if they are not tied to a specific project. For example, when NGOs raise money through fundraising efforts that yield unrestricted funds (like from marathon sponsorship), they often hold on to that money in a corpus account or try to spread it over the course of the year. While it may be necessary in certain cases, we do want to encourage funds to be used and not sat upon. There is always a chance of misuse or underuse when funds sit for a while.

Concerns about Unrestricted Funding

Another concern that we have heard several times is that unrestricted funds often lead to misuse, especially duplicate allocations (where more than one donor is given reports of the same project). We have heard stories of where this has happened with some of the most reputed large NGOs.

In its most innocent form, it is done so that funds earmarked for one project are used temporarily for another and later when additional funds come in, they original project will be completed. This happens most often when an NGO has definite income coming to it, but because of some problem with a project, is forced to scramble a little. The more serious form is outright fraud.

We do not approve of either of these forms. What we want is open discussion and some element of unrestricted funding that allows for discussion as to what needs to done to solve social problems with flexibility to cope with problems that pop up.

Like we mentioned in our last post, we are seeing a strong tension between unrestricted funds and honest usage and reporting. Based on what we are hearing, at least initially, there will have to be some form of restriction.

Intermediaries’ Complaints about NGOs

Having had discussions with intermediary people and organizations (that is, groups like CMI) who have overseen many donor-NGO projects in India first-hand in the last 1o years, it is clear that their overall impression is that many Indian NGOs do not respect the freedom that comes with unrestricted money. The most common complaint is that many NGOs are not proactive in engaging donors and do not communicate to donors the challenges that the organization will or could face. They also complain that there is little to no meaningful stakeholder dialogue on an ongoing basis. As a result of these failures, the intermediaries say that they have often seen that even when NGOs receive money they do not take reporting seriously unless future disbursements are linked to reports. Without some sort of punishment, they fear that NGOS just won’t report honestly and complete and will not develop an honest relationship with their donors.

Based on this fear we are rethinking what it exactly means to get unrestricted funds. If we take these fears seriously, then purely unrestricted funds are unlikely to work or encourage the type of interactions and dynamics that we would like to see.

Our current thinking is that there will have to be strict timelines and reporting obligations, all of which are clearly outlined in a MOU signed by the NGO and donor and use an intermediary (like Give) to facilitate some of the exchanges.

The key will be doing so while giving the flexibility to use funds as may be needed. Clear project guidelines with clear timelines are easier to monitor but they handcuff the NGO and we believe are not the best for meaningful, sustainable development. While we would ideally encourage active donor-NGO engagement so that the donor takes up some of the monitoring and the NGO is responsible for frequent reporting, it is impractical because the donor is unlikely to have the time. Therefore, it is likely that initially the funding will have to be loosely restricted and as trust builds, the funding will become more unrestricted.

Fundraising Information

The Showcase of Fundraising Innovation and Inspiration website has some interesting information on various fundraising campaigns and other interesting fundraising information.

http://www.sofii.org/

Excellent Article on the Third Sector in India

I would like to recommend an excellent article on the third sector in India that discusses and helps to explain some to the unique challenges that such organizations face in India and how they are different from other countries, especially those in the West.

The Problematic of Third Sector and Civil Society in India: Some Reflections, Sreedhara T.N. and Rajarama Tolpady, Journal of Karnataka Studies, Vol. 2, No. 3 & Vol. 3, No. 1, May2005-April 2006, pp. 19-59.

Indian Tax Law Issues

One thing that I am noticing that will be a bit tricky is the tax exemption that donors will get for their donations. Under Indian law, the exemption is generally under either Section 80(G) or Section35AC. Donations under 80(G) are entitled to a 50% exemption (plus possible an additional amount that can amount to approximately 10% or so). Donations under 35AC are entitled to a 100% exemption.

From speaking with those working in other countries, we are seeing that this is a problem in developing countries, where full exemptions do not exist. That aside, it is something we will have to consider when seeking funds in India. The good news is that corpus funds often fall into Section 35AC, so it might actually help us to get unrestricted funds.

Performance Metrics for the Development Sector

No quest in the development sector remains as elusive as the search for meaningful performance metrics. And with increasing demand for corporate social responsibility – commonly referred to as “CSR” – business are increasingly seeking performance metrics to validate their social investments. But in this endeavor, for-profit organizations are failing.

The main reason for this failure is the misconception that development sector performance is similar to corporate sector performance. The fallacy is that by tracking efficiency and output, a fair measurement of performance immerges. But, as businesses minds know, performance cannot be measured without a definite understanding of what is to be achieved, or the objective.

All businesses share one objective: increase profit. Businesses adapt different strategies to increase margin and/or volume, but ultimately all performance will be measured against this objective.

The core objective of development work, on the other hand, is to change the environment, so that such work becomes no longer necessary. Essentially, performance is a measurement of how well you are affecting the system in which you operate to make your effort redundant. For example, an organization seeking to improve the status of women in rural India will be successful once rural women’s status has been corrected. In development work, you are not trying to increase demand for your work, but rather decrease the need.

And now we can see why businesses’ CSR departments have difficulty producing performance metrics. The objective of development work is essentially the inverse of the for-profit objective. When development sector performance data is demanded, the business sector defaults to measuring output and efficiency. But output and efficiency help measure development sector performance only if they are measured against the ultimate objective. Increase output and efficiency is not necessarily an indication of success.

For the development work, therefore, we encourage organizations to first define, in terms particular to that organization, what success would look like. That vision of success becomes the core objective. By further defining what is necessary for that objective to be realized, organizations develop a better understanding of what good performance entails, and what data will indicate success. Only by defining and applying objectives can we meaningfully measure development work performance.