Everybody is after core funding. I mean everybody! Many NGOs see core funding as some sort of holy grail that will give them financial stability and sustainability, and allow them to focus on their own priorities. well, it isn’t exactly like that.
From a recent study I’ve done (still being finalised with the client NGO and donor) it seems that to really make the most of core funding, NGOs and donors have to approach the funding relationship differently, possibly work in a different way and report on their work in a different way. To make it really work, there has to be a shift in the understanding of what a funding relationship is on both sides – something that might make both NGOs and donors more than a little uncomfortable.
Confidence and trust
NGOs have to develop the confidence to have a different discussion with donors. No longer looking at prescribed funding opportunities and working out how to shoe-horn their activities into the funding requirements, but rather developing a strong evidence-based position for why their strategic response and interventions are the right ones and convincing donors to get on board with the NGOs’ visions.
For the donors this means setting out their broad strategic outcome priorities: the changes that they want to see that are important to them. Then scanning the horizon to identify those NGO strategies that have at least a 90% overlap with their own strategy (or a part of their strategy).
This overlap and meeting of strategic priorities is important, because core funding is not the same as a project grant (obviously). So instead of agreeing a set of specific, log-framed outcomes to be achieved in five or three years’ time, donor and NGO agree annual goals based on past performance. For the NGO these goals are part and parcel of what they are doing anyway. For the donor, these annual goals work towards their overall outcome priorities. Importantly the donor is not interested specifically in how the NGO achieves those goals, but that those goals are achieved. This last point is a significant move away from current practice in project funding: donors have been known to specify funding use right down to transaction level, effectively tying the NGO’s hands to respond flexibly to changes and opportunities that might arise.
Attribution is a challenge
The benefits to the NGO are numerous: greater autonomy over strategic priorities, greater opportunity to innovate, greater flexibility to respond to opportunities and challenges, improved operations and improved outcomes for beneficiaries over time. The challenge however is attribution for the donor.
Just because its core funding doesn’t mean that the NGO doesn’t have to report on how the funding has been used and what outcomes and impact have been achieved. After all, the donor still has to account for how its funding has been spent to its stakeholders, which can include taxpayers, voters, politicians, supporters and individuals. Attribution is in the detail, the financial detail. NGOs have to adjust their accounting systems to be able to code core expenditure to reflect both the donor and the activity being funded. This is actually straightforward in most systems, but not usually done for core funding. An additional code might be needed where core funding is used to top up project expenditure, so that on top of activities that are fully funded by core funding (such as innovation and product development) NGOs can report on how core funding has supported and extended the reach of projects funded through restricted or project funding.
While assigning codes might be easy, the processes of budgeting and allocating funding to activities and performance reporting will have to change and this change is likely to be more complex and painful. This will make attribution of outcomes to donors more accurate and traceable through the organisation.
Leaner, not meaner
Less restricted funding mean less artificial structures set up to support individual projects or thematic areas of work. Core funding is an opportunity to streamline the organisation and have one integrated team that can deliver all activities, rather than silos of duplicated posts to satisfy restricted funding requirements. This represents a massive change for NGOs and there will be some that shy away from such radical change, which is understandable, but unfortunate.
For most however, core funding remains elusive. Some donors are unlikely ever to work only at an outcome level, despite statements to the contrary and some NGOs will find the shift to a different way of working too much of a challenge. At a time when we talk about needing significant change and challenge to the dominant development discourse, being afraid to change the way we work and the way we fund work undermines the desire to make any kind of change to the way development works.
Have you have worked in an NGO that has core funding? What have been some of the challenges and benefits that you have seen from core funding arrangements? Are you or your organisation prepared to change the way you operate to get a better funding settlement?