8.4 Relationships with funders: key issues

A common observation by NGOs of their relationship with funders is that there is often a lack of clarity as to whether funds being provided are contract payments or grants:

- contract payments mean the NGO doing what the funder (often a government funder) wants to be done;

- grants mean financing the NGO to do what it wishes to do.

Thus different forms of relationship are required in each case.

Where NGOs function as contracted service deliverers, funders contracting with them can legitimately expect to have a form of relationship which gives them an influence over the NGO on matters related to the specific service being delivered.

Ideally this relationship allows, reciprocally, for the NGO to influence the policy during its formation or review. But where NGOs secure funds for their services, activities or projects through grants, funders should not expect to exert the kind of influence they would have in a contract arrangement. A relationship through which the NGO can report on its work and experience is nonetheless still desirable.

A second issue concerns funding periods. Government funding of work within their own countries is often in the context of policies which tend not to change over long periods. In broad terms, therefore, NGOs feel that such funding should be secure over such periods, and regret that in practice it is actually often only offered on an annual (or at the very best, three-yearly) basis. This is a further way in which NGOs feel that their goals of long-term security and sustainability are undermined.

Outside government, the fact that other funders are prepared to commit funds over periods of three or more years is welcomed by NGOs.

A third issue concerns what is termed "funder faddishness" or "funder paternalism":

"Donors' funding strategies...many-a-times determine programmes, policies and priorities of the NGOs...instead of encouraging the latter to evolve their own priorities and programmes in response to their (own) analysis of the local conditions and situations"

Many funders frame their policies on their own perceptions of how their resources are best expended, and on where they feel they can secure the maximum possible impact. In the case of trusts and foundations, there may also be requirements placed upon them by the stated objectives of their founders, or the companies or endowments from which their resources are obtained. So, typically, they will have their own priorities, perceptions and objectives. NGOs point out that this has the effect of causing them to shape their work according not to their own perceptions and knowledge of needs but to the perceived interests and sensitivities of funders. Even funders having flexible mandates - including those that raise their resources through donations from the general public - are felt by NGOs to change their priorities and objectives from year to year or even more frequently, without warning or consultation. This not only distorts NGO activities - forcing them to shift from one activity to another as funder policies change - but where they actually work. One NGO worker in Asia, for example, pointed out that a number of external funders had shifted their geographical priority from one state to another: "So region A is now out and region B is in," she said, "where does that leave us ?"

Similarly, some NGO programmes supporting the development of women were adversely affected after the Rio Summit, when funding trends shifted from women to the environment.

Growth in funder faddishness has a number of other effects:

It undermines as well as distorts. Since many big funders publicise their work and concerns in order to secure funds from the public, their fads and perceptions therefore influence public opinion. In turn this can restrict the ability of many NGOs to raise funds directly from the public.

It confuses the distinction which should exist between contract and grant funds. NGOs often find themselves securing resources which restrict them to doing what funders determine to be needed, even when the funders describe such resources as grants.

It fosters fraudulent NGOs, the operators of which are very adept at exploiting "funder fads".

It leaves smaller NGOs at a disadvantage, especially those working in the fields of relatively unknown or unpopular causes and needs and those not in the know about what the latest funder fads are.

It fosters competition among NGOs, for NGOs having close relationships with particular funders are able to know about new trends and priorities at an early stage, and respond accordingly. Others get left out. It thus also tends to discourage positive development in the field of NGO co-operation and networking.

A final issue concerns funding purposes. NGO expenditure can often be divided into two broad headings: what can be called core or administrative costs, and what can be termed activity or programme costs. One of the reasons why NGOs are effective and efficient is that commonly, a greater proportion of their resources is expended on their activities and programmes, compared to public institutions. But this can, some NGOs feel, become a threat: an expectation grows that their administrative costs will not just be low in proportion to programme expenditure, but minimal, even non-existent.

The problem is compounded when funders, even those who make genuine grants available, impose conditions or have expectations which restrict the proportion of the funds that can be used for core, administrative expenditures. In consequence there are NGOs which are under-administered and under-managed, even by the admission of those running large-scale programmes. It leads some NGOs to think that they are valued by others not for their speed, creativity, efficiency, understanding, values and commitment, but rather because they are merely a cheap way of getting things done. It also means that NGOs often do not have sufficient resources to expend on the task of improving their governance and operations, as discussed in Chapter 6. When in consequence they are accused of mismanagement, their frustration is understandable.