Businesses give billions to nonprofits every year, but are they helping or hurting? We look at some of the pitfalls of traditional tied funding approaches, and introduce businesses to the concept of unrestricted funding as a way to support nonprofits to achieve real impact.
Businesses play a big part in philanthropy. Between 2018 and 2019 corporate giving in the United States went up by 13%, hitting just over $21 billion. But do all those dollars lead to impact?
Open Road Alliance found that where impact projects encounter roadblocks, a staggering 46% of these obstacles are caused by funders. How can businesses avoid contributing to these roadblocks?
Tied funding is the most common way that nonprofits receive funding. Here, funds are limited to a specific activity or project, and unforeseen challenges or unexpected opportunities are not easily retrofitted into the project scope.
“We need to go into the communities, talk to them, see if the solution fits or not. Not all the donors can or are willing to do that. They want you to go and to start as soon as possible, and start doing things [before we] know yet what solution is going to work best. We need to do research and pilot things.”
Reporting requirements on outputs and shorter time frames mean that many nonprofits are constrained to rolling out traditional initiatives in order to secure ongoing funding.
A study by the Centre for Effective Philanthropy found that nonprofits have long called for multi-year unrestricted funding. Leaders describe how this type of funding enables them to plan for the future, invest in their team, and focus on impactful work.
The research found that only 2 in 5 nonprofits received multi-year unrestricted funding, and for those that did it made up less than a quarter of their funding. There were no significant barriers preventing funders from providing these types of grants: in many cases it was simply not on funders’ radar.
When nonprofits are no longer constrained by short-term reporting and funding cycles, it enables them to pilot new programs and drive impacts over a longer time.
Nadia Campos shared an example of how unrestricted funding enabled iDE to take a novel approach to solve the problem of access to latrines in Cambodia:
“In Cambodia, 10 years ago, 80% of the population was still doing open defecation. People did not have access to latrines and they didn't want to use them. So nothing had changed.
What iDE did differently is we went to the community and asked them, 'Why don't you have a latrine?’ A lot of people were telling us, 'I don't know what a latrine is; I don't know where I can buy it; I don't know why I should buy it.'”
From here, iDE looked to the local market. Instead of providing latrines for free, they wanted to create a sustainable solution that would last. They identified concrete producers and taught them how to produce the latrines and sell them.
“What we missed in our first pilot is we assumed that those entrepreneurs could also sell the latrines. But in the Cambodian context, entrepreneurs don't go out to sell anything. They wait for the customers to come. But how will the customers from rural villages in Cambodia go to a town to buy those latrines? Impossible.”
So iDE iterated: they began training students and community members how to sell the latrines door-to-door.
“Now 10 years later, only 20% of the people don't have a latrine. So we really shifted the market, thanks to this sanitation marketing approach.”
A project of this kind - involving iterative pilots and testing, collaboration with the existing market to create an innovative solution, and a ten year timeline - would not be possible with short-term funding tied to a particular set of activities. Yet, this is how lasting and meaningful impact in this context was achieved.
An unrestricted funding model comes with its own challenges and risks for businesses.
Businesses need to commit to longer term, trust-based relationships. Measuring for impact, rather than activities, requires a deeper understanding of complex problems. Businesses also need to be comfortable with ambiguity, as activities may change throughout the life of a project and deliverables may require longer time scales.
There are no simple answers to these questions, and no giving model has the monopoly. Still, some tips for success:
As businesses review their giving and consider how they can support nonprofit partners to create the most impact, we will see those dollars lead to more meaningful change for the world’s most pressing challenges.