Putting the long-term financial sustainability of local organizations into practice
For those of us working in the development system, we know the importance of financial sustainability. If anything, we’ve learned it anew over the last two years as we’ve seen how the development sector’s financial systems and structures have been completely redirected and reformatted in order to respond to the COVID-19 pandemic – leaving some organizations completely depleted or severely struggling. On the other hand, we’ve seen innovative funding systems seemingly spring out of nowhere and we’ve witnessed how truly flexible funding systems can be should the people with decision-making power design them to be. For many organizations, large and small, these past two years have been rife with financial instability and ongoing uncertainty, but also remarkable resilience and innovation – especially for smaller, local, and grassroots organizations at the frontlines of the work in their communities.
Financing is the key driver of development work – and we’ve seen how priorities and visions are crafted around access to funding for various projects, workstreams, and activities. In light of the colonial, racist, and power-ridden structures of our sector, local non-governmental organizations (NGOs) are severely underfunded, receiving only 3.1% direct funding in 20201. According to what is being called the Georgetown Speech, by USAID Administrator Power, as well as the recent House Foreign Affairs Subcommittee hearing entitled “Shifting the Power: USAID’s efforts to support locally-led development”, significant internal reforms were highlighted to open up the prospect of exploring2 how to fund local organizations directly and what the international community can do to ensure the ambitious goals of 25% of USAID’s direct funding going to local organizations and more are met.
The role of responsible transitions in longer-term sustainability
As the sector moves closer to locally led development, we can’t talk about direct funding to local organizations without also discussing the reimagined role of international organizations and people who work for international agencies. In order to meet these necessary, yet ambitious, goals stated in Administrator Power’s speech, we will need to be open and honest about how it will require some international staff to lose their jobs and for some organizations to shut down or be completely restructured to make way for local leadership — and that this is just what the financial sustainability of local organizations might take. This is where responsible transitions come in.
For the last five years, the Stopping As Success (SAS+) program has been learning alongside organizations going through transitions from an international to a local entity. We have been exploring big concepts like the future role of INGOs and what financial sustainability for local organizations actually entails. Most recently, we held an online consultation in November 2021 that reminded us of the severe lack of funding systems available to organizations going through these transformative processes. During the consultation, many practitioners expressed that financial limitations are a common reason transitions have ended abruptly. This has impacted local organizations negatively in several ways which include but are not limited to: the impact of programmatic work was jeopardized, commitments to support staff was abandoned, and in some cases, NGOs got a bad reputation as a result of these issues.³ In order to be successful, responsible transitions need to include the transfer of financial resources and not just programmatic work. In addition, there should be efforts to build the financial capacity of local actors to raise finances themselves through avenues such as local resource mobilization.
Every group in the development system has a role to play in supporting the financial sustainability of local organizations. SAS+ offers specific guidance for INGOs, NGOs/CSOs, and donors:
Guidance for INGOs
It all starts with planning. Often an INGOs decision to transition is influenced by a lack of available funding or a shift in funding priorities. Therefore, building a transition plan from the beginning and facilitating funding and other sustainability processes throughout the transition can support the financial sustainability of local entities4. Some examples of what INGOs can do to facilitate financial sustainability include: Forging connections between the local entity and donors, supporting business development strategies and plans, developing capacity strengthening programs to support grant management, fundraising, business development, and financial management, and continuing to stay in relationship beyond the transition to ensure ongoing support for financial sustainability.
Guidance for local organizations
Transitioning from an INGO to a local entity/ies is an opportunity to pause, reflect and plan strategically to challenge a traditional development system concentrated in the Global North. Thus, transitions can be a process of transformation. Transformation in the context of transitions includes planning for a financial model that is contextually relevant and sustainable. For local organizations, this can include diversifying funding streams, raising unrestricted funds, considering alternative funding streams such as a social enterprise model, developing a strong fundraising board, and applying for proposals that include funding for capacity development in financial management, grants management, proposal development, and other key skills needed.
Guidance for donors
Donors are a critical actor in transitions due to the power they have over funding streams and processes. Therefore it is important to reduce barriers for new and local organizations to work with donors and raise the needed funds to continue their work after the transition process. Donors can support local organizations’ financial sustainability by funding relevant capacity development activities for financial management, providing core funding, tailoring financing and reporting regulations for culturally sensitive standards, and reducing compliance and reporting requirements to ease administrative burdens on local organizations.
Transition processes will be more responsible and sustainable if INGOs, NGOs/CSOs, and donors shift ways of working to better support local financial sustainability. The guidance above, as well as the many tools and resources from the SAS+ consortium, will support organizations on this journey – and beyond.
Partner with SAS+
SAS+ will continue to learn about how to ensure financial sustainability as we partner with organizations going through transitions. We hope to learn from you, too. You can get in touch to partner with us.
1 While direct funding is given for activities and programs, only 5% of grants account for the financial sustainability of organizations. Read more here: https://linclocal.org/wp-content/uploads/2020/04/FunderReport_Final.pdf.
2 Here’s how USAID plans to direct more funding to the Global South – https://unlockingaid.substack.com/p/heres-how-usaid-plans-to-direct-more?s=w
³ A full consultation report will be published in April 2022 with the findings of the consultation.
4 Issue Paper – Financial Sustainability in Responsible Transitions – Jan 1, 2020 – Stopping As Successs – https://www.stoppingassuccess.org/resources/financial-sustainability/