NGOs rely on money from a variety of sources, including individual donors, foundations, corporations, and governments. Often what an NGO can and cannot do is tied to where the money comes from, dramatically affecting the effectiveness and neutrality of NGOs. While some NGOs, like GPF, refuse to accept government or corporate funding to stay independent in their decision making, many NGOs need depend on these funding sources in order to operate. Funding Issues have become particularly challenging, following the economic crisis. This section examines how NGOs are funded, and how funding sources affect NGO operations.
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Rajiv Shah, the administrator of the US Agency for International Development (USAID), is fighting to channel US foreign aid through local institutions rather than American for-profit contractors, in order to increase accountability and aid effectiveness. The Coalition of International Development Companies, an advocacy coalition of 50 government contractors, have objected to the procurement reform stressing the threat of waste and corruption by foreign governments and other institutions. Shah’s aggressive push for paradigm shift is stirring the development world to rethink accountability. (Foreign Policy)
Nottingham University’s Centre for Research in Economic Development and International Trade released a study looking at the impact of foreign funding on NGOs, specifically why some NGOs survive, why NGOs attract foreign donors, and how many NGOs funded by foreign donors legitimately provide aid and how many are set up as “shell companies. ” The study examined NGOs in Uganda, where the numbers rose from 3,500 to 7,000 between 2002 to 2008. The study found that whether or not an NGO received foreign funding or grants was the biggest factor for its survival, rather than the effectiveness. Moreover, the study found that allocation for foreign funding is neither fair nor effective, and is generally awarded based on habit rather than merit. (IRIN)
This IRIN article asserts that the Horn of Africa famine “symbolizes a failure to act in time,” because the famine could have been prevented had humanitarian aid been applied effectively. The author argues that investing in preventative measures is more effective than responding after a crisis has begun. Preemptive aid is especially necessary as the cost and frequency of disasters have increased significantly, and many countries can no longer afford to repeatedly pay for short-term disaster relief. As the famine continues, it is important that countries and various aid organizations refine long-term disaster prevention techniques in order to prevent future crises.
Development Initiatives, an aid watchdog organization, released a report analyzing the relationship between aid donations and aid costs. In 2010, countries donated a record number of monetary aid, but the report recommends that countries invest in long term disaster prevention. Otherwise, given that the cost and frequency of disasters has increased significantly, countries risk paying repeatedly for short-term disaster relief. Moreover, the report argues that NGO aid reporting needs to be “standardized” in order to see who is donating aid money and where it is going. Several countries, particularly the US, spend significant amounts of money in military aid, yet the money is rarely reported.
In 2010, the European Union fell short of its development aid targets by 15 billion euros. A study by the Concord coalition of advocacy organizations predicts that the situation is likely to get worse rather than improve in the coming years, due in part to state practices that inflate aid budgets and the economic crises faced by Greece, Ireland and Portugal. An ongoing shortfall in aid threatens the sustainability of NGO activities and may mean development targets are not met.
Botswana is a middle-income country, and one of the most stable in Africa. Nonetheless, it confronts serious social and economic issues – including a very high rate of HIV/AIDs. The relative stability of Botswana has meant international aid has shifted to countries with more acute problems. Government and NGOs are now in competition for limited local private sector funds. The private sector has favored government programs, which has led NGOs to form alliances to pursue funds. (The Botswana Gazette)
The NGO community in Sri Lanka is being assailed by the government, which purportedly sees these organizations as its opposition in governance. The state is particularly concerned about funding of local NGOs by foreign governments. These NGOs are viewed as the tools by which foreign powers are able to influence internal political affairs. The obscured influence of foreign governments through NGOs is a legitimate concern. However, this should not be used as an excuse for suppression of valid critics and opposition movements. (IPS)
The Seub Nakhasatien Foundation, a prominent Thai environmental NGO, has accepted 25.89 million baht - approx 851,000 USD - from the energy company Petroleum Authority of Thailand (PTT). In the 1990s, the Foundation campaigned against a gas pipeline built by PTT through the Huay Kayeng forest reserve. By accepting sponsorship from PTT, the Foundation exposes itself to the firm's influence. Regardless of whether PTT exercises actual influence over the Foundation's environmental agenda, the appearance that it does is enough to damage the NGO's credibility. (Bangkok Post)
In the competitive world of NGO fundraising, conventional wisdom holds that disclosing your failures is not a smart move, as "donors demand results and punish failure". Yet Engineers Without Borders is doing just that, setting up a website to document mistakes it, and other NGOs, have made in projects. The website is meant to help NGOs learn from their failures. It also sets these NGOs apart from other groups, potentially a clever tactic to attract the allusive donor dollar. (The Guardian)
In the UK, many charities and NGOs may find themselves in breach of the law when the new Equality Act comes into operation in October. The new legislation - which consolidates and replaces the Race Relations Act, the Sex Discrimination Act and the Disability Discrimination Act - will impose higher legal thresholds on organizations which rely on "charitable instrument exemptions" to "positively discriminate" by providing benefits and services only to specific members of the public. This could also lead to a drop in funding for those are unable to fulfill the wishes of donors who insist on the specific use of their gifts. (Civil Society Media)
International funding agencies and foreign governments are hesitant to fund Indian NGOs. Due to positive economic projections, many no longer recognize India as a "poor nation" and have removed it from their list of countries that require funding. Decreased government spending on NGOs due to the global financial crisis further complicates the situation. (Mumbai Mirror)
Humanitarian NGOs have turned down aid from the US because it requires cooperation with the military. USAID argues that military- NGO cooperation is needed when aid workers operate in insecure areas, but the organizations fear that the presence of military will jeopardize their relations with the local communities. According to the head of the UN humanitarian office in Afghanistan, aid should purely be based on the needs of the civilians. If aid has any other motive, the natural reaction of the community will be hostility towards the NGOs. (Irinnews)
Governments, notably the US, are hesitant to support humanitarian NGOs in Somalia. Due to the security situation, they are concerned that their funds or supplies might reach armed forces or insurgent groups. The NGOs disagree with these concerns, arguing that even in dangerous areas, strong relations with local partners ensure an appropriate delivery process. (Irin News)
Foundations saw their assets decline by almost 22 percent in 2008, which will mean a substantial drop in their funding to NGOs. Individual donors are also cutting their contributions. The decreased resources is forcing NGOs to reduce programmes and staff, but many NGOs are also trying to find and attract new sources of funding. Some NGOs ask corporations for support and the NGOs that accept and rely on government funding currently have more secure funds, but at what costs? If major NGOs let governments and corporations dominate their funding, the sector could face problems of independence and credibility more serious even than financial problems. (Integrated Regional Information Networks)
The think-tank Development Initiatives found that 51 percent of humanitarian funding for NGOs comes from private sources. With private funds NGOs can respond within hours or days to emergencies. In contrast, it takes most Development Assistance Committee (DAC) donors six weeks to disburse funds. However, in the wake of the economic crisis, many private contributors are reducing their donations. This volatility in funding could affect 19 of the largest humanitarian non-profit networks that together spend 60 percent of global humanitarian funding. (Integrated Regional Information Networks)
A professor from New York University has predicted that 100, 000 US non-profits will go under in the coming two years due to the economic crisis. Along these lines, the author Eyal Press provides concrete examples of how non-profits in the US see funding sources disappear. Has there been a non-profit bubble? If so, the best case scenario would be more careful spending by all actors in society leading to a reduction in the number of illegitimate non-profits and more effective work by those that survive the crisis. In the worst case, important humanitarian work would be lost, which would directly affect the most vulnerable in society. (AlterNet)
Fundraising for charities and NGOs continues to do well despite economic downturns, but donation from individuals increase in a slower pace. This article argues that fundraisers are used to proving impact and "telling compelling stories" since they aspire to build a long term relationship with individual donors. Surveys also show that individuals have more trust in charity organisations than in businesses and governments.(Canadian Fundraiser)
In spite of the current global economic crisis, foundations are committed to maintaining stable aid funding levels and will have to "dig deeper into their endowments." Many foundations have handled the crisis by diversifying their investments, but if the crisis turns into a long term downturn, they will have to make cuts and will not be able to develop new programs. (Integrated Regional Information Networks)
This article argues that the effects of the global financial crisis are variable and that it is still too early to foresee the long term impact. Many NGOs report that the number of donations have not dropped compared to previous years, but that people donate smaller amounts. Other NGOs state that the growth is smaller than what they had originally expected, but that they are not facing an overall decrease in funding. (Integrated Regional Information Networks)
This article draws on experiences in post-communist countries in Eastern Europe, where international donors financially supported any NGOs that claimed to strengthen democracy and foster liberalization. The author highlights the absence of clear and realistic goals for both funders and local NGOs and argues they need to establish comprehensible indicators of what they wish to achieve. Further, international donors should allocate more funding to improve the capacity of local NGOs to carry out fundraising and strategic planning. (CIVICUS)
The global financial crisis affects the income of humanitarian NGOs who now deal with decreased funding by trying to make their operations more efficient. For many NGOs, reducing their current programs and cutting back on humanitarian relief is a measure of last resort. (Integrated Regional Information Networks)
Many donors, especially corporate donors in the financial sector, have reduced their donations to NGOs due to the global financial crisis. To cut down costs, a large number of NGOs are revising their programs and laying off staff. Funding from governments, institutions and other individuals now play an increasingly important role in preventing the crisis from affecting the poorest. (Integrated Regional Information Networks)
Donors in rich countries are cutting back on their aid funding because of the international financial crisis. NGOs in aid-recipient countries now have to compete for less money. In Cambodia for example, NGOs worry that donors will cancel hundreds of millions of dollars of development aid. (Phnom Penh Post)
NGOs worry that the Wall Street crisis will tempt governments to reduce international aid and make investors more cautious about supporting development projects. The economic crisis also affects individual donors, who have already lowered their donations to charity organizations. (Integrated Regional Information Networks)
ActionAid, UK Aid Network, Data/ONE, and a group of other NGOs initiated the Publish What You Fund (PWYF) campaign to urge donors to better share information about development aid funding. It encourages donors to give timely and accessible information on how they will spend their money and it also ranks donors according to how much access they give the public to their planning documents and their financial situation. (Integrated Regional Information Networks)
Over the past decade, donor funding for Asian advocacy NGOs has experienced a cycle of dramatic rise and decline. Deficiency of domestic sources has led to increased NGO dependence on international donors. This article explores challenges faced by Asian advocacy NGOs in balancing funding needs with neutrality demands. It discusses the risks of asymmetric donor-NGO relationships, and claims that NGOs which align their activities and objectives to follow donor priorities will be seen as lacking independence and legitimacy. (Journal of Development in Practice)
The Gates Foundation, with its US$38 billion endowment, plays a dominant role in financing development and fighting disease in poor countries and few grant recipients dare to openly criticize the foundation since they risk losing their funding. But analysts from academia and think tanks argue the foundation should take part in discussions on how it can improve its work, and also share information about both successful and less successful programs. (Seattle Times)
Private donations account for almost 90 percent of NGO funding in China and the government has had more of a "monitoring" role than a "facilitating" one. This article describes how NGOs can strengthen their independence and credibility through examining each other's work and involving the people they serve. (openDemocracy)
There are numerous NGOs in urban areas in China, but none can acquire non-profit status due to the lack of a legal framework. Without access to domestic funding, Chinese NGOs must rely on international aid. But as the Chinese economy develops, donor countries and foundations are decreasing their financial support. The absence of NGO help during the heavy 2008 snow storms in Southern China is a tragic consequence. This article by the executive director of Global Links Initiative looks to the emerging class of "new rich" Chinese philanthropists to remedy the domestic funding dilemma. (Policy Innovations)
"Online philanthropy markets" is a recent internet development which allows individuals to easily engage with and invest money in organizations and small entrepreneurs all over the world. This paper by the Aspen Institute argues that individual donors should not think of themselves as providers of short term relief, but act as "investors for social change". It therefore recommends creating common reporting frameworks and independent data sets online that allow "investors" to compare the performance of the different NGOs.
This collection of essays argues that NGOs are Africa's new missionaries. They dispense services in a spirit of "charity and pity" as puppets of "neo-colonial" powers. NGOs rely on their funding partners in a paternalistic relationship where foreign "true friends" – as one US ambassador termed donors – treat the poor as recipients of aid and exclude citizens from policy-making. The author recommends that NGOs in Africa stop pretending neutrality and engage in political activism. (Fahamu)
This article urges donors to "recognize that they are just one of many stakeholder groups that NGOs should be accountable to." The author critically assesses the "upwards accountability perspective" with rigid project monitoring, and recommends "downward accountability" which for example would allow those who are affected by the work of the NGOs to participate more.(One World Trust)
In light of a debate among Turkish NGOs on the subject of credibility, this New Anatolian article examines the sometimes obscure relationship between NGOs and their sources of funding. By stipulating conditions for the use of funds, foreign donors can strongly influence recipient groups, which raises questions about the NGOs' accountability to the communities they serve. Therefore, legitimate NGOs must display openness about – and independence from – their financial supporters to maintain their "honor" and credibility with the citizenry.
This Wilton Park report delves into the challenges that grassroots organizations face in their efforts to promote government accountability and citizen participation. In their intertwined activities of advocacy, monitoring and providing services, NGOs often encounter government interference, unreasonable donor demands and questions about their own legitimacy. The report encourages NGOs to focus on attaining sustainable results and to "not be diverted" in their operations by such obstacles.
As technological developments allow news to travel faster, aid groups can better alert potential donors. Furthermore, international aid agencies have begun to solicit donations from individuals and groups on a global scale, rather than just in the wealthiest countries. However, although widespread coverage may benefit aid collections, it may also endanger aid workers who wish to remain inconspicuous in conflict-ridden zones. (International Herald Tribune)
According to this New Times opinion piece, western donors, particularly the US, have historically used NGOs to exploit economic opportunities in poor countries or to counter hostile political ideologies. Citing US-led wars and the ensuing relief efforts in Vietnam, Afghanistan and Iraq, the author strongly criticizes what he calls the "mockery of humanitarian aid." This occurs when donor nations use NGOs to provide humanitarian assistance in countries occupied by their troops. The article concludes that government-dependent NGOs work more to attract funds than to strengthen democracy.
The NGO community in South Africa fears that Pretoria's threat to introduce laws to prevent whistleblowing will discourage NGOs from voicing their concerns about government policies. NGOs that actively lobby for policy change also tend to receive less funding than NGOs which only provide services. This TerraViva article draws attention to the limits that financing problems and conservative legislation can impose on NGOs' activities.
This newsletter from the International NGO Training and Research Centre
(INTRAC) looks at how the Paris Declaration on Aid Effectiveness
affects NGOs as providers of international aid. The declaration urges governments to transfer aid directly into the budgets of poor countries, rather than funding their own development projects. While this could prevent rich countries from using aid as a tool to achieve their own political and economic interests, INTRAC warns that Northern NGOs could lose much of their funding and political influence. Southern NGOs, although benefiting from poor countries' increased aid budget, could lose their political independence since national governments would fully decide which NGOs to fund.
Spurred by fears of neocolonialism, many African governments view NGOs as "Trojan horses for Western governments." Many Northern NGOs receive a large amount of funding from their own governments, and are thus inclined to support that government's foreign policies on the ground. Countries like Eritrea, Zimbabwe and the Sudan have passed laws limiting the functionality of foreign-funded NGOs within their borders. Critics of these new policies accuse the African governments of espousing undemocratic values, and attempting to conceal human rights abuses. (Reuters)
Russian President Vladimir Putin accused foreign-funded NGOs of serving "dubious group and commercial interests," and instead offered financial support from the Kremlin. While some experts applaud Putin's proposal, it seems very unlikely that a "not free"-rated country would support groups that monitor human rights abuses and that criticize the stifled political atmosphere. (Radio Free Liberty/Radio Europe)
The number of NGOs in Africa has increased from a few hundred to over 25,000 in about fifty years and their work goes beyond humanitarian aid. This article argues that the growing presence of foreign NGOs, or the "army of outsiders" as the author puts it, both results from, and causes Africa's slow development process. NGOs are now part of an aid business and spend over US$4 billion on recruiting staff from outside the continent. (openDemocracy)
While the influence of large and wealthy international NGOs continues to grow, governments and donors still tend to regard small, local grassroots groups as less important and less "legitimate" actors. Citing trends in Lesotho, this article criticizes the seemingly paternalistic attitude of foreign donor organizations, which sometimes "drastically" change their funding schemes without consulting recipient NGOs. The author urges greater financial and strategic support for NGOs, saying a lack of funding could "cripple the democratic function of civil society." (Lesotho Council of NGOs)
This article discusses the issue of foreign donors channeling funds for NGOs through local governments, focusing specifically on Lesotho. The author suggests that due to the often underdeveloped administrative capacity of fledgling democracies, funds may not trickle down to the groups that most need financial support. Additionally, those organizations that monitor government policymaking risk losing their credibility if they receive state-controlled aid. Therefore, donors must establish "deeper partnerships" with NGOs in order to better understand and strengthen their work. (Lesotho Council of NGOs)
Medecins Sans Frontieres (MSF) has angered some NGO community members by asking donors to send money to the medical aid agency's general funds rather than specifically for Asian tsunami relief. The unprecedented move was to ensure "honesty" for MSF donors about where their funds go. But other NGOs claim MSF's report was "irresponsible" because it failed to clarify that other organizations, which focus on long term assistance rather than emergency relief, still want and need funding. (MSNBC)