By Rod MacLeod (INTRAC) and Fabio Almeida (Laudes Foundation)


There is a paradox with core grants. Many donors testify to the greater effectiveness of such funding (i.e. highly flexible grants to be used as the recipient decides). But this rhetoric is not matched with a marked shift in practice across the sector.

Certainly, some individual donors have channelled more of their funding in this way. But, as research has shown, this is not reflected across the sector and overall percentages of funding used for core grants have increased only slightly in recent years. Some donors have even moved away from core grants to more tightly defined funding.

This article is inspired by a piece of research on core grants, commissioned by Laudes Foundation. Core funding is  a topic that is rising up the agenda and Laudes Foundation has increasingly been using this mechanism. The aim of the research was to learn lessons from the provision of core grants across the philanthropic sector. It involved a literature review and interviews with donors, recipients and observers of the sector, as well as the author’s own experience as a practitioner and a consultant. The full paper can be accessed here.

Blogs in this series:
No. 1: Core grants: Why isn’t everyone using them?
No. 2: How to select suitable recipients of core grants

Definitions

The terminology around this question can be bewildering due to the array of terms used by different actors. This blog speaks of core grants, while donors also refer to general operating support, framework agreements, strategic investments, investment funds and central support. But essentially, we are discussing donor grants with a high degree of flexibility, which can be used to cover organisational development work and the administrative running costs of the organisation, as well as programmatic work.

While different donors have developed in different ways, there is often a progression from more specific project funding (with defined objectives, outputs, outcomes, timeframes and linked budgets) to exploring other funding options. In other words, core grants have developed in recognition of the drawbacks of project grants. As Hilary Pennington, Executive Vice President for Programmes at the Ford Foundation says [PDF link], “we had to shed the magical thinking that important change can happen quickly – advanced by relatively small, short-term grants”.

Advantages of core grants

The potential benefits of core grants for donors are multiple and interlinked

  1. Provide stability: reduce the risks and uncertainties facing organisations by guaranteeing their core costs can be covered.  This is particularly useful for small, emerging organisations.
  2. Enable longer-term planning: linked to the above, if an organisation is more stable, it can reflect, vision and strategise, rather than chase short-term projects.
  3. Innovation: enables grantees to take risks and try new ideas without having to guarantee specific results. 
  4. Flexibility: resource allocation can be adjusted in real time. Covid-19 has provided a strong case for why this is necessary.
  5. Supports organisational development:  goes beyond project funding and helps strengthen the organisation itself, including systems.  This is frequently mentioned by grantees as what they most want and need.
  6. Leverage: core grants can be used to obtain the support of other donors.
  7. Enables organisations to make step changes: core grants can enable organisations to fundamentally alter their approach and form.
  8. Changes the nature of the donor-grantee relationship: it can reduce power imbalances and create a more equal and constructive relationship.
  9. Reduces administrative burdens: core grants tend to require less detailed compliance documentation than projects.
  10. Gives emotional as well as practical support: the endorsement conferred by core grants can raise organisational morale.

From the literature and interviews conducted as part of the research for Laudes Foundation, there is a wealth of evidence of all these advantages.

From the recipient perspective, core grants are seen as the ‘holy grail’ of funding. In a survey conducted in July 2017 by the People’s Postcode Lottery, respondents were asked how small an unrestricted grant they would accept in place of a £100,000 restricted grant. The survey found that “the average lower amount accepted was £82,700, meaning that on average, charities were willing to lose £17,300 in order to access unrestricted funds.”

So why are core grants not being more widely adopted?

Given the above, moving from project and programme funding to core funding seems like a no-brainer. But in reality, there is still considerable resistance within many donor organisations.

It is important to specify, there are potential disadvantages to core grants.  Rather than stimulating positive change, if applied in the wrong circumstances, they can encourage complacency and stagnation – with the same interventions repeated mindlessly, year after year. If poorly utilised, they can also lead to donor dependency, discourage initiative and allow fundamental problems to remain unaddressed.

Donor programme staff can also be worried about accountability – being able to control and monitor how funds have been used and whether outputs have been achieved. 

A key challenge is that it is hard to measure precisely what are the aggregated results of core grants in terms of impact. When donor boards or public accounts committees ask, “What exactly has this investment achieved?”, there is usually no simple, clear-cut answer. There are varying and innovative M&E approaches to address this, but if concrete proof of return on investment is required, they will tend to fall short.  Furthermore, as one respondent put it, “If people are interested in attribution [rather than contribution], there is no point going to core grants”. More progressive donors are exploring creative ways of assessing impact, with a greater emphasis on learning and assessing dynamic change, rather than seeking quantifiable metrics, but this requires a different mindset.

Possibly for this reason, there is some divergence between types of donors, linked to the accountability pressures they face. Some bilateral donors (e.g. the Netherlands and the UK) have in recent years moved from more flexible to more focussed grants for their leading agencies. Meanwhile foundations, whose accountability is more likely internal, to their own boards, are increasingly debating and implementing more core funding. ‘Trust-based philanthropy’ underpins much of the thinking behind the renewed drive towards core funding among foundations. This is built upon a growing body of evidence of the impact it can have. 

Conclusion

The conclusion is clear: multi-year core grants – if properly employed – can be transformative. It means putting more focus on the recipient’s rather than the donor’s wishes, but in doing so, can enable both to achieve their objectives more effectively.  This requires courage to take risks, accept reduced control, take a broader view of measuring impact and being honest about (and mitigating) the potential downsides. As one donor put it, the case for core grants is irrefutable: “If a donor is set up to make real change, this is the way to do it.  You are going to get higher impact”.

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