By Rod MacLeod
This blog is a product of research on core grants commissioned by the Laudes Foundation. This is a topic that has been rising up the agenda and Laudes Foundation has increasingly been using this funding mechanism itself. The aim of the research was to learn lessons from the provision of core grants in the wider 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
No. 3: How to use a core grant
No. 4: How to measure the impact of core grants
Core grants  are the Holy Grail of funding for recipients. They can be used flexibly according to needs defined by the organisation itself. Risk taking and innovation becomes easier. An organisation can address its own development needs. Core grants can also leverage other funding opportunities, thereby having a multiplier effect.
But none of this necessarily applies.
Conversely, core grants can be wasted, or even have negative consequences. Organisations might continue existing work without reflection or renewal. Core grants can then end up subsidising incompetence and allowing the leadership to avoid difficult decisions.
This blog examines how best to use a core grant from the perspective of a recipient, based on experience in the sector. There is no single formula for success (and much will depend on context), but the following is worth considering.
Unrestricted funding presents unique opportunities for the lucky recipient, but to take full advantage requires careful planning. Once a core grant has been secured, it is important to set clear organisational priorities, rather than just absorbing the money into existing budgets.
In particular, managers should consider what can now be done that would not otherwise be possible. This might include redefining the organisational strategy, taking a new programming approach, funding higher risk innovative work, upgrading internal systems, investing in further grant acquisition or staff development. For example, one NGO described how it transformed itself to becoming much more of a learning (and hence more effective) organisation through its core grant.
Some organisations use an unrestricted allocation model, with set percentages for external programme work, but also for investment in fundraising, advocacy, systems development and administrative costs. This avoids a core grant being used mainly to plug financial gaps, which leaves the organisation no better off at the end than at the start. At the same time, the flexibility of core grants is one of their key attributes, so it makes sense to be ready to take account of changing circumstances to make revisions. If grants are sufficiently long, then not allocating all the money at the start, but putting some aside to be deployed later in the light of emerging priorities on is sensible.
Use the money to make more money
A core grant can help unlock other restricted and unrestricted income – ideally on a sustained basis. This might be due to the seal of approval a core grants implies (donors often influence each other), the ability to develop new (fundable) work, investment in fundraising capacity and being able to cross-subsidise the core costs that project grants will not cover. Some recipients (e.g. War Child UK) can chart how particular core grants have enabled them to make significant longer term improvements to their longer term income base. For this reason, according to research, many organisations would willingly accept a smaller amount of flexible core funding over a larger amount of restricted project funding – particularly if spread over multiple years.
Forging a new type donor-recipient relationship
Donor-recipient relationships are often characterised by inequality. But core grants offer new possibilities for a different and more constructive kind of relationship. This will depend to a large extent on the donor’s attitude, but the grantee can take the initiative in building a partnership based more on joint problem-solving and lesson learning, rather than upwards accountability.
Logframes and rigidly defined countable indicators are generally inappropriate for core grants, but recipients can propose creative ways to illustrate the difference the funding has made, even if the outcomes are not always provable.
Planning for the end from the beginning
A core grant can bolster an organisation, but can equally be disruptive when it ends. Planning for ‘the day after’, can mitigate the negative consequences. If there has been investment in other income generating capacity, then this can soften the blow.
Applying the lessons to others too
It is striking that many organisations receiving and appreciating core grants (e.g. INGOs) rarely use them as a funding mechanism to others, such as their partners in the Global South. Clearly each donor decision needs to be carefully weighed up, but the same advantages and lessons apply. Happily receiving flexible funding for yourself, but insisting on restricted funding for others is inconsistent and illogical.
The fundamental lesson is that worst way to use core grants is just to continue ‘business as usual’. This rare form of funding represents an opportunity that should be seized and exploited to the maximum. This requires careful planning and management to ensure that the benefits are lasting.
 By ‘core grants’, we are discussing donor funding 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.