A sustainable NGO is one that can continue to fulfil its mission over time and in so doing meets the needs of its key stakeholders – particularly its beneficiaries and supporters. As such, sustainability should be seen as an ongoing process rather than an end in itself. It is a process that involves the interaction between different strategic, organisational, programmatic, social, and financial elements.
However, experience tells us that financial sustainability is crucial for the long-term survival and effectiveness of all types of NGOs and civil society organisations. The challenge is how to achieve such levels of financial sustainability.
What we do know is that the more different sources of funds you have, the more financially self-sufficient and sustainable you are. In other words, the financial sustainability of an NGO depends on its ability to diversify income and access new funds.
Restricted or unrestricted funds: A key indicator
My own experience working with NGOs around the world is the need to ensure a balanced mix between unrestricted and restricted funds. Restricted funds are those that can only be used for specific purposes that have been agreed with a specific donor, while unrestricted funds is ‘free money’ that can be used for any purpose that helps the NGO to achieve its mission. The balance between restricted and unrestricted funds seems to me to be at the heart of any debate about the financial sustainability of any NGO or civil society organisation.
An over-dependence on restricted funds is an indicator of potential unsustainability. Thus over-reliance on official aid funding with all the associated restrictions and conditions should be seen as an indicator of concern. In practical terms this means that a financially sustainable NGO is one that can continue with its core work and meet its mission even if external donor funding is withdrawn.
Strategies for Financial Sustainability
There are many strategies to achieve financial sustainability. Practice and experience tells us it is not just about developing new fundraising campaigns or writing clever funding proposals but as much about building relationships, risk management, and basic good financial practice. This is well-reflected in MANGO’s analysis of the characteristics of financially sustainable NGOs, which suggests that they should:
- Invest in developing and maintaining strong stakeholder relationships including with donors, supporters, volunteers, staff, and beneficiaries.
- Effectively assess and manage the risks associated with funding and financial resources
- Obtain a range of different types of funding, particularly unrestricted funds
- Strategically manage and finance all organisational costs and overheads
- Build sufficient financial reserves
Source: http://www.mango.org.uk/guide/financialsustainability
Traditionally unrestricted funds have come through voluntary donations from the local community, the general public, or untied contributions from businesses or foundations. In the last 10 years, access to such unrestricted funds has increased significantly due to new approaches to web-based giving (e.g. Giving What We Can, GuideStar, JustGiving, etc).
One of the strategic dilemmas for those NGOs with particular identities or specific values, such as faith-based NGOs, is the extent to which they raise unrestricted funds through the gift economy (whether they be church collections, zakat funding or whatever) or through the tied aid system with all the conditionalities attached – which may threaten their independence and identity.
Local civil society organisations face similar strategic choices, though I suspect they are often more strategically pragmatic in the way they access funds. In practice most civil society organisations depend on limited community funding. This can be seen as a form of unrestricted donation, but which in reality can be quite restricted in the sense that such donations are heavily influenced by a range of local issues, personalities and socio-political dynamics. All of which suggests that such supposedly unrestricted local funding may not be as free as hoped or may not lead to the levels of sustainability expected.
The sustainable NGO: The future
Possibly of more strategic significance is the trend for NGOs to develop new social enterprise or social franchising models as a strategy to ensure sustainability. Examples of such innovative social franchises include Marie Stope’s global network of BlueStar clinics, or Basic Need’s franchise model for the provision of mental health support in the poorest communities.
Another potentially significant trend is where an established international NGO evolves (or incubates) an autonomous social enterprise, or works with local businesses to form new collaborative enterprises. There are a number of recent cases where an existing development NGO transmogrifies itself into a viable, market-driven social enterprise. The ambition is that their future income will come from selling products or services rather than relying on donor income or commissions. For example, in the area of solar power, SolarAid has evolved from a traditional funded NGO that focused on promoting the use of solar power in Africa to a new social development enterprise selling high-quality solar lighting.
In 2008, SolarAid created the social enterprise SunnyMoney to run its operations in Africa. SunnyMoney uses an innovative distribution model to sell solar lights in rural off-grid communities dependent on costly, toxic kerosene for lighting. By building a sustainable market for solar products, SolarAid and SunnyMoney aim to eradicate the kerosene lamp from Africa by 2020. Similarly, in Bangladesh, the Grameen Bank’s social business affiliate Grameen Shakti has become one of the largest providers of solar systems and other renewable technologies in the local market.
The trend therefore seems to be one of exploring strategies that help NGOs ensure their survival and independence; not just through diversifying income sources but adopting more entrepreneurial routes to financial sustainability.
This trend will have major consequences for NGOs, not only in terms of managing change but also in the types of competencies needed by staff and board members. It will have significant implications for the identity, values and culture of many NGOs. However, the benefits will be seen in terms of greater independence, resilience and sustainability.