Restricted funds are ones that donors provide for defined programs and specific activities with clear performance indicators. The organization is not required to ‘vire’ or relocate to any other activities other than the ones the donors specified. It this inability to freely apply the funds to new and emerging priorities that make reliance on donor funds difficult.
Imagine a not for profit organization like the Red Cross which provides disaster response and crisis management engagements, it must first revert to the donor if it needed to redeploy any available funds to other most pressing needs. By the time such approval is made, the crisis could be beyond manageable levels.
NGOs are formed to address specific gaps in the communities they serve. To add value, NGOs identify specific programs of focus. This informs their programming strategy. For each program, NGOs write proposals to target specific donors. Each proposal details a “statement of the problem” and proceeds to provide detailed ways to address the problem and the value to the communities.
Many donors now provide specific templates which funding seekers must use to access funding. In these templates, there is a budget template that must be completed. Items like vehicles, land, and buildings, etc that cannot be funded are specified depending on the donor.
Once the donor accepts to fund a particular program, the approved budget must be followed to the letter. It is this requirement to spend as per the approved budget that makes donor funding “restricted.”
One of the challenges of NGOs is the need to respond to the changing needs of the communities they serve. The risk of donors suspending funding for any small mistake is high. With changes in global dynamics and ‘America first’ talk, consistent donor funding cannot be expected for most NGOs. This brings into issue sustainability concerns.
Can your NGO remain a going concern if the current donors stopped funding? For this reason, there is a need to diversify revenue to incomes other than donor funding.
Enter unrestricted funding
As an NGO, you must consider earning revenues from other sources apart from donations and grants. That way, you reduce the risk of over-reliance on donors.
Many NGOs now have invested inside projects like hotels, rentals, mobile applications and consulting services relevant to their areas of specialty. NGOs like Brac have very profitable businesses like banks, universities and microfinance institutions. Taken together, this diversification has enabled consistent service offering to its target market.
As a CEO staff or board member, the first question is: what percentage of your income is from grants and donations vs other funding sources? You need to plan to reduce reliance on donor funding over time.
Need a strategy that is organic and responsive to the new era? Contact me. I help with strategy retreat facilitation and execution support.
Copyright Mustapha B Mugisa, 2019. All rights reserved.