Financial Sustainability for NGOs

Key Challenges for the NGO Sector in Kenya and Somalia.

One of the greatest challenges facing nonprofit organizations (NGOs) in Africa, Particularly Kenya and Somalia, is how to sustain and support NGO activities financially. The primary reasons why NGOs need to find different strategies for long-term survival are:

  • Decreased donor funding in general
  • Insufficient allocations for the region
  • Donor focus on new markets, specifically Southern Sudan and Darfur,
  • Decreased amounts for social programs

Although this issue is debatable, it is generally agreed that the most sustainable financing strategy for any organization is to diversify income sources. A sustainable approach to NGO financing is one that avoids dependency on any single source of revenue, external or internal. It is difficult to determine a formula for the percentages that need to be derived from various sources in order to support a “financially sustainable NGO.” However, a balance between externally and internally generated resources are necessary to allow an organization to meet its operating and administrative expenses while maintaining the freedom to determine its program priorities and projects, irrespective of donor preferences.

Most NGOs in Africa remain heavily dependent on external financial assistance from foreign donors. In fact, international support constitutes the single largest source of NGO funding in the region. This presents a three-part problem for local NGOs. First, the level of international funding is unstable. Resources for NGOs have been decreasing because many donors have shifted their attention to other priorities ─ greater need, political expediency or publicly popular regions of the world. Second, existing international funds in the region often are earmarked for particular projects or for limited project cycles. Thirdly, most donors have less confidence with the capacity of local NGOs in implementing projects thus; fewer funds are channeled through these NGOs. In addition, most Donors frequently attach specific limitations on how the money can be spent, designating particular issues or themes, or specifying support only for program expenses. This has made it difficult for NGOs to raise adequate funds for their ongoing operational expenses.

The current donor enthusiasm for project-based funding puts the emphasis on NGO activities rather than on sustaining the organizations themselves. In practice, institutional or organizational development remains a lower priority. NGOs are forced to go “where the money is,” regardless of whether the project priorities identified by a prospective donor mesh with the long-term strategic plans of the organization. This situation has led NGOs into an endless cycle of resource dependency.

Strategies for NGO Financial Sustainability

The ultimate objective of institutional development is to enable NGOs become organizationally and financially sustainable and, thus, viable for the long term. Achieving financial sustainability is a daunting task for NGOs, and NGOs need to explore different methods for obtaining and earning money such methods may include:

  • Donated money (social contracting, corporate giving, traditional fund-raising and private gifts)
  • Earned income (social enterprise, including fee-for-service)

Regional sources of NGO funding from local and national agencies, private entities and public donations have not yet developed to a level sufficient to meet demand. The poverty, corruption and social problems in Africa present major obstacles to local philanthropic development. Therefore, large companies operating in Africa must fulfill their social responsibility. For example, Manufacturing companies have social responsibilities in the areas of operation and production in the community, the environment and other social sectors, such as hospitals and educational institutions. Most foreign companies have formulated their corporate philanthropic strategy, which include making donations , events, giving grants for socially worthwhile projects and so on. This potentially could become one of the strategies for promoting NGO financial sustainability in Africa. There are some constraints, such as shortfalls in the legal environment (which offers no tax exemptions to encourage company donations) and a high risk of non transparency, as well as lack of awareness about fund expenses and places to contribute. However, good corporate citizenship is not just about donating money. There are many creative ways to invest in the community, including partnerships with community-based organizations, employee-volunteer programs, membership on non-profit boards and in-kind donations of goods and professional services. The primary means for conducting business philanthropic strategies are public-relations campaigns, liaisons and publications about project implementation.

Marketing plays a great role for companies and thus, in addition to product, price, positioning and promotion ─ traditionally known as the “four Ps of marketing” ─ philanthropy can become the fifth marketing “P.” Smart marketers can use philanthropy to increase their competitive advantage. Philanthropy could go beyond donating money and create great value for the community as well as a better corporate image for a firm through improved relationships between the public and business sectors. Many large international companies in Africa and elsewhere, already have concluded that good philanthropy is good business. NGOs in Africa should develop a business-philanthropy strategy in their region by identifying target companies and promoting the benefits that firms could reap through their participation. Initially, the easiest type of business philanthropy would be social partnerships with NGOs and a combination of monetary and in-kind donations of items such as used computers. Most companies have a policy of replacing their computers every five years. Firms usually give their old computer equipment to their employees for free or attempt to sell it even though the market value is low and additional costs (advertising, tendering process, time and space for storage) are incurred. Other examples of in-kind donations include the provision of free consulting services (by companies that hire paid consultants) and products supplied by food-processing firms that could be distributed to the needy. Contracts for the implementation of social programs are also possible. The strategy behind business philanthropy could be based on the dissemination of proposals to clients and the organization of income-generating activities, such as brokering services or administering projects. The discretionary income of the general population is generally not great enough support philanthropy, especially because people lack a local tradition of private charitable giving. Therefore, although the development of a local philanthropic base for NGO initiatives may be the preferred solution for NGO-financing problems in the region over the long term, this process will take time and require cultural, social and economic change.

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