Giving practices have undergone a shift since the Covid-19 pandemic, during which more flexible funding was made available to non-profit organisations (NPOs) responding to crises.
On 23 February 2023, responsible business consultancy Trialogue, in partnership with Barloworld, hosted a webinar exploring current giving practices.
Panellists Noluvo Ngcwabe (Executive Consultant: Barloworld Empowerment Foundation – BWEF), Sanjeev Raghubir (Group Sustainability Manager at Shoprite Holdings), and C J Roux (Chief Financial Officer at Hope Worldwide South Africa) examined whether unrestricted funding and trust-based philanthropy are likely to become more prevalent.
Unrestricted funding a growing trend
Between 2019 and 2022, American philanthropist MacKenzie Scott disbursed around $13 billion in unrestricted funds to 277 non-profit organisations – part of a growing trend in the US. However, Trialogue’s primary research indicates that only 10% of South African companies surveyed offered unrestricted funding in 2022, with 86% not willing to consider it.
A snap poll showed that webinar attendees consider the perceived lack of accountability to be the most significant challenge to unrestricted funding (56%). However, evidence suggests that it helps NPOs to build capacity and become more sustainable, which ultimately benefits the communities they serve.
Trialogue research further shows that 45% of companies surveyed in 2022 did not offer any form of capacity building to NPOs. Of the NPOs surveyed, 38% said they did not receive such support. However, flexible funding for internal capacity building is the intervention most desired by NPOs (39%), followed by pro bono support (20%) and workshops or training programmes (15%).
Given the mismatch between what funders offer and what NPOs need, should companies re-evaluate their giving practices?
From patrons to partners
Barloworld as taken the approach of offering unrestricted funding to NPOs as it views them as partners. However, it selects these partners carefully.
“We look for entities with a national footprint that are registered as public benefit organisations (PBOs),” says Ngcwabe. “Before we commit to funding, we want to understand an NPO’s Theory of Change and value proposition, which must align with our strategy. This is important because we work with our partner for three to five years at a time.”
Funding flows from the Barloworld Trust, but because CSI funding can be limited, NPOs that want to scale their initiatives may receive additional funds from the Barloworld Empowerment Foundation. “We consider which funding pocket is fit for purpose,” says Ngcwabe.
Shoprite Holdings prioritises NPO capacity building. The biggest food retailer in Africa, its focus areas include hunger relief, food security and youth employment, as well as SME development. It supports close to 200 community food gardens, along with more than 100 early childhood development (ECD) programmes.
During the first half of 2023, it provided more than R100m of surplus food to more than 400 beneficiary organisations across the country.
By providing implementing partners like the Lunchbox Fund with surplus food donations, it frees up funding they would have spent on nutrition to improve their infrastructure, pay their practitioners, and attend to back-office functions.
How flexible funding assists NPOs
Roux says Hope Worldwide, which operates in more than 1 500 ECD centres in all nine provinces of South Africa, receives support from a wide range of donors, but unrestrictive funding amounts to less than 10% of the total funding it receives each year.
By contrast, some of its international chapters receive mostly unrestricted funding – but this tends to come from small individual donors, rather than companies or foundations.
While Roux says he understands the need for stringent reporting requirements, he believes unrestricted funding creates more lasting impact. “It has helped us to improve our strategy, streamline internal processes, staff our organisation, and achieve our goals,” he asserts.
Any unrestricted funding received typically goes towards covering operational costs, rather than being directed towards developmental goals, which indicates the very real need to build NPO organisational capacity.
An investment in NPOs
Roux says organisations have a different understanding of what is meant by unrestricted funding, but in his view, it means giving NPOs leeway to user funds as they see fit, within the framework of their stated goals.
“Unrestricted funding is essentially an investment in a non-profit, with the partnership enabling the service that it provides,” he says. A good example of this is multi-year funding, which allows NPOs to plan ahead and set long-term goals. Funding can be used for capital expenditure and capacity building, like purchasing a vehicle, or the building in which it operates, so it does not have to pay rent.”
“If we can get to a place where 1% of the funds received can be used as unrestricted, this can go into our reserves. Over tie, this can accumulate, through investment and interest earned, to build up a healthy reserve and make an NPO more sustainable,” he says.
At the same time, he acknowledges that not everyone can offer unrestricted funding, especially those funders who are themselves restricted by boards of trustees, for example.
Funder requirements differ in terms of revenue, reach and reporting, with debates about costs, such as whether salaries fall under administration or project costs. Ultimately, having such discussions with funders will help to clarify expectations – but Roux notes that NPOs may become risk-averse where funds are limited and reporting requirements are excessive, forcing them to miss opportunities.
Optimising funding
Meeting the needs of both stakeholders and partner organisations can be a challenge, especially as it takes time to build capacity.
Ngcwabe firmly believes that unrestricted funding makes it easier for NPOs to meet community needs. At the same time, internal stakeholders want funding to be optimised. This sometimes means partnering with other corporates, and the NPOs with which they work, to achieve outcomes.
Raghubir reveals that building capacity in communities means committing to 18 months of coaching, mentorship and providing seeds, implements, fencing and shade netting to help create community food gardens. After 18 months, the projects are evaluated and committed to for a further 12 months.
“In this way, shared value is created, for communities, NPOs and all stakeholders across our organisation,” he says. “At some point, the food gardens will become sustainable, which provides communities with a level of resilience against food insecurity – an important factor as climate change impacts our country with foods, fire and drought,” notes Raghubir.
Understanding the structure of entities
Roux says HOPE Worldwide is registered as a PBO, which comes with a lot of advantages, like being able to issue tax certificates, but this also places restrictions on the NPO as it can’t engage in profit-driven activities.
“We can derive an income from unrestricted funding, which allows us to build up a reserve that generates interest and investment income,” he says. “We therefore value those partners who can support us with capacity building.”
He says social challenges are long-term challenges, and it often takes decades to make a significant impact, which is where the sustainability of an NPO becomes critically important.
Ngcwabe says understanding how entities are registered is a good starting point.
“At Barloworld, our CSI fund is registered as a trust. Trusts are restricted in terms of overheads – for example, 15% goes to our overheads and 85% goes to outreach. Each entity will have different elements,” she says. She highlights that collaborating, and building trusted relationships, can bridge the gap and increase impact.
This approach reimagines the relationships between donors, NPOs and communities, making trust-based philanthropy a reality. There are six key areas for donors to focus on:
- Multi-year unrestricted funding
- Doing the necessary homework
- Simplifying the paperwork
- Being transparent and responsive
- Soliciting feedback
- Supporting organisations beyond funding
Watch a recording of the webinar here:
More resources
- Trialogue’s primary research has been published in the Trialogue Business in Society Handbook 2022. Read the ‘Overview of 2022 CSI research‘, ‘Overview of NPO income in South Africa 2022′, or download a free copy of the Handbook.
- Find out more about The Trust-Based Philanthropy Project.
