“We only make grants for 1 year. You’ll need to prove how you will be self-sustaining after the end of the grant.”
“Overhead can be only 15% of the budget.”
“For any capital assets, provide a reasoning for your purchase and how they will be disposed of after the project.”
These are a few of the short-sighted guidelines I’ve seen in grant applications. And for people working in the charitable sector, guidelines like these are tiring, demeaning and limiting. They feed into what has been called the “non-profit starvation cycle” and the gig economy, non-profit-style. But for many charities I’ve worked for, and many others around the world, they depend primarily on grants like these.
The search for sources of stable and core charitable funding continues to be elusive. Grantmakers need to open up to the idea of unrestricted and multi-year giving.
The problem with project-based giving
The issue with the majority of foundation and many government grants is that they are to be used only for a specific, time-limited project that meets specific requirements of the funder. What can happen when charities have to request funds for only time-limited, project-based work?
- Charities meld or develop their projects to fit into what the funders want, instead of what the charities and their beneficiaries need.
- They’re scrambling to cover operational and overhead costs.
- Everything becomes short-sighted.
It does a disservice to the communities charities serve when charities have to arrange a project on the desires of funders, not on the analyzed needs of communities. A lack of investment in indirect costs leaves insufficient support for things like administrative and financial oversight, further fundraising, IT, communications and staff benefits and development and, as a consequence, organizations live with underdeveloped cores. The need to constantly be in search of new funders and to apply to multiple funders each year creates a sense of precarity within the projects and for staff.
What unrestricted giving looks like
Funders like the Esmée Fairbairn Foundation (which provided core or unrestricted funding to 65% of its grantees in 2018) and The Whitman Institute (which advocates for “trust-based philanthropy” and hopes that it can convince more foundations to take on this practice by the time it spends out in 2022), still lay out funding priority categories which grantees must meet.
As the Esmée Fairbairn Foundation puts it, the funder is deciding to invest in the “what” and let organizations they fund determine the “how”. Applications are still stringent, requesting that organizations demonstrate the impact and need for the work, speak to their track record and lay out their intended activities, outputs and outcomes. However, the funder, instead of linking itself directly to only project outcomes, can see how its support has contributed to the overall success of an organization and its impact as a whole.
Five large international funders — the Ford, Hewlett, MacArthur, Open Society and Packard Foundations — have recently committed to address the non-profit starvation cycle by studying and discussing a range of grantmaking approaches, which all include the sufficient coverage of indirect costs. In 2017, the Ford Foundation gave 70% of its grant dollars to unrestricted funding.
Benefits of unrestricted giving
This type of funding has wide ranging benefits for the grantees. The Esmée Fairbairn Foundation had these findings from its own grants:
- project funding and core funding is similarly effective when it comes to achieving outcomes;
- 9–14% of organizations which received unrestricted/core grants noted that the grants had unlocked further funding, compared to only 2% of project-funded organizations;
- core funding gave them the flexibility to develop and improve their work, including taking risks and making mistakes;
- 5 years of support is an ideal funding window that can free organizations to concentrate on impact; and
- core funding enables long-term planning, growth and coherence within the organization.
It’s time that more grantmakers reevaluate who they let determine the “how” and if they’re truly interested in the long-term impact of the charities they fund to see real change in their communities.
What is General Operating Support and Why is it Important? (Grantmakers for Effective Organizations)
Why Funders Should Pay for the True Costs of Nonprofits’ Work — Not Just the Direct Project Expenses (The Chronicle of Philanthropy)
The campaign for unrestricted funding needs to change tack (Giving Evidence)