NGOs face a slow-onset funding disaster in UK (& here?): what can be done?

Brexit is prompting a lot of discussion within the United Kingdom's aid community right now. But while the focus is understandably on EC funding and exchange rates, there’s a less visible and potentially more dangerous funding threat to deal with, argues Michael O’Donnell of Bond (the network of UK development non government organisations (NGOs)).

His article, originally published on Duncan Green's From Poverty to Power blog and republished here with permission, has relevance for Australian development agencies and community service organisations that are also under funding and program pressure.

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Michael O'Donnell writes

Right now, NGO staff focused on quality and effectiveness need to mobilise and polish their skills of persuasion, because it’s about to get a lot harder to keep organisations focused on those issues. Why? Because for NGOs receiving funding from donors in Europe – and particularly the UK – flexible or unrestricted funding is getting squeezed on multiple fronts, and flexible funding is the friend of quality work.

Unrestricted, flexible funds – often money from the general public or strategic grants – are the things that pay for NGOs’ M&E (monitoring and evaluation) systems and advisors, not just the people working to deliver one specific project. They may pay for investment in local consultations and intervention design, in innovation or in setting up a feedback mechanism to ensure you adapt your services in light of users’ experience. They usually fund the time spent discovering what researchers have found out about your area of interest, or what worked previously. And everyone knows how precious those funds already are. For the not-for-profit sector, unrestricted funds serve many of the same functions as investment capital and recycled profits do for the private sector.

In Bond, we’ve found that the organisations with a healthy mix of unrestricted and restricted funding sources tend to perform best on various measures of effectiveness. Having a blend of both seems to mitigate the risks associated with too much of either. Put simply (and over-simplistically), the basic risks are of short-term restricted funding that is too ‘projectised’, and unrestricted funding that is too unaccountable. Good design and management, however, can tap into the huge potential of flexible funding to invest in effectiveness, and can capitalise on the healthy pressure of competitive bidding and external accountability associated more with restricted funding.

The “Goldilocks” funding blend for NGOs

In the UK, the squeeze on unrestricted funding is coming from a number of sides.

• Public trust in NGOs is on the decline and increased fundraising regulation is in the pipeline: income from the general public has flat-lined over the last decade overall, with many NGOs anticipating (or already experiencing) falls.
• Scepticism about aid also puts pressure on governments either to cut budgets (avoided so far in the UK) or to make sure that they can prove ‘results’ are being achieved. The latter encourages the temptation to demand short-term, measurable, easily-communicated results, attributable to single interventions. These are all features that are highlighted in critiques of the ‘results agenda’ from IDS (Institute of Development Studies) to ICAI (Independent Commission for Aid Impact), and at odds with thinking on complexity, adaptation and what’s needed to address the Sustainable Development Goals.
• Department for International Development's (DFID) main source of strategic, flexible funding to NGOs (Programme Partnership Arrangements – PPAs) is coming to an end, and there have long been warnings from DFID that it won’t continue.
• And there’s the latest short-term shock of the post-Brexit depreciation in the value of the pound, reducing what UK-based actors can purchase overseas, and thus possibly requiring NGOs to redirect some unrestricted funding to avoid cuts in ‘frontline’ spending.

In an informal, rapid survey of NGOs with DFID PPA funding earlier this month, in addition to substantial uncertainty about the future, Bond found that the coping mechanisms NGOs are tapping into to keep up overall activity levels (e.g. commercial contracts, more restricted funding, cost-cutting) risk having a detrimental effect on programme quality. NGOs reported increasingly struggling to fund things like M&E, learning, research, innovation and advocacy work:  things that underpin effectiveness, but which don’t make for compelling narratives about quick achievements. It may not be a dramatic San Andreas to what Duncan Green has termed the UK's developmental Silicon Valley, but it’s more of a slow-onset disaster. Even if you think it would be good for ‘those complacent old dinosaur international NGOs’ to be cut down to size somewhat, more restricted, inflexible, short-term funding is certainly not what is needed to strengthen civil society either.

The history of development is littered with sub-optimal programmes where learning did not happen and the same mistakes were repeated. We must not backtrack on (slow, painful) recent progress. So what’s the response? Here are a few suggestions:

• We need to make a strong collective case for investing in things like monitoring, evaluation, learning, innovation and adaptation. For example, the World Bank’s IEG recently put out a good analysis of how high quality M&E increases programme performance. We must hold donors accountable for having fit-for-purpose funding policies and practices. It would be great to see DFID underline the importance of quality as they set out their plans in the Civil Society Partnership Review, for example.
• Communications is as important as evidence: the declining trust in charities and scepticism about aid effectiveness that creates political pressures for more restricted funding requires smart comms people to help message a confident case both to funders and to the giving public.
• NGOs need to be more confident in understanding and budgeting for all their costs, and recovering those within restricted grants and contracts, so that all that good stuff that has indirect value for programme quality isn’t underfunded. The ‘starvation cycle’ of minimising and demonising ‘overheads’ needs to stop.
• If restricted funding is to be the way forward, at least let’s get cleverer about designing more flexibility into it. A focus on accountability for ‘results’ does not need to be incompatible with definitions of results that are long-term, meaningful to the populations they are intended to benefit and which can accommodate some uncertainty or risk. There are encouraging examples from DFID and its Better Delivery agenda around more flexible results frameworks in grants and commercial contracts, for example (e.g. SAVI).

We know how rapid-onset disasters get the attention in our sector: for this slow-onset funding disaster we need to read the early warning signs now and mobilise to mitigate the risk of declining quality of work.