Why unrestricted funding matters..
The Institute forPhilanthropy, a UK organisation working to increase effective philanthropy, has just published a report into unrestricted funding as part of its work to educate donors. The report was produced in response to the apparent common misconception that charities with higher overheads are less effective than those with lower ones.
The report says that focusing people’s attention on how low a charity’s overheads are is counter-productive because “it promotes a culture where donors are no longer willing to support the core and the heart of what organisations really do” according to Jessica Sklair, Head of Research at the IfP.
The report is based on a number of studies, but focuses laregly on a study carried out by the Urban Institute and Indiana University in the States. They looked at overhead costs in charitable organisations and found that contrary to popular belief, charities with lower overheads are less effective than those with higher ones. According to Miss Sklair, there is a defining shift in philanthropy towards a more investment-based approach to giving with core support at the heart. She argues that with trends like venture philanthropy and other forms of strategic philanthropy which have been developed over the past decade, we’re now seeing a “critique of more traditional forms of philanthropy which are risk averse”. This new form of philanthropy is more than just about money – it’s about thinking how people might want to invest in charities and their motivations for doing so.
Surely a wise ‘investor’ will see that overheads are part and parcel of a strong organisation, giving them the skills and capacity to deliver their projects and reach their beneficiaries? We’d like to think so, but as Miss Sklair explains, it’s not quite as simple as just having flexible capital:
“It is more about a kind of funding relationship which will take the form of a partnership. A partnership where the philanthropist will sit down and say – “I really like what you’re doing, what do you need to do it better or even just keep it going so successfully”. Often the answers which will come back from organisations are “we just need the finance to keep our core work going.”
The paper looks at why philanthropists should support core funding, why so many funders are unwilling to provide core support and how philanthropists can determine the best way forward. The report also includes a number of case studies from various funders. You can download the full report here for free and don’t forget to let us know what you think of it by commenting below…