Can Flexible Funding Become Our New Normal?
By: Florencia Spangaro, Director of Programs, Citi Foundation
While there is a growing belief among funders in the value of general operating support (GOS) and capacity building (CB), this funding practice has not been widely adopted. As recently as 2018, general operating support was estimated to constitute only 20-25% of all foundation giving. In an effort to contribute to the conversation and to encourage funders across the philanthropic spectrum globally to further consider supporting institutions rather than projects, the Citi Foundation recently commissioned Funding from a Place of Trust. The report, produced by Synergos, sheds light on how the flow of general operating support and capacity building funding ultimately drives the outcomes achieved by nonprofit organizations at the community level.
The report’s key findings include:
- General operating support is a form of “trust capital.”
A trust-based relationship is established when funders provide GOS, re-balancing power dynamics between donor and grantee and creating an effective two-way communication in which both parties learn and adjust.
- The establishment of a level playing field is an important intangible benefit of trust capital.
This in turn leads to a more honest relationship and greater confidence on the part of the nonprofit in their own potential. It helps overcome a deficit mindset and encourages innovation and a sense of agency.
- Invest in general operating support and capacity building funding early and for the long haul.
This point cannot be overemphasized: It takes time to strengthen an organization and to achieve results. Grant terms of 5-7 years should become the new standard.
- Long-term general operating support grants coupled with capacity building grants may be a gold standard.
They enable nonprofits to avoid a tradeoff between investing in capacity and in programmatic growth, helping ensure that new capacity acquired is sustained. As organizations respond to the pandemic, flexible support lends grantees the freedom to maintain and scale their programs while not having to worry about shortchanging their capacity
- Grantee readiness is an essential factor for effective general operating support/capacity building funding results.
Determining a nonprofit’s readiness includes factors such as its leadership and stage of development to use GOS and CB funds to better fulfill its mission and impact. As funders, we need to help organizations to move from a mindset focusing on projects to broader impact.
- General operating support and capacity building funding have a key role to play in monitoring, evaluation, and learning.
Social outcomes are difficult and expensive to measure, yet nonprofits largely shoulder that burden. Investments in GOS and CB funding can elevate monitoring, evaluation, and learning (MEL) to a strategic level and generate data and insights to further boost nonprofits’ achievements.
- Intermediaries can champion general operating support and capacity building funding.
Institutions that play the role of both grantee and donor are uniquely well-positioned to advocate for GOS. They understand the constraints faced by nonprofits and pass along either the burden of restricted funding or the advantages of GOS from their own donors to their grantees.
- It’s difficult to trace the impact of capacity building and general operating support funding on results.
Grants and evaluations are often not structured with methodologies to link CB and GOS funding to outcomes. One promising new methodology known as “Outcomes Harvesting” – which begins with results and traces back causality in a collaborative process between donor and grantee – may be effective for monitoring, evaluating and learning.
We have an opportunity as funders to contextualize these findings to the here and now. In the U.S., for example, we can leverage these learnings through a racial equity lens as we think more critically about how we level the playing field and address systemic racism. Nonprofits led by people of color have been historically underinvested by philanthropic dollars. By establishing long-term partnerships steeped in trust, we can support organizations led and serving people of color to deliver on their strategy and scale impact in their communities and beyond.
As the COVID-19 global health pandemic continues to grip our planet, the importance of flexible funding cannot be understated. Without it, organizations are forced to be responsible for managing and operating with funds that restrict the scope and timing of their activities, becoming less able to face both immediate challenges (e.g. pivoting programs to virtual formats or meeting unprecedented need for services) and longer-term impacts. Unrestricted support in the organizations’ themselves endows them with the faith and confidence they need to succeed on the front lines.
Funding from a Place of Trust can serve as encouragement to funders, many of whom are being more flexible today with their funding because of the crisis, to consider how to institutionalize these practices in the long run. We have the opportunity as a community of funders to reshape and create a new standard, where capacity building and unrestricted funding forms a greater part of how we support and place trust in our partners. During these extraordinary times, philanthropy has a chance to establish a new normal.