Innovating to increase flexible funding for local-level organisations

Despite explicit commitments detailed in the Grand Bargain, funding to local actors is still critically lacking five years on. Studies suggest disappointing amounts of both direct and indirect funding to local and national NGOs (L/NNGOs). One study suggests that just 0.2% of overall humanitarian funding goes directly to these actors, while only 14.2% flows either directly or indirectly through other channels, including through international INGOs and pooled funds.

Local organisations are routinely the first responders to crisis. They are regularly relied upon to rapidly scale up, lead and embed recovery and post-crisis phases, utilising their understanding of the context and access to local communities and networks. Their crucial role, and the inevitable increased risk that comes from being frontline responders in crisis contexts, is not acknowledged in the form of funding. At present, L/NNGOs do not benefit from the same levels and safeguards of access to flexible funding afforded to international organisations. 

In the absence of access to flexible funding, L/NNGOs are trapped in a cycle of project-based approaches. They also suffer the consequences of staff turnover, which stems from an inability to invest in and strengthen the capacities of their staff and the sustainability of their organisations. Therefore, flexible funding is critical to cover core costs for L/NNGOs and increase their longevity and sustainability.

Methodology and methods

The impetus for advancing locally led humanitarian action has never been greater. However, there is limited research and a lack of rigorous evidence to inform efforts to advance localisation. In direct response to this, Street Child and Save the Children Denmark (with funding from the Ministry of Foreign Affairs of Denmark, Danish International Development Agency (DANIDA)) designed a pilot programme to expand evidence and enhance understanding of how L/NNGOs use flexible funds. The pilot had three aims:

1. to increase understanding of how L/NNGOs choose to spend institutional funding;
2. to explore the ways in which institutional funding influences access to further funding; and
3. to share findings with relevant recommendations to increase institutional funding for L/NNGOs.

The study was conducted in six conflict and crisis-affected contexts (Afghanistan, Bangladesh, Cameroon, DRC, Mozambique and Nigeria) and prioritised protracted crises, presuming they would offer opportunities to invest in organisational strengthening. In each context, one organisation was selected to receive $15,000 over a three-month pilot period (March–May 2020), which coincided with the onset of the Covid-19 crisis in these countries.

The availability of the grants was advertised by the Education Cluster at the country level. The length and level of detail asked for in the application was adapted to avoid identified issues faced by L/NNGOs when attempting to access funding – for example, their capacity to complete the application and the language of application. L/NNGOs had to meet the following eligibility requirements:

• To be an independent L/NNGO without affiliation to any international agencies and without any previous or present partnership with Save the Children or Street Child. This was intended to limit the influence of INGOs on the L/NNGOs’ decision-making.
• To have implemented activities in the education sector at some stage in the last five years. This was intended to ensure funding flowed to education-focused organisations, as the fund was made available and advertised through the Education in Emergencies (EiE) sector.
• To have an annual budget between $150,000 and $4,000,000. This was intended to ensure the organisation had the capacity to absorb and use funds (<10% of annual budget) and that the grant was large enough to have a discernible effect on the organisation. 

Street Child shortlisted organisations that met the selection criteria; all shortlisted organisations were assigned a number, and a random number generator was used to select a single organisation for each country. The selected organisations are listed in Table 1.

These organisations were asked to submit a three-month indicative budget before the grant was transferred to allow analysis and evaluation of expenditure, but no further guidance was given on how to spend the grant. Instead, the organisations were encouraged to spend the funds as they saw fit. After three months, Street Child conducted a semi-structured interview with each organisation to gather information and feedback on expenditure, and the factors influencing budgeting and expenditure decisions.

Organisations selected for the pilot programme

Key findings

All organisations involved in the study acknowledged the difficulties in accessing institutional funding through the humanitarian architecture and appreciated the autonomy and opportunity that this grant offered. Four of the six organisations spent the entire grant in the three-month project period, with 95% average expenditure rate across all six organisations. The other two organisations required additional time to spend the grant and recommended that future grants have more flexible timelines.

Allocations

All organisations’ expenditure reports reflected the initial allocations made in their indicative budgets; in some contexts, organisations changed components of their programmes in response to emerging restrictions related to the onset of the Covid-19 crisis. This suggests that, first, L/NNGOs attempt to adhere to budgets and, second, that they are able to adapt to rapid changes in circumstances, and re-programme budgets to respond.

Organisations suggested that the nature of the funding increased their confidence in investing in organisational needs and core costs 1.Core costs refer to salary contributions and any costs incurred outside of programme implementation. : five out of six spent approximately 10% of their funding on central staff salaries and office costs, and one conducted a five-day workshop with a consultant to create an organisational strategy. Feedback from five of the six organisations suggested that they had previously found it difficult to fund these types of activities, due to the prioritisation of programmatic activities.

However, Street Child analysed the cost categories in the expenditure reports and found that, on average, organisations spent approximately 85% on programmatic activities. This reflects proportions that are perhaps on par with restricted grants. This countered speculation shared in initial consultations – for example, from an Education Cluster Coordinator at the county level – that L/NNGOs might use the grant to cover core costs which are difficult to fund as standard contracts usually force organisations to restrict overheads. An analysis of the semi-structured interviews appears to attribute L/NNGOs’ decisions not to use more of the funding for core costs to a number of different influencing factors.

Influencing factors

An analysis of the semi-structured interviews conducted with the organisations offered the following additional insight into these influencing factors.

Internal factors

The size, scope, financial capacities and leadership of the L/NNGOs appears to have had an impact on cost allocations, with clear differences observed between small and large organisations. For example, Hallmark in Nigeria was able to allocate funding for an organisational strategy and sustainability workshop, whereas other organisations reported that they did not consider activities of this nature.

External factors

• The advertisement and announcement of the grant by the education clusters at the country level appears to have influenced allocations towards programmatic activities – particularly education activities – as organisations assumed that the funding was for this purpose, despite clarifying there were no restrictions on its use.
• L/NNGOs appeared to have an accurate and strong sense of needs in their communities and chose to allocate costs towards programmatic activities that were targeted or tailored toward these needs. L/NNGOs had designed or developed programmes to address these needs but had been unable to find flexible funding for them. They believed that producing proof of concept for these programmes – through using the grant – would allow them to generate evidence that would expand access to further funding. 
• The onset of the Covid-19 crisis required rapid re-prioritisation and re-purposing of budgets to activate responses. In this instance, it appears that the availability of unrestricted funding amplified the agility and flexibility of L/NNGOs at the frontline, leading to more rapid and responsive programming in crises. 

Conditioning factors 2. ‘Conditioning factors’ refers to factors which have influenced the learned behaviours of an organisation over time.

• Historic relationships and requirements from donors appear to have influenced organisations to prioritise project activities and limit core costs. Organisations adhered to this proportioning due to a lack of precedent in receiving flexible funding. Action for Community Development Association (ASADEC) in Mozambique confirmed this, stating that ‘at no stage did we consider using the funding for operational [core] costs alone’. 
• Knowledge of the programming focus and priorities of the INGO administering the grants also appears to have influenced the type of programme activities prioritised by L/NNGO grantees.  Coordination of Rehabilitation and Development Services for Afghanistan (CRDSA) commented that ‘if Street Child did not focus on children, we would have chosen to implement programmes in WASH’, supporting this assumption.

Access to further funding

In certain instances, organisations reported that the provision of flexible funding allowed them to trial or test a proposed programme or approach that, in turn, created opportunities to secure further funding. One organisation secured funding from the Malala Foundation to expand an initiative innovated under this pilot programme; other organisations have reported a range of initial and advanced discussions with donors – particularly with international organisations acting as intermediaries to direct downstream funding.

Conclusion

The pilot programme offered substantial insight into the use of flexible funding, showing that L/NNGOs make careful, considered choices in how to allocate funds and adapt programmes to changing circumstances within the framework of various influencing factors. This study and analysis show that the factors influencing budgeting, programme planning and implementation are complex and can be categorised as internal, external and conditioning elements. Street Child suggests that these are given careful consideration when designing further studies: for example, through controlling one or more variables to conduct critical analysis of a single factor.

Street Child also suggests these categories are considered by donors seeking to provide grants to L/NNGOs, to ensure flexible funds are expended as freely as possible. For instance, in the example from ASADEC above, the organisation did not consider using the funding solely for core costs due to donor expectations (or in this case, perceptions of expectations). Donors must communicate clearly to prospective grantees what proportion of the budget can be spent on covering their core costs. If funding is channelled through intermediaries, it is important that intermediaries also invest in clear communication and refrain from interpreting or imposing conditions on the grant, whether by intention or omission.

Our analysis suggests that an intentional and significant shift in understanding flexible funding is required to reap its benefits. For example, Mbonweh Women’s Development Association (MWDA) in Cameroon stated that the choice to keep organisational costs low was based on community need and that the organisation is used to working with limited salaries and leveraging community contributions. These assumptions, perhaps arising from years or decades of working within an environment that has tended to restrict funds for L/NNGOs, should be challenged to create more conducive conditions for flexible funding. This could include donors ringfencing funding for flexible use and sharing suggestions for how funds can be used towards organisational strengthening, or to leverage further funding opportunities.

Recommendations

For donors

• Consider the duration and restrictions related to grants and invest in an increased proportion of flexible funding with flexible timeframes (for example, using no-cost extensions). This pilot programme allowed L/NNGOs to hold underspent funds in reserve to spend as they chose.
• Offer flexible funding for L/NNGOs – directly or through intermediaries – during the onset of crises. This pilot proves that providing access to flexible funding for L/NNGOs allows to them to adapt programming to respond to changing circumstances and community needs.

For further exploration 

Donors and intermediaries should consider investigating the following:

• How flexible funding influences how L/NNGOs apply for, allocate and spend funds. This could involve inviting organisations to apply for ringfenced funding without any restrictions on amount or timeframe and tracing expenditure over time.
• The impact of capacity-strengthening support coupled with flexible funding (for example, in financial management and monitoring) to ascertain its effect on expenditure choices.
• The need for flexible funding for operational core costs and the ways in which communication on the lack of spending obligations for this type of funding influences investment in these costs.
• Avenues for neutral grant allocation to avoid conditioning factors. This could involve inviting an interagency or intersectoral committee to allocate, manage and monitor the grants.
• Whether and how minimum budget thresholds can be revised or removed to allow smaller local and community-centred organisations to apply for and access flexible funding.

Acknowledgements and next steps

Street Child is grateful to the six selected organisations whose engagement and openness has led to the learning and recommendations arising from this pilot project. For the full research report, please see www.street-child.co.uk/publications. For a recorded session on the findings from the pilot project, featuring reflections from representatives of the six organisations, please see www.street-child.co.uk/live-webinar-innovation-for-localisation.

Street Child is working in close collaboration with Save the Children Denmark to explore opportunities to advance the suggested studies set out in this paper. As an immediate initiative, these learnings are contributing to the creation of a Localisation Toolkit – produced in partnership with the Child Protection Area of Responsibility (CPAoR)^[3] and Save the Children International – to accelerate local leadership in the cluster co-coordination architecture. If you are interested in learning more about this pilot programme or planned projects, please contact Ben Munson at ben.munson@street.child.org.

Ben Munson is Global Partnerships Advisor and Ramya Madhavan is Global Head of Advisory, Education and Evaluation at Street Child. Sarah Stephens is Innovation Programme Coordinator at Save the Children Denmark. Evelyn Nojang is Director at Mbonweh Women’s Development Association. Jesmin Prema is CEO at Samaj Kalyan Unnayan Shangstha. Mohammed Kabir is Project Manager at Hallmark Leadership Initiative. Pascal Maga is Project Manager at Environmental Actions and Emergency for Development. Yahya Omid is Project Manager at Coordination of Rehabilitation and Development Services for Afghanistan. Henriques Verónica Henriques is Project Coordinator at Action for Community Development Association.