Developing NGO-led approaches to pooled funding: experiences from Zimbabwe

Over the past decade, the humanitarian sector has seen a trend away from direct bilateral donor-to-NGO grants and towards the consolidation of funding streams into a variety of shared, centralised funding mechanisms – theoretically simplifying the process of project funding for all involved. While UN-led approaches like pooled funds have made some progress in improving operational coordination and donor alignment, they have simultaneously created serious new difficulties for implementing partners and their impact on programme quality is at best ambiguous. Mercy Corps believes, based on our experience managing a multi-donor, multi-partner funding pool in Zimbabwe, that NGO-led approaches to pooled funding have strong potential and should be explored as an alternative to UN-led efforts.

Pooled funding: drivers and challenges

The UN has created pooled funds in several countries – notably the Common Humanitarian Fund (CHF) in Sudan and the Pooled Fund (PF) in the Democratic Republic of Congo, both of which focus on financing field-level relief and recovery efforts through NGO or UN actors. The UN’s cluster system, rolled out in several pilot countries in 2006 and now expanding to all UN humanitarian operations, has likewise served to centralise and consolidate funding streams – albeit through UN agencies rather than within new mechanisms. These various approaches are intended to serve as one-stop-shops for donors and implementing agencies, consolidating multiple funding streams within a single entity.

The trend towards increased consolidation of funding streams and centralisation of funding mechanisms has been driven by a number of very real shortcomings:

• Inadequate operational coordination. Effective humanitarian coordination has been a challenge for years. Pooled mechanisms aim to improve coordination by strengthening the link between coordination priorities and funding decisions. The UN’s ‘cluster system’ has had a similar effect – channelling a greater proportion of humanitarian funding through UN cluster lead agencies, in the name of enhanced coordination.
• Limited donor capacity. Donors have an understandable desire to minimise their internal overhead costs relative to programme expenditures. By outsourcing the oversight of humanitarian resources to an external actor – whether a pooled funding mechanism, a UN agency or a contractor – donors reduce their net administrative burden while in theory ensuring adequate project oversight.
• Poor donor alignment. The Paris Declaration of 2005 affirmed the need to reduce the ‘fragmentation’ of development-oriented aid flows by aligning donor contributions with shared assistance frameworks. Donors are now applying similar principles to their humanitarian funding, moving towards support for clear and broadly-agreed assistance strategies under the cluster system. For NGO and host governments that know how difficult it is to develop a coherent humanitarian response out of a patchwork of different donor priorities, this could potentially be a helpful development.

Evaluations have shown that mechanisms like pooled funds and the cluster system have indeed made some progress towards addressing these problems. However, these approaches have not been an unmitigated success – the UN’s performance has been mixed overall and a number of new problems have arisen. In particular, for the NGOs that ultimately receive much of the funding in the humanitarian sector, these changes have highlighted new weaknesses within the system:

• A disconnect from programme implementation. In Sudan, an independent review of pooled funds noted that donors’ perceptions of pooled funds seemed to be based on ‘whether the instrument has met donor objectives associated with current aid agendas rather than on delivery of results on the ground’. Likewise, ODI’s report on the CHF and Pooled Fund notes that they have ‘failed to fully engage and utilize NGO capacities and … their primary implementing role’.
• Slow and inefficient administrative processes. Evaluations of the CHF and the pooled funds have universally identified the slow pace of disbursement as a major weakness. UNDP’s performance in administering funds to NGOs has proved extremely problematic, its systems rigid and slow-moving in the face of dynamic relief and recovery needs. One report, commissioned by the CHF and Pooled Fund donors, concluded that ‘although UNDP has made a concerted effort to adapt its procedures, it is questionable whether it is fundamentally equipped to undertake programme management of humanitarian projects’.
• Excessive focus on funding UN agencies. ODI’s evaluation of the CHF and Pooled Funds found that prioritisation of funding often appeared to be linked to internal UN issues rather than assessed needs – with funding going to UN agencies at levels disproportionate to their capabilities. One example of this is the CHF’s initial response to the 2007 floods in Sudan: 80% of the first cycle of funding was disbursed to UN agencies, and only 20% to NGOs on the ground. The donor-commissioned evaluation of the funds also noted that disbursements to UN agencies were often not linked to any form of project impact measurement – with the result that much of the funding went to UN overhead rather than project costs.
• Partnership challenges. NGOs’ difficulties with the partnership procedures of UN agencies have been exacerbated by the advent of the cluster system and the corresponding increases in the proportion of humanitarian funding routed through UN, rather than bilateral, channels. These challenges – including inadequate overhead support, the imposition of unrealistic salary caps, long delays between projects starting and funds being disbursed, onerous administrative requirements, and difficulties in covering field administration and logistics costs at a realistic level – are forcing agencies in some countries to question whether they can accept large-scale UN funding. UN partnership problems – which were manageable when NGOs received a large proportion of their funds from bilateral donors – risk becoming unmanageable as bilateral funding opportunities recede.

There are serious weaknesses in how the UN has approached the consolidation of humanitarian funding. Mercy Corps believes that a preferable way to retain the benefits of centralisation and consolidation, while also addressing the shortcomings of the existing UN-led models, is to give NGOs and civil society actors a more central role in the management of these mechanisms. Mercy Corps’ experience with an NGO-led pooled fund in Zimbabwe has shown the potential of such an approach.

The Joint Initiative in Zimbabwe

In 2005, the government of Zimbabwe launched Operation Murambatsvina (‘Operation Restore Order’) to close down slums throughout the country. The resulting displacement of 700,000 of Zimbabwe’s poorest people constituted a serious emergency, and humanitarian actors in the country sought to organise a response. The UN attempted to develop a flash appeal, but the government refused to sign off on it. The appeal was eventually submitted to donors without the government’s approval, but by that point a great deal of time had been lost and the donor response was tepid. In light of the poor response to the appeal, several international NGOs in the country began discussing the idea of organising their own response. The idea was put to donors, who proved supportive of the concept and asked the NGOs to take it forward.

With the encouragement of donors, these NGOs – Mercy Corps, Africare, CARE, CRS, Oxfam, Practical Action and Save the Children – began to flesh out the structure of such a partnership. Naming their effort the Joint Initiative (JI), the partners drafted a concept paper outlining how the consortium would function, and designed an assessment plan. As part of this process, the partners devised a unique system to optimise coordination and separate it from individual agencies’ fundraising considerations. During the assessment design phase, each partner indicated which sectors and regions they wished to target. Any overlaps would be resolved by consensus. The partners agreed that funding would be designated for each sector based on the relative urgency of need, as determined by the joint assessment, and then assigned to partners based on the prior agreement on coverage responsibilities. This system facilitated the selection of the most-qualified partners for each sector, while discouraging partners from simply pursuing the most lucrative sectors (since funding allocations were separated from designations of sectoral responsibility).

With these plans in hand, the consortium met several major donors to formally pitch the idea. The JI’s donors (DFID, USAID, AusAID, the Norwegian government, CIDA and SIDA) agreed to contribute an initial $60,000 towards carrying out the assessment and design phase, following which a full proposal was submitted. After detailed negotiations, the JI partners persuaded donors to agree to an unusual but greatly streamlined administrative and accountability structure. In order to minimise the overhead burden of involving 12 partners and donors, all donors to the consortium agreed to receive a single joint financial report, and a single joint narrative report. Strategic and funding decisions would be made by the JI steering committee, consisting of the partners’ country directors and a representative of the donor group. Once per quarter, the steering committee also met the broader donor group to ensure that all donors remained engaged. Donors agreed not to earmark funds provided to the consortium, instead allowing the JI steering committee to make funding allocations. Finally, rather than using multiple sets of differing procurement guidelines depending on the funding source, all donors permitted the consortium to use SIDA’s guidelines as the common standard.

USAID – which for legal reasons could not contribute directly to the consortium – agreed to cover the administration and management costs incurred by Mercy Corps as the lead agency. This ensured that all funding from the other donors went straight to the recipient implementing partner, as Mercy Corps had no need to impose a general management fee. In contrast to the traditional fixed-fee arrangement that the UN typically adopts, this approach constituted a more transparent and accountable means of covering administrative management costs.

For the first phase of the Joint Initiative, which ran from May 2006 to March 2008, donors committed $5 million. The initiative performed extremely well: of the 16 activity targets in the original proposal, the consortium met or exceeded 13. In many cases targets were surpassed. This is all the more impressive considering the highly politicised and economically volatile operating environment. Several achievements were particularly notable. The consortium set up triple the expected number of vendors’ associations to facilitate business training and credit provision, trained triple the planned number of Community Home-Based Carers and facilitated tenure clarification for more than double the projected number of households. An independent external evaluation of the project’s first phase found that ‘the JI programme has been an innovative approach in providing support to poor and vulnerable urban households. Overall, the programme successfully met its targets and objectives’.

The way forward

The Joint Initiative was relatively small, at only $5m, and many NGOs (Mercy Corps included) have experience of managing far larger sums as part of single-donor programmes. It is reasonable to believe that NGO consortia could likewise manage comparably large multi-project funds involving multiple donors. Given the potential of this type of approach, what steps should be taken to replicate and expand it to other settings? Several key lessons emerge from the case study:

• NGOs must take the initiative: the JI arose out of a collective approach and proposition to donors. This indicates that donors may be responsive to NGO-led mechanisms, if the NGOs are proactive in making their case.
• Donors must adapt: while NGOs need to be proactive, donors also need to be flexible in responding to new structures. NGO-led pooled mechanisms are a new approach and may not always fit neatly into donors’ traditional systems. In Zimbabwe, the donors to the JI accepted a new manner of working with NGOs, altering their reporting and accountability procedures.
• The UN retains an important role: even when it does not function as the principal pass-through agent for funding, it is still vital in facilitating coordination. It has a pivotal position in the humanitarian architecture as the developer of technical standards, convener of coordination fora, leader in developing cluster strategies and principal representative of the humanitarian community’s interests to host governments. In all of these functions, the UN’s leadership is vital to the collective success of the humanitarian community.
• Build around a clear focus: the Joint Initiative was developed in response to a clear, compelling and urgent problem – Operation Murambatsvina. The clarity and urgency of the needs enabled the NGOs involved to make a compelling case to donors. In the absence of this kind of focus, it may prove more difficult to mobilise sufficient donor engagement.

Mercy Corps is applying these lessons in Sudan’s Abyei region. The Abyei Relief and Rehabilitation Programme (ARRP) began in 2006 as an EC-funded consortium focused on the rehabilitation of the region, but in the wake of the Abyei crisis of May 2008 the ARRP partnership structure also provided a platform for a very effective emergency and early recovery response (albeit with non-ARRP funds). In the aftermath of the crisis, the members of the consortium (Mercy Corps, Save the Children, GOAL and ACAD) asked donors to channel recovery funds through the ARRP partnership structure rather than the CHF, given the CHF’s well-documented challenges in Sudan and its single-year funding cycles. The partners believed that their own structure, with a multi-year funding horizon and demonstrated flexibility, provided an optimal channel for post-emergency transitional funding. While the process of shifting the ARRP from a single-donor fund to more of a pooled approach remains in its early stages, the consortium partners have received indications from several donors that they intend to support this NGO-led mechanism rather than resort to the CHF.

Another area where this type of model could be taken forward is within the cluster system. As noted above, cluster system countries have seen a shift in donor funds away from bilateral grants to NGOs, and funding to UN agency cluster leads has increased. This shift in funding streams can improve incentives for coordination, but it also subordinates the NGO cluster members to the lead agency’s partnership policies – sometimes with problematic results. However, there is no reason why a group of cluster NGOs could not form a consortium and approach donors directly for funding. The UN cluster lead could continue to provide coordination support and leadership, without the burden of having to administer large amounts of funding. This would also enable NGOs to operate more effectively, without having to adapt to the often-onerous administrative requirements imposed by UN agencies.

Mercy Corps’ experience with the Joint Initiative in Zimbabwe shows the clear potential of an NGO-led approach to pooled funding. Mercy Corps and its partners have been able to capitalise upon the positive aspects of pooled mechanisms – enhancing operational coordination, reducing the administrative burden on donors and increasing the alignment of priorities amongst donors – while avoiding time-consuming bureaucracy, utilising sensible and appropriate administrative procedures and – most importantly – delivering high-quality programmes.

Jeremy Konyndyk is Senior Policy Advisor at Mercy Corps. His email address is jkonyndyk@dc.mercycorps.org.