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Not So Novel: What We Already Know About CSO Financial Sustainability

By: Jenna White (LINC) with contributions from Aji Ceesay (Peace Direct)

Not So Novel: What We Already Know About CSO Financial Sustainability - Bisque and White Traditional Life Quote Instagram PostWe know that the novel coronavirus is already significantly impacting civil society organizations (CSOs). In a recent study conducted by LINC for which CSOs were surveyed, every one of them reported being negatively affected by COVID-19, changing their funding levels, their way of delivering services, and/or their internal operations. A new alarming report from Devex also reveals the massive anticipated impact on NGOs, many of whom fund the work of local CSOs. While much is uncertain, there is a significant body of extant research on how to improve the financial sustainability of CSOs during times of crisis.

LINC, in partnership with Peace Direct and Foundation Center (now Candid) recently concluded a 3-year USAID-funded research activity that specifically looked at the barriers and enablers to CSO financial sustainability. The Facilitating Financial Sustainability (FFS) activity analyzed data from over 120 interviews and over 1,800 grants supporting CSO financial sustainability in six countries. Research culminated in the publication of three research papers elucidating which factors are most conducive to strong CSO financial sustainability and how this sustainability is connected to local ownership of development.

All of the research reports are publicly available here. We encourage readers to share these resources widely with both funders and CSOs as we look for solutions to maintain a vibrant civil society in the midst of the current pandemic. Below are some of the key findings from our research.

Research findings

It should be noted that CSOs can bolster their financial position via non-financial means. Leveraging social capital, minding organizational culture, building technical capacity and accessing non-financial resources and assets can be just as important as financing. In terms of financing, small pools of unrestricting funding are critical and can lead to outsized organizational impact.

At the end of 2019, LINC gathered with other organizations that have studied CSO financial sustainability to compare findings and assess the current state of research on this topic. There was an overwhelming consensus that this topic is well-researched and that it is time to start learning by doing.

In this spirit, our consortium synthesized the findings from 18 sources and included links to other useful resources in a literature review available here. Based on this meta-analysis, below are the top ways that funders and CSOs can put best practices for financial sustainability into practice:

  • Funders can provide more unrestricted aid to cover core costs, whilst also opening communication channels with CSOs before providing funding in order to have informed knowledge on best practices and most effective funding models.
  • Funders can revise applications so that they correspond with size of tender/length of program in order to get rid of unnecessary paperwork and requirements that could otherwise inhibit CSOs access to funding. This is especially useful for funds that support financial sustainability.
  • For the use of intermediary organizations as re-funders, a helpful model could be that future tenders for applications to such funds can stipulate that re-funding for local organizations should contain a fixed percentage dedicated to the payment of overhead costs incurred by CSOs instead of being solely provided for projects.
  • Funders can explore setting up repayable finance pools as a way of helping CSOs on their journey towards financial sustainability. Ways of mitigating risk of non-payment include understanding the CSOs capacity and ability to pay back loans.
  • CSOs can use social enterprise as a medium of working towards sustainability. However, in some contexts, it might be more beneficial for the CSOs to partner with an established company to provide a service that would have been too costly for the local organization to provide. This warrants that there is a convergence in programmatic aims for all parties involved.

We hope that these resources provide useful guideposts in an uncertain time. We will be posting more learnings from the FFS project, including learnings from putting this research into practice in Colombia, DR Congo, and Uganda.

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