Two practical ideas to increase unrestricted funding
The William Grant Foundation have signed up to our eight commitments for open and trusting grant–making. They join us as one of our #FlexibleFunders to share some practical ideas to developing practices from their experiences and ideas:
One of the eight commitments IVAR is calling for funders to adopt as part of its #FlexibleFunders initiative is to ‘enable flexibility’. Unrestricted funding, in particular, is highlighted as the best way to allow grantees to respond flexibly to changing priorities and needs.
I’d like to share two practical ideas to increase the unrestricted funding flowing from funders to the third sector. The first describes an approach we’ve adopted at the William Grant Foundation. The second is something we don’t (yet) do, but which I think could have a meaningful impact if widely adopted.
1. Turn restricted project grants into ‘designated’ unrestricted grants
One might assume that shifting to unrestricted funding means making radical changes to a funder’s application and grant reporting processes. But it doesn’t have to.
Many of us will make a grant for a project or activity that an organisation has applied for help with or that we are particularly interested in – and the grant size and duration will probably reflect the cost of it. In such instances, it’s common practice to make a restricted grant that can only be used for that purpose.
But do we need to formally restrict those grant offers? The answer depends on the degree to which your grant programme is specialist and targeted. If your strategy is focused on funding only a specific category of additional intervention or activity the grantee will undertake – and that’s the only reason you’re funding them – then you probably will. But if – like our foundation – you aim to find dynamic, effective or important organisations in your field or community of interest and are prepared to fund a range of costs and activities depending on what they tell you they need, then I’d suggest you don’t if the following conditions apply:
- Is the grantee an asset-locked organisation whose objects are in line with your programme focus, and which you’ve assessed as competent and well run?
- If the organisation had happened to apply for another aspect of its activities, would you have been just as interested in helping them?
If so, could you ask them to report back on the project or activity you’ve mutually identified, but make the grant unrestricted?
The benefits will be:
- a reduction in resources spent on bureaucracy and compliance on both sides – not least the accounting gymnastics that restricted funding streams necessitate
- freedom for the grantee to get the most value from your funding by having flexibility to adjust delivery or even reallocate the funding, for instance if it obtains another grant that can fund the project you’d discussed with them
- a more open and trusting relationship from the outset.
At the William Grant Foundation, we call this – internally – ‘designated unrestricted’ funding. It’s important to note that for the grantee a grant is either unrestricted or it isn’t, so we’re at pains to make clear in our grant letter there are no strings attached. This means we’re trusting the organisation to follow-through on the plans we’ve discussed with them, or explain to us if their plans changed (though – importantly – without having to ask our permission first) and share what they learned along the way.
I’ve written more about how we choose when to use restricted or unrestricted funding here.
2. Add general operating support to project support
My second suggestion is perhaps more radical but I think could be transformative. (I should be clear that although we often ‘round up’ project grants, the William Grant Foundation doesn’t currently implement this systematically.)
Here’s the idea: What if we added an unrestricted general donation on top of every project grant we made? (I’m already assuming the grant includes an appropriate contribution to the organisation’s central overheads on a full cost recovery basis.) There’s no yardstick here, but I’m going to suggest 10% of the value of the project grant might be a start.
Outside work, I chair a small charity with an income of about £200k per year, probably 50% of which is from restricted grants. So, a 10% top up to all those grants would give us another £10k unrestricted per year. Not a game changer but it could support a pilot project, upgrade our IT, or build reserves.
And if you’re interested in shifting power in your grant-making, not only would you be strengthening the organisations you support, you would be putting a percentage of your grants budget directly into the hands of people working in the fields or communities you support to allocate as they see fit.
We are comfortable with the private sector pricing-in a profit margin when we buy its goods and services – profit that can be reinvested in growth, innovation, technology, communications, workforce development, loan repayments etc. Or even extracted for private benefit. Yet we consistently fund the not-for-(private)-profit sector on the basis of break-even budgets, clawing-back underspends and reducing future payments to reflect previous accruals.
The pandemic has shone a light on the importance of charity reserves – how little some have, and how surprisingly reluctant others have been to use them. But for there to be reserves (and for trustees to have the confidence to spend them) there must first be surplus.
Funders have to think about how we help organisations generate a surplus in unrestricted funds if we want them to build and deploy reserves and maintain working capital. By working capital here, I mean funds that can be used at the organisation’s own discretion on its own priorities when it needs to. Without this kind of flexible buffer, organisations have less ability to adapt, innovate, learn and improve or ride out challenging times without first having to successfully apply to a funder (or more often, multiple funders!) in order to get a grant to do anything.
If we want to receive applications in future from an agile, creative and resilient third sector, learning and innovating its way towards ever more effective solutions to stubborn social and environmental problems, then we need to see contributing to core costs, working capital and reserves as part of the cost of doing business with it, just like paying the profit margin priced-in by the private sector.
I guess both these ideas could be seen as a significant departure from conventional practice. But I believe they are practical choices many funders could choose to make to address the ‘starvation cycle’ that characterises third sector funding.
Funders’ traditional ways of working are not set in stone. We should be prepared to review them, especially when the organisations we aim to support are consistently and clearly telling us they undermine the benefits our funding could achieve.