It is one of the oldest and more worn debates in the sector: How to make an NGO more efficient and effective for more impact? However, the drive for more bang for each charitable buck has now become an urgent necessity rather than a mere aspiration.

The traditional drivers of the NGO efficiency and effectiveness debate are well known. They include the rational that overreliance on donor grants is financially unsustainable; not only can the future availability of donor grants not be guaranteed, but basing ones funding mainly on traditional donors is unlikely to make independence from the donor’s agenda possible,  both operationally and ideologically. Another reason is the resource- intensive nature of donor bids and the risk associated with these they fail.

However, the most important reason why NGOs should diversify their funding base is simply that implementing grants is often not enough to advance their cause. Many NGO professionals recognise that they are working in a complex, interwoven and multi-faced world. To advance an issue and achieve sustainable change, it is necessary to address all facets of the issue. This means that if NGOs want to make a difference in the area they care about, they may need to work even more closely with other actors in the same area. This includes businesses who blend profit making with social progress, governments who recognise that they are not best placed to achieve change alone and academics who like to partner with NGOs to apply their knowledge more efficiently.

But it is not just the NGOs that are changing, the donor landscape itselfis changing too. The whole sector is experiencing a shift towards a more diversified funding base and with it, the need for more professional operations. New donors have entered the sector, especially philanthropic institutions and corporate funders and these donors are starting to make a sector- wide difference. And it is not just the size of philanthropic giving that continues to rise, but its forms too. Innovative concepts, such as social impact investments or full-engagement donations are changing the “business of giving”.

This presents great opportunities for NGOs, but also a challenge: These donors demand more impact, transparency and accountability from those they give money to. Most are not content with just giving money away either, but expect to remain involved. Whilst this offers a particular good opportunity for NGOs to build lasting relationships with new donors, as well as use their clout, influence and connections to engage with other actors relevant to their cause, it also represents an operational challenge.

Philanthropic and corporate donors are often uneasy with the lack of professional processes and safeguards that are common and expected in the corporate world: independent directors, well- functioning internal audit functions and better performance monitoring, to name a few. If NGOs are serious about making a difference in today’s socio-political-economic complex, then they had better leverage their own resources and become more transparent and operationally savvy in order to diversify their funding base and be able to better serve their cause.

Slow progress, we know

Despite these issues being well known, things have moved along rather slowly. Most NGOs continue to rely heavily on traditional donor funds. The regulations that come with such funds are restrictive, leaving little money left for investments into smart operations, processes and systems.

Yet some actors have successfully made the change. BRAC, a large iNGO from Bangladesh and today arguably one of the largest development organisations in the world, has placed financial self-reliance at the heart of its mission. Applying the concept of social entrepreneurship, BRAC has evolved from being fully donor-funded to over 70 per cent self-financed today.

BRAC can be described as a front-runner in a conversion many western NGOs increasingly aim for. This level of self-reliance allows BRAC to channel its resources to where it best serves its mission, i.e. independent of donor resourcing or political preference.

But self-sufficiency did not happen overnight nor did it simply happen by being thorough in ensuring programme effectiveness and cost recovery across all programmes. What BRAC has helped to pioneer is the concept of innovating social enterprise. This concept has transformed BRAC from a somewhat obscure small NGO, initially clumsily named the “Bangladesh Rehabilitation Assistance Committee”, to a development organisation working worldwide, employing well over 60,000 staff, as well as training and organising another 60,000 self-employed professionals and teachers. Today, BRAC’s programmes are estimated to reach over 110 million people, managing an annual budget of nearly USD 500 million and continuing to grow strongly. BRAC’s concept of social entrepreneurship is not new. In fact, it has been around for more than half a century. But what is new is the scale BRAC has achieved in implementing the concept. BRAC is not just an iNGO, but also includes associated businesses in health, retail, agriculture and other industries whose profits are being fed back to its programmes. It even operates one of the largest banks in Bangladesh, BRAC Bank.

Western NGOs are set up differently and are unlikely to ever open a commercial bank (notwithstanding how beneficial this may be for the general public in their home country). But what BRAC has exemplified is that the traditional concept of NGOs is changing. Many NGOs no longer define themselves in large parts by being non-governmental grant executors. Whilst this remains a central, even dominating, part of their identity, it is not the only aspect.

Modern, smart NGOs are increasingly striving for self-reliance and not only because the donor landscape is changing so rapidly (though this would be reason enough) but because they increasingly recognise that their cause is best served by multi faceted engagements: working with governments, businesses, and other people and institutions that care about what they care about.

All this requires NGOs to professionalise. A finance team is not merely a costly, “must-have” function, but part of good governance team, reflecting management’s integrity, attitude and ethical values. NGO leaders should regard matters such as internal controls, internal audits and clear financial management policies, systems and processes as central to their mission as they support transparency and accountability. Investments here will pay off; after all, a good internal control system is the only way to obtain reasonable assurance about the reliability of the data produced as well as the effectiveness and efficiency of the operations.

Likewise, a well-structured and organised human resource function is essential to ensure internal transparency and quality of appointments. It also bears the promise of reducing staff turnover, a substantial cost.

The debate about smarter NGOs is not new but it has never been more essential. Having worked closely with NGOs of different sizes, I firmly believe that some NGOs will be able lead and steer this new development in the sector and prepare themselves for what is to come. Those who are not, however, are likely to be side-lined, tied up in an eternal struggle for funds or even fall away completely.

by Christian Meyer zu Natrup, Aug 2012
This article appeared in several blogs and newspapers during August-October 2012. Thanks to MzN International for the picture above., accessed 15 Aug 2012 Printing of reference are optional