Impact Funding in the time of COVID-19

Photo source: The New Humanitarian

The global pandemic COVID-19 has triggered the most severe economic recession in nearly a century and is causing enormous damage to people’s health, jobs, and well-being. It has changed the social sector landscape and will continue to impact the sector for the next few years. In the short term, since March 2020, change in the funding trends is already being witnessed by non-profits, especially of the CSR in India, with majority of them contributing to the PM Cares, CM Relief Funds and contributions towards local relief work like food and PPE distribution. The unexpected crisis created due to migrant labour returning to their home states, we are witnessing some of the bigger CSRs channeling their funds towards ‘Rehabilitation during and post COVID-19’ phase with a focus on re-skilling, sustainable livelihoods and job creation, BCC, and food & nutrition security.

Until the next 12-18 months, there will be opportunities for partnerships under the ‘rehabilitation lens’ across geographies, but more focused on states like Bihar, Uttar Pradesh, Madhya Pradesh, Chhattisgarh, Odisha, Assam, and Jharkhand. Apart from relief & rehabilitation, Health (preventive health, strengthening local health systems at block and village levels, and co-morbidity diseases like TB, HIV/AIDS, Diabetes, etc.) and Education (especially working with a sudden increase in out-of-school-children due to in-migration, and skilling School teachers in rural and sub-urban India in virtual classrooms, course development and delivery, and digital communication) are other areas, where donor funds are potentially going to be invested. In other areas, especially environment and climate change (unless CSRs & foundation’s core focus is environment), it is bound to be severe funding cuts (40%-60% from pre-COVID times) over short to mid-term.

Non-profits need to continue building strong partnership with their existing CSR Partners, to continue getting support to even those projects that are not COVID aligned, and build new partnerships using COVID aligned models. It is expected that Government funding will increase and so will partnership opportunities in most of the areas like livelihoods, education and health using innovative implementation mechanisms and digital communication. The World Bank has announced large assistance programs for India, which will be implemented through state governments and may bring non-profits with the opportunities of large partnerships between now and 2025. The current changed funding trend will more or less continue in 2021. However bigger CSR and foundations will see a potential downside of 30-50% in their funding allocations.

As restrictions are being eased world-wide, the path to global economic recovery remains highly uncertain with 6-7.5% negative growth in 2020, it is expected to climb back to around 2.8-3% in 2021 and move slowly towards recovery. In the long run, 2022-25, when both national and international economies are strongly on the recovery path, it is expected that several international aid agencies, which had stopped direct funding in Indian development sector, once again will open a window for 3-5 years of funding, and number of funding opportunities for India and other developing countries will increase. Historically, post mega disaster comes the golden period of funding for impact sector. It is a phase, and it too shall pass. Together, we will continue to drive change and together we will prevail.

Disclaimer: The opinions expressed are those of the author and do not purport to reflect the views or opinions of any organization, foundation, CSR, non-profit or others.

Competitive Practices of NPOs

Perhaps the dominant force shaping the non-profit sector at the present time is the widespread commercialization or “marketization” of social and economic life. While commercialization is nothing new to the non-profit sector, in recent years the sector has not only reacted to the market but also embraced it on a scale not previously seen, integrating market impulses into non-profit operations in often creative ways, though with consequences that are not completely clear.

Sources of Market Pressures. the pressures propelling non-profit organizations towards greater engagement with the prevailing market system are multiple. They include declining government financial support, slow growth in private giving, increased service demands from widely disparate population groups, growing competition from for-profit and non-profit organizations, increased accountability demands, and the increasing presence of potential corporate partners.

Growth of Fee Income. In response to this combination of push and pull factors, many more non-profit organizations seem to be reaching out to the market, and on a much broader front. Perhaps the most obvious evidence of this is the growth of non-profit reliance on fees for service charges. But non-profits are also deriving money from the sales of ancillary goods and services, such as merchandise in gift shops and facility rentals.

Social Purpose Enterprises. Non-profits are also integrating the market more directly into the pursuit of their social missions through the formation of “social purpose enterprises,” or “social ventures.” These hybrid organizations use market means to pursue non-profit objectives. Here the market is not simply a source of revenue but a preferred vehicle through which to achieve a social purpose.

Corporate Partnerships. Non-profits are being drawn further into the commercial orbit by alliances with the corporate world. Businesses have found that teaming up with non-profits adds respectability and trust to their images while cultivating new markets, new sources of employees, and new pools of research and expertise. In exchange, corporations donate money, form employee volunteer programs, sponsor events, loan out executives, and provide equipment, space and contacts.

Incorporation of the Market Culture. As they have come to operate in an increasingly competitive, market-oriented environment, non-profits have also increasingly absorbed the culture and manner of the market into their internal structures and operations. Non-profits are no longer bashful about aggressively advertising their services or competing for charitable contributions. Indeed, they have become increasingly “entrepreneurial,” worrying about their “market niche” and engaging in “strategic planning.” Agencies are increasingly adopting performance measurement techniques, adopting smaller, corporate-style boards, and building more elaborate organizational structures.

A New Enterprising Social Sector. Emerging from these various developments is a new picture of the “social sector,” a picture of a self-propelled set of organizations loosened from their original moorings in charity or as a passive agent of government and much more closely connected to the market system, while still somehow tied, however tenuously, to the pursuit of public benefit. Unquestionably, the non-profit sector has gained many advantages from this closer association with the market. Marketization has offered the non-profit sector access not only to an enlarged resource base but also to the energy and creativity that the market system has long represented. Armed with earned income, non-profits may become more fully independent than either government support or private charity has made possible. Engagement with the market also opens possibilities for leveraging enormous private resources and talents for social purposes, and for erasing widespread images of non-profit ineffectiveness, establishing instead the image of a set of organizations that has learned how to bring the most efficient means to the service of the most valued ends.

But if the potential advantages of the non-profit sector’s embrace of the market are considerable, so too are the risks. Market pressures can undermine non-profits’ commitments to their core values, to doing what is right as opposed to what is popular or commercially viable. They can also threaten the sector’s public support if efforts are not made to keep the public engaged and informed.

The solution to these problems may not lie either in restricting the commercial involvement of the non-profit sector or in relying blindly on the restriction on distribution of profits to ensure appropriate non-profit performance. Rather, more direct mechanisms of control may be desirable—performance measurements and mechanisms that empower key stakeholders, such as donors or the users of non-profit services. Under any circumstances, while it is essential to keep the challenges posed by the market clearly in view, it would be foolhardy to let the opportunities it presents to the non-profit sector go unexplored.

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