The NGO Funding Mix:
A Continuum of Sources

Hari Srinivas
Policy Analysis Series E-112. September 2015

Funding for activities of NGOs can be a challenge - the shortcomings of the NGOs can be compounded by restrictions placed by donors, that further complicate the matter
Challenges for NGOs include, for example, managerial skills needed to access and utilize funds for projects, or undertaking sustained activities on the long term.

Challenges for donor agencies, on the other hand, is the strict restrictions that they face in disbursing funds for activities in developing countries,or fully understanding community needs on the ground in developing countries.
This calls for building a trustworthy working between donors and NGOs, that can lead to fruitful long-term financial sustainability of the NGOs.

This document outlines the concept of a "Funding Mix" as a continuum of different sources that enables it to generate a steady income over time.

1. A Continuum of Sources

Long-term funding is a critical challenge for Non-Governmental Organizations (NGOs). Most NGOs grapple with one-off funding sources that do not enable them to carry out sustained work over the long-term.

NGOs looking to meet these challenges have to develop a funding raising strategies consisting of different sources of funds and incomes that enable it to survive on the long-term.

These different sources highlight the need for the concept of a "Funding Mix" as a continuum of different sources that enables it to generate a steady income over time for project and administrative purposes.

Figure 1: The Funding Mix: A Continuum of Sources

A funding mix can potentially be grouped into three main sources (Figure 1):

1. Donor funding: These sources can include donations, project funding, online crowd-funding, fund-raising events etc. that are usually project-specific .

2. Income-generating activities: These sources can include membership or subscription fees, publications, sale of products, in-Kind contributions, including volunteer staff time, training and consultancy etc. that are usually generic or non-project specific.

3. Investments: These sources can include fixed deposits, financial investments, trust funds, endowment funds that are usually generic or non-project specific.

By laying out the above three source types along a continuum, we can further understand the unique characteristics and differences between the three types.

Donor funding sources are usually one-off short-term sources of funds (from a few months to 2-3 years) and are external to the NGO. Investments, on the other end of the continuum, are long-term, sustained sources of income that are controlled internally by the NGO. Funds that fall in between - income-generating source - and may be a short-term, one-off activity such as those generated from training and consultancy activities, or long-term sustained sources such as membership fees, book sales etc.

Why NGOs? What is the attraction of NGOs in developing countries for a donor agency or organization?

Proximity, accountability, and flexibility in working with local communities make NGOs an ideal partner in project implementation in less-developed countries.

Demonstrating the viability of working solutions at the local level enable such solutions to be extrapolated to broader strategies at the national and global levels, as well as their replication in other areas and regions.

The fact that NGOs enable such demonstrations has made them a key "third leg" in development - along with government agencies and private sector entities.

2. Going the Distance and Meeting Half-way

Building a fruitful and beneficial relationship between NGOs and donor agencies largely depends on each trying to understand the others goals and objectives:.

Figure 2: Going the Distance and Meeting Half-way

Donor-focused: It is important to understand that NGOs need to assist donors understand their own fund-raising challenges, and seek to fund their specific needs. NGOs would need to go beyond a donors funding priorities and themes and build broad partnerships with their donors.

NGO-focused: On the other hand, NGOs seeking funds from donors need to clarify and align/link their needs to specific donor priorities and themes, and not send out a generic fund request that is same for every donor.

3. Funding is a Two-way Street

The process of seeking donor-based funding is a two-way street. NGOs need note that donors themselves have to raise funds from individual, corporate or public sources. This means that donors are accountable to such sources - any funds disbursed by donors to NGOs need to be reported and justified by them.

Figure 3: Funding is a Two-way Street

While NGOs have their own constituencies to target through their programmes and projects, their responsibility does not end there - but extends back to donors as well. NGOs need to ask themselves what could offer in return. What kind of "proof" can be shown for the outputs of activities? How can trust be built with the donor? What third-party evidence can be presented (including government statements or mass media reports)? How can NGOs help donors justify their funding to their sources?

Much also depends on the NGO's accountability frameworks and trust it builds with donor agencies. Strong managerial and staff capacities, governance structures, and transparent auditing systems help in building accountability and trust in the NGO, which it tern, helps it to generate funds.

4. Donors for Donors

How do donors (including aid agencies) raise funds themselves? Who are their sources? How can NGOs seeking donor funds help in donors reporting to such sources?

Figure 4: Donors for Donors

Donors have to raise funds themselves - and as mentioned above - can come from three main sources: (1) Government funds and official development assistance (2) private or individual donations, and (3) corporate contributions. A donor agency's annual report or tax filings give an indication of where the funds come from, and consequently the pressures and responsibilities of the donor.

5. Creating Funding Opportunities

While an NGO may implement a single "project" over a period of time, (that may be funded by external donors), the project itself may present a number of opportunities for the NGO to generate additional funds as well as in-kind contributions outside the project framework.

Figure 5: Creating Funding Opportunities

For example:

1. Training sessions and seminars can generate participation fees and sponsorships

2. Publications and other products generated from a project could be potentially be sold to generate additional cash.

3. Public events such as symposia or conferences could be opportunities to solicit donations from the general public

4. Corporate entities could contribute to a project and/or the NGOs overall activities by seconding staff members as in-kind contributions (which will save staff costs for the NGO).

Such resource generation will not only help in delivering the project's goals and outcomes, but will also provide opportunities for the NGO to generate funds that can be used beyond the project.

6. Long Term Financial Sustainability

Depending on the laws that govern NGOs of a specific country, an NGO may also look into investment opportunities that enable it to generate additional income.

Figure 6: Long-term Financial Sustainability

Additional income generated from specific activities and outputs of a project, as explained above, can be combined with endowment funds (including non-project donations and contributions, which can then be invested in the market, put in fixed deposits or other financial instruments.

Such steps can help generate a steady, albeit small, source of income for the NGOs in the long term.

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