How to be radical: Funding tools beyond grants

Most donor support to community-based organizations (CBOs) comes in the form of grants. But as currently structured, they are akin to using analog technology to support change in a digital world.

To achieve goals long pursued, the humanitarian, development and philanthropic community must re-envision the “donor industrial complex” and the current system of providing restricted project funds and often channeling them through international NGO and multilateral recipient organizations. Such reforms must include increasing general operating support grants, but it is even more important to develop and use new financing solutions that shift power to locally-led initiatives and increase the sustainability of local organizations.

Words without action

The idea that people directly affected by development and humanitarian challenges are best placed to address these challenges is not new. The humanitarian community has put “ownership” front and center in its discourse and frameworks for a long time, acknowledging that without effective local ownership, donor investments will neither be sustainable nor will they yield longer-term results.

In recent years, discussions on the decolonization of international donor assistance, localization and “shifting power” have prompted donors to accept that ownership of local stakeholders entails more than merely consulting them in project design and implementation. What is required is a redistribution of power, including concrete action to address underlying power imbalances.

However, the product of this increased consensus seems to be mainly conversation versus action. According to the Development Initiatives 2022 report on the state of humanitarian funding, direct funding to local organizations was at the lowest volume ($302 million out of $30.9 billion) and proportion (1.2%) than in the previous five years.

As an international community committed to resolving the most significant conflict, disaster and climate challenges, we are not meeting this moment. The people, communities and organizations best equipped to create healthy, safe and just communities are not receiving the recognition, respect or resources they need from the international community.

How do we change this? 

Funding is one crucial lever. At Radical Flexibility Fund (RFF), we work with stakeholders and clients to gather information about new financing approaches. We use that information to design and facilitate processes led by grassroots organizations to effectively resource work in their communities while also providing catalytic funding for these new approaches. Finally, we generate locally-led knowledge about their impact. We are a hub for new models and strategies to act on commitments to fund local work and provide thought leadership at the international donor level by feeding the learning from these approaches back into broader systems.

While grants may be appropriate in certain circumstances, grant funding – often short-term, inflexible and project-specific – neither suits rapidly evolving situations on the ground nor enables local organizations to prioritize their solutions and develop financial sustainability for the longer term. As we have argued, because grants are the most common funding vehicle, many funders are not structured or willing to use other funding tools even if they can support greater flexibility, inclusivity, impact and sustainability.

Harnessing different funding tools

These approaches that go beyond grants focus on building sustainability and include such strategies as communities generating assets through support to social entrepreneurship, direct cash transfers or seeding giving circles or community foundations. They utilize innovative finance tools, like impact bonds and outcome-based funding. They also increase the use of new technologies like Blockchain to help local communities shape, define and create transparency about the impact of their work.

These tools have the potential to allow communities and organizations to generate new funding streams, enabling them to act on their priorities and freeing them from the endless cycle of chasing grants. Increasing attention is given to regional philanthropy and foundations and the role of the national private sector in funding social change.

These trends offer opportunities to attract new funders who understand the cultural context and have a stake in the well-being of their own societies. They also expand communities’ and local stakeholders’ access to financing from a more diverse set of funders, including private equity, that are not always bound by the same constraints as traditional philanthropic and government donors.

Moving toward new paradigms

The journey to new models and pathways to resource local organizations continues to be an ambitious one. We know that tools, including and beyond grants, exist. However, they are currently scattered across the social change landscape and not understood as a coherent set of approaches that might aid the work of community-based organizations.

We don’t yet have a clear picture of how big sectors like social enterprise, Blockchain and outcomes-based financing can be used systematically to resource local organizations and under what circumstances. Testing these new approaches requires a much more systematic and strategic investment by donors and a willingness to take risks on new models that will take years to develop and refine.

We are at an inflection point in the United States and the world. What we do know is that old paradigms to address challenges in our communities are no longer fit for purpose. It remains to be seen whether the donor community will seize the opportunity to create new ones.

Riva Kantowitz is the founder of the Radical Flexibility Fund. You can contact Riva at riva@radicalflexibility.org.