Opinion

Funding the core 1

Finance | Jessica Sklair | 30 Nov 2009

Core funding improves outcomes as well as relationships with funders, argues Jessica Sklair.

The issue of core funding versus project support is not a new one. In the current economic climate however, when debates around the effectiveness of charities are thrown into sharp relief, it is one that begs to be revisited. The flood of enquiries from both charities and funders that greeted a recent paper published by the Institute for Philanthropy on the topic of core support (Supportive to the Core: Why unrestricted funding matters) showed how hungry charities are for open discussion  of this topic, and for those who support them to put to bed the myths and misperceptions that still surround the issue.

The traditional hesitance on the part of many funders to offer core support to charities is based on a series of beliefs, the most common  of which is that low overhead costs are an indicator of a good non-profit organisation. This belief, which  has fuelled a culture in the sector  in which funders expect charities  to guarantee that extremely low parts – or even no part – of their donations will go towards covering an organisation’s administration costs, is rarely disputed. Compelling evidence from the Nonprofit Overhead Cost Project, an in-depth quantitative and qualitative study carried out by the Urban Institute and Indiana University in 2004, however, reveals what charities  have known all along but are often fearful to voice: that low levels of spending on overheads in fact leads to inadequate infrastructure, which limits the effectiveness of charities.

Another reason that many philanthropists give for restricting their funding to projects is that project grants are the best way to support innovation in charities’ work. The Institute for Philanthropy’s research, however, shows that real creativity often comes when organisations have the core resources to develop their work, without having to worry constantly about whether they will  be able to pay next month’s rent and salaries. Core support also offers funders an excellent opportunity for leveraging their philanthropy, as it allows charities the breathing space  to work on long-term strategy and plans for sustainability. It can also  be a means for helping charities to invest in the development of long-term fundraising programmes, thus undermining another often-heard argument against core support: that it encourages dependency  among grantees.

The central issue that emerged from our research on core support, however, concerns the relationships established by funders with their grantees. Shifting the focus from core vs project support to the promotion of positive funding relationships throws a different light onto this debate. Speaking to both funders themselves and the charities they have supported through core funding, we found that the nature of funding relationships often dictates charities’ ability to articulate what kind of support  they most need at a given time. In more trusting and open funding relationships, charities feel more confident to tell funders what they really need, rather than trying to second-guess the kinds of projects  they think donors will want to fund. And when funders put in the time  and effort to build dialogue around  a charity’s needs and objectives, the distinction between core and project support begins to look less relevant. More often than not, funders will  find that what charities really need is indeed core operating support or help with overhead costs. But if a charity happens to be in need of support for  a particular project or an isolated element of its work or infrastructure in order to continue its core operations at that moment in time, then we might say that in providing funding for that project, a funder is  in fact offering core support. The key concept here is the funder’s willingness to sit down with grantees and listen to their needs, rather than approaching charities with preconceived ideas about what aspects of their work  they do and do not want to fund.

Furthermore, our research shows that funders who are open to the possibility of offering core funding are often clearer about their own philanthropic mission and objectives. Funders with a clear objective will often choose grantees based on the contribution of their work as a whole to a particular cause or issue area, and the process of providing core support can encourage both funder and grantee to think deeply about their mission and how best to achieve it, promoting discussion around long-term aims and effective strategy. This process is at the heart of the shift from reactive giving to strategic philanthropy, helping funders and grantees to work together to create greater impact in the areas in  which they work.

Jessica Sklair is director of research at the Institute for Philanthropy 

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