The System Matters in CSO Financial Sustainability

Financial sustainability gets plenty of lip service in the civil society sector, and anyone who has submitted a grant application has probably written a required "sustainability plan." Despite the prominence of financial sustainability in the donor discourse on civil society, however, actually obtaining the resources needed to be resilient to the ups and downs of the donor marketplace remains a critical challenge for civil society organizations (CSOs). The challenge is particularly acute for local CSOs in middle and low-income economies, which are best-positioned to serve their communities but struggle with a limited supply of financial resources and have difficulty in accessing funding from abroad.

A Data-Driven Approach to Understanding the Issue

While the challenge is widely acknowledged, relatively little data is available on the amount and nature of support specifically designed to help improve organizations' financial sustainability or how different drivers of organizational sustainability may be more or less important in different contexts. That's why the USAID-funded Facilitating Financial Sustainability consortium, led by LINC in partnership with Peace Direct and Foundation Center, is excited to launch three new reports that together provide a comprehensive examination of the CSO financial sustainability system. The reports are accompanied by interactive funding network maps that allow users to explore the CSO financial sustainability landscape in six country contexts: Bosnia and Herzegovina, Colombia, the Democratic Republic of the Congo, Mexico, the Philippines, and Uganda.

The research is based on interviews with more than a hundred and twenty development stakeholders in the six countries and an analysis of close to eighteen thousand grant records, enabling the research team to apply numbers and rigorous analysis to how both funders and CSOs confront the question of  sustainability.

Sustainability Support: Lacking and Uneven

On the funder side, the team found that only 5 percent of total grant funding to local CSOs is explicitly targeted toward supporting organizations' financial sustainability. And in cases in which funders do focus on supporting sustainability, they tend to follow three strategies: providing unrestricted support; building organizational capacity; or developing and facilitating networks. But even support within these categories can vary considerably in its structure, with only 11 percent of unrestricted grants extending beyond one year despite the critical importance of long-term planning for organizational sustainability. There are also notable differences in how such support is distributed across sectors, with human rights-focused organizations heavily overrepresented in terms of receiving support for sustainability relative to organizations in other sectors. 

Going Beyond Technical Capacity

On the CSO side, the research team found that in addition to the organizational factors traditionally associated with driving financial sustainability (e.g., robust internal strategic and financial planning systems), in certain settings less obvious factors such as community social capital can be equally important. While international funders may come and go, a CSO's relationship with its own community remains the bedrock of its ability to operate effectively, and so some of the most successful organizations have found creative ways to build social capital. This can happen in spite of, rather than because of, funding structures; for example, one organization in Uganda took advantage of a rare unrestricted windfall from a prize competition to conduct small projects for the local community completely outside of its normal programmatic mandate but which proved critical for building buy-in to the organization's long-term success among community members.

By bringing together quantitative funder data and structured analysis of interviews with CSOs, funders, and other stakeholders, the research provides a systems-level view of the challenge of financial sustainability. From that work, it is clear that sustainability is more than any one organization's balance sheet and instead encompasses complex interactions between CSOs, funders, local institutions, and local community members. Like any good research, our analysis ends up raising as many questions as it answers, but we hope ti moves the development sector a step closer to understanding how to create vibrant and resilient organizations that serve the long-term needs of their communities.

Read the reports here.

Matthew Guttentag is a program director at LINC, a Washington, D.C.-based business that works with local and international organizations to strengthen their institutional capacity, measure their impact, and forge lasting partnerships. This post originally appeared on the LINC site and is reposted here with permission.