The Influence of Funding Strategies on Humanitarian NGOs Sustainability
and Independence
Author: Vasiliki Apatzidou (s3819396) Supervisor: Dr. Clara Egger
NOHA Erasmus Mundus Joint Master’s Degree Programme in International Humanitarian Action University of Groningen, Netherlands
1 This thesis is submitted for obtaining the Master’s Degree in International Humanitarian Action.
By submitting the thesis, the author certifies that the text is from her hand, does not include the work of someone else unless clearly indicated, and that the thesis has been produced in accordance with proper academic practices.
2 Abstract
Every year, more and more people need humanitarian assistance, and the NGOs need to respond faster and more effectively to these requests when the state is unable or unwilling to deal with a ‘crisis’ situation. The concept ‘NGO’ has become more widespread in the field of humanitarian action in the last decade. Humanitarian NGOs face many challenges. One of them is their difficulty in ensuring funds to sustain their operations. Funding is essential for the operation of the NGOs and thus, this research studies the impact of NGO funding strategies on organizational sustainability and independence. Specifically, this thesis seeks first to identify the funding strategies through which NGOs can be more sustainable and independent. In order to explore this question, this study refers to the Resource Dependence Theory which explains that the power asymmetry between public donors and NGOs may lead to dependence. Thus, the literature proposes the diversification of sources and the use of funds from own-income generating activities as funding strategies that improve the NGOs sustainability. However, what are the criteria that make NGOs to opt for their funding streams? This is the second question that this thesis seeks to answer. There are many cases that NGOs decide to use solely institutional funds, and the reason is that the NGOs need to survive. This concerns the NGOs mandate per se: NGOs need to exist to help the vulnerable population. Institutional and government humanitarian funds are available in large amounts and they are essential for the most of the NGOs. Other NGOs mention that independence, meaning the ability of the NGO to decide about its program activities without interference from the donors, is the most important factor that influences the choice of their sources of funds. In these cases, NGOs decide to either reject institutional funds and use solely private funds, or diversify their sources of funds. To study the criteria that lead the NGOs choices of their funding streams, this study adopted a qualitative research design that includes the combination of both secondary and interview data. This study focused on 3 national and 3 international NGOs. Two of these NGOs use solely institutional funds, the other two reject institutional funds and use solely private funds, and the last two have diversified sources of funding including funds from own-income generating activities. The findings of the research are diverse and largely depend on the funding strategy each organisation develops. They prove that the NGOs have a different perception of the principle of independence, and that the binary posed by the literature between survival and independence is not a valid one. The NGOs that use solely institutional funds to survive mentioned that they can still maintain their independence and resist external control through specific strategies and mechanisms they pursue.
3 Acknowledgments
The journey to the International Humanitarian Action Master (NOHA) ends with this master thesis, which would not have been possible without the assistance and encouragement of so many people. I would like to thank my professors in both the University of Groningen and University of Malta for their endless support during these two years. Through them I learned many things for the humanitarian field valuable for a lifetime.
I am particularly grateful to my supervisor Dr. Clara Egger for her overall support and for providing me useful comments and suggestions. This thesis was written during a difficult situation, through the Covid-19 pandemic. Despite this difficult situation that we are all going through, my supervisor was always encouraging me to work on this thesis and although she was working remotely, she could always provide continuous advice and comments to my research.
Last but not least, I want to thank the non-governmental organisations that took part in this research for their valuable contribution.
4 Table of Contents
List of Abbreviations………...6
Introduction………...7
Chapter One: Theoretical Framework……….12
1.1. Conceptual Framework………...………..12
1.2. Non-Governmental Organisations……….………...12
1.2.1. NGO Independence………....14
1.3. NGOs Resources……….………..16
1.4. Financial Sustainability………..…...22
Chapter Two: Literature Review………24
2.1. Identified NGOs Strategies to Maximise Sustainability and Independence…………..……24
2.1.1. Resource Dependence………...24
2.1.2. Diversification of Sources……….27
2.1.3. Own-Income Generating Activities………...29
2.2. Theoretical Argument: Determinants for the selection of specific funding strategies……..31
Chapter Three: Methodological Framework………..34
3.1. Introduction: Key Variables and Indicators………....34
3.2. Research Design……….37
3.3. Data Collection & Analysis Plan……….………..39
3.4. Research Limitations……….…..…..41
Chapter Four: Empirical Chapter………..43
4.1. NGOs Funding Strategies………..43
4.1.1. Oxfam……….……..43
5
4.1.3. Médecins Sans Frontières………..47
4.1.4. Open Cultural Center………..50
4.1.5. Estonian Refugee Council………...51
4.1.6. Defence for Children International - Greek Section………...52
4.1.7. Discussion………...53
4.2. Analysis of the Main Findings………54
4.2.1. Independence………...……...54
4.2.2. Survival………..61
4.2.3. Discussion………..62
Conclusion……….66
References………..69
Annex I. Ethics Clearance………...75
6 List of Abbreviations
ALNAP
Active Learning Network for Accountability and Performance in Humanitarian Action
AMIF
Asylum, Migration and Integration Fund DCIG
Defence for Children International Greece ERC
Estonian Refugee Council EU
European Union EUAV
European Union Aid Volunteers INGO
International Non-Governmental Organisation MFA
Ministry of Foreign Affairs MoI
Ministry of Interior MSF
Médecins Sans Frontières NGO
Non-Governmental Organisation OCC
Open Cultural Center RD
Resource Dependence UNHCR
United Nations High Commissioner for Refugees U.S
7 Introduction
In many, diverse, countries, the number of Non-Governmental Organisations (NGOs) has increased and their role in humanitarian action is more prominent than ever (Ryfman, 2007). Specifically, 95 per cent of the humanitarian actors are said to be NGOs, and eight out of ten are not coming from Westerns states (ALNAP, 2015). There is not one commonly agreed definition for NGOs, and this is a vague and loosely defined concept. In general, humanitarian NGOs can be described as actors independent from governments that act for reasons other than making profit, and their primary aim is to bring social change and help the vulnerable population (Lee, 2010). NGOs act to address numerous humanitarian issues such as poverty, disaster relief, refugee protection, public health, risk reduction, sexual and gender based violence, conflicts etc., and they are involved in all the phases of the humanitarian policy cycle such as agenda setting, policy making, programme implementation and evaluation (ALNAP, 2015).
NGOs usually undertake the responsibility of the states when they are unwilling or unable to deal with a humanitarian ‘crisis’ or disaster (Teggen & Doh, 2004; Kamat, 2003). The reasons for state failure in addressing transnational issues are numerous. Teggen & Doh (2004) mention that states are always subject to political pressures, and thus it is not feasible for them to advocate for change and offer their services independently. Moreover, some states do not have the ability to act and respond to a humanitarian crisis, due to their extremely limited capacity and resources to meet their responsibilities to protect their population in times of crises (Harvey, 2009). Finally, states do not always have the knowledge and expertise on how to deal with humanitarian issues (Teggen & Doh, 2004). For instance, in conflict contexts, the states cannot protect their citizens because either they do not control the part of the state where aid is needed or because they do not want to engage with providing assistance for political reasons (Harvey, 2009).
When state actors are unable or unwilling to meet the basic needs of the people, then humanitarian aid remains the only resource left for people (Harvey, 2009). In response to state inaction, NGOs intervene in emergency situations in order to fill the gap of the governments and respond to the challenges that may arise in the aftermath or during a humanitarian crisis. The primary aim of the NGOs is to support and encourage states to fulfill their role and protect their citizens from disasters, and secondly to intervene in humanitarian crises and offer independently their services and
8 assistance (Harvey, 2009). According to Karanth (2015), NGOs act as a ‘bridge’ between the states
and the society and they are very important.
Ryfman (2007) mentions in his article, that NGOs are ‘indispensable players of humanitarian aid’. Although the humanitarian environment is constantly evolving per se, one thing remains the same: the NGOs continue to be the most significant humanitarian actors (Ryfman, 2007). Due to the increasing demand of NGOs providing services in ‘crisis’ situations, there is also a growing interest in the resources they need to function.
Funding is essential for the existence of NGOs as well as for the sustainability and independence of their operations. Fundraising is a core activity for NGOs as this is the way to earn money to accomplish their programmes and plan their activities for the future (Mitchell, 2012). Thus, the organizations are constantly looking for methods to increase their funds (Karanth, 2015; Otto, 1996). Although there are various sources of funding available, such as institutional and government funding, private funding from donations or philanthropic institutions, and funds from income-generating activities, NGOs still find it difficult to secure funds and be financially flexible over time (Omeri, 2015).
Many academics conclude that fundraising is one of the main challenges that NGOs face and will continue to face (Ali, 2012; Leon, 2001). This highlights the gap between the needs in the field and what the NGOs can really cover, and it demonstrates the need for a continuous availability of funds (Mbuya & Osodo, 2018). Existing literature refers to the importance of sources of funds and the way they affect NGOs financial sustainability and independence (Mitchell, 2014; Davis & Cobb, 2010). Except of the difficulties in raising funds, NGOs find it also challenging to develop funding strategies that respect and do not compromise their principles (Khieng & Dahles, 2014). On the one hand, NGOs are independent actors that act autonomously from the state, donors and market institutions, and they want to maintain their independence when they opt for their funding streams (Edwards and Hulme, 1995). On the other hand, NGOs are usually resource dependent when they decide - for survival reasons, to use solely institutional and government funds (Pfeffer and Salancik, 1978). Many academics have referred to the danger that the use of institutional/government resources may bring, as it limits NGO independence and autonomy (Omeri, 2015; Parks, 2008; Khieng & Dahles, 2014).
9 The recognition of the important role that NGOs play in many sectors of humanitarian action
highlights the need for NGOs to raise funds in an effective and sustainable way that guarantees also the perseverance of their principles, and this leads the discussion to the research question of the thesis.
Research Question
The aim of this thesis is to investigate how NGOs funding strategies influence the independence and sustainability of their programmes.
In order to answer this question, the following sub-questions need to be addressed.
- What are the funding strategies through which NGOs can be more sustainable and independent?
- What are the factors that influence NGOs decisions to opt for a specific funding strategy?
The master’s thesis aims to explore the various funding strategies that exist for NGOs and explain how the choice of funding strategies influence the NGOs financial sustainability and independence. The main research objective is to refer to the mechanisms and criteria through which NGOs can be more sustainable and independent over time. Moreover, through the second sub-question, this thesis aims to explore the criteria that lead the NGOs choices of their funding streams. This sub-question will also contribute in understanding whether resource dependence on institutional and government funds limits the NGOs independence, and if and how NGOs seek to maintain their independence while using public funds.
In order to answer the main research question and the sub-questions, this research includes findings from the literature and the data collection. Particularly, for the first research sub-question, the author will refer to existing academic literature and the Resource Dependence Theory to identify the funding strategies through which NGOs can increase both their sustainability and independence. The literature proves that dependence on institutional/public donors is negative, and that NGOs should turn to more sustainable models of operation that increase their independence such as the diversification of sources (Khieng & Dahles, 2014, Omeri, 2015; Kim, 2017; Berrett& Holliday, 2018). Moreover, researchers propose the use of alternative funding sources such as funds from
10 own-income generating activities, as self-financing increases both organisational legitimacy and
sustainability (Ali, 2012; Akenji, 2007).
Although the literature for the first sub-question is abundant, there is still a lack of literature on the factors that influence the NGOs decisions to opt for specific funding strategies. Thus, for the second sub-question, a collection of both primary and secondary data will be used as the existing literature is quite limited. Primary data has been collected through qualitative interviews (open-ended questions) with NGO managers at various NGOs - both international and national. The secondary data include the examination of NGO documents and information published on the NGOs websites. The research studies six NGOs (3 international and 3 national) that were chosen based on their sources of funds. The two of these NGOs use mainly institutional funds, the other two reject institutional funds and use solely private funds, and the last two have diversified sources of funding, including funds from own-income generating activities.
The main theoretical argument of the thesis is that NGOs funding strategies highly influence organisational sustainability and independence. The factors that influence the NGOs choices are on the one hand organisational survival and financial security, and on the other hand independence. Despite the fact that some NGOs decide to reject any institutional funds to maintain their independence, and contrary to much of the literature on NGOs, the use of solely institutional/public funds is not a sufficient reason for organisational dependence according to some NGOs. The research reveales that NGOs may be simultaneously resource dependent on institutional donors, and organisationally independent as long as they rely on multiple institutional donors, and the donors they choose adhere to the good donor humanitarian guidelines.
Although the survey results shed light on the influence of the funding strategies on organisational sustainability and independence, it is crucial that a more detailed exploration of the issues is needed in order to reach more concrete and reliable conclusions. The sample size I used was quite small (6 NGOs) due to the limited availability of the NGOs to participate in research because of their limited time due to the Covid-19. Moreover, the fact that the study’s focus is on NGOs sustainability and independence which is a sensitive issue for the NGO sector, may result in biased outcomes, as most of the time, NGOs do not want to be labelled as ‘dependent’ or ‘unsustainable’.
11 This topic is important, especially for managers, policy makers and practitioners in NGOs, as it will
help NGOs to realise the ways through which they can finance their work and the possible sources of funding that exist. Moreover, it will discuss the implications of public funding on organisational independence, and will propose strategies that maximise both the NGO sustainability and its autonomy. The results of this paper will increase awareness in the non-profit sector on how fundraising strategies contribute to the sustainability and independence of their programmes and propose strategies for coping with resource dependence.
It is important to mention that this research is not only relevant to NGO management and policy making, but also it is academically important. The current literature on NGOs is mainly focused on their programs and impact on the population. There are currently some studies that refer to fundraising strategies of NGOs, but they are limited. Finally, this topic is relevant to humanitarian action, as it refers to NGOs that are the main humanitarian actors and it analyses one of their core activities – which is fundraising. The enormous functions that NGOs undertake demand a continuous availability of funds and an efficient management of financial resources. This research will try to address this problem and consequently, this is a significant research paper for the humanitarian field.
The content of this paper is organised as follows: in the first chapter, there is a theoretical section where the main concepts are explained such as the NGOs definition, the notion of independence and the concept of financial sustainability. Special emphasis is given to the sources of funds NGOs use and their implications on organisational sustainability and independence. The second part of the research entails the literature review where the Resource Dependence Theory is analysed and leads the discussion to the funding strategies that the academics propose as the most successful in the NGO sector. Moreover, the theoretical argument of the thesis is presented. The third chapter presents the methodology and the analysis plan that will be used for the data collection in order to testify the theoretical argument. The main findings of the data collection part will be presented and analysed in the last (fourth) part of the thesis.
12 1. Theoretical Framework
This chapter presents literature written by other scholars and provides a theoretical framework on NGOs, and the concepts of independence and financial sustainability that are the main issues of this study. Moreover, it refers to the resources that NGOs need to operate, meaning both symbolic and material resources, with a main focus on the sources of funds.
1.1. Conceptual Framework
The concepts that will be specifically analysed are the below-mentioned: first of all, the definition of non-governmental organisations will be given, and the debates around this definition will be analysed, as this study is focused and concerns solely non-governmental organisations. Ιn this case, special focus will be given to the nature of the NGOs and their aim. Furthermore, the specific case of NGOs in humanitarian action will be introduced as this thesis refers exclusively to humanitarian NGOs. Then, and in order to examine the relation of NGO independence with donor funding, there will be a discussion of the notion of organizational independence. Following the conceptual framework for NGOs, there will be reference to the resources NGOs need to be able to act. These resources may be either symbolic or material. Thus, there will be reference to both of them. However, special focus will be given on the material sources, meaning the sources of funding, as this is closely related to the research topic. The last chapter of the conceptual framework will deal with the issue of NGO financial sustainability.
1.2. Non-Governmental Organisations
The United Nations, and specifically the UN Charter, had initially shaped discourses and research on NGOs to differentiate between the participatory rights of intergovernmental and non-governmental agencies (Otto, 1996). NGOs were initially functioning as consultative actors within the UN Context (UN Charter, art.71). Recently, especially since the 1980, the scholars use the NGO term more broadly to refer to those actors that act also outside the United Nations both nationally and internationally (Martens, 2002). NGOs have recently attracted increasing interest in academic research. However, there is still no common agreed definition for them. This chapter will provide
13 the debates on the constitutive elements of NGOs and their independent role in global politics.
Special reference will be given to their role in humanitarian action.
Although the UN introduced a negative definition of NGOs - mentioning what NGOs are not, rather than presenting what they are (NGOs are non-governmental organisations and their aim is not to make profit), the emphasis in this paper is on providing a positive definition, mentioning what NGOs are, and elaborating on their positive characteristics. Thus, the studies from Reinalda (2001), Willets (2002) and Martens (2002) will be used as they provide a positive definition for the NGOs. The definition that will be used in this research, combining the elements found in the above-mentioned studies is: NGOs are formal voluntary citizen organisations or associations of people acting together, and their aim is to act for a common purpose such as to support marginalised groups, bring transnational solidarity and ensure that the international commitments are preserved. First of all, regarding the nature of the NGO actors, Reinalda (2001), mentions that they are private actors, social movements or citizen organisations. Willetts (2002) also uses a positive definition for NGOs mentioning that NGOs are ‘independent voluntary associations of people acting together’. Martens (2002) finds it a ‘mission impossible’ to define NGOs but in the conclusion of her article, she manages to provide a positive definition of what NGOs are. Regarding their nature, she mentions that NGOs are ‘formal independent societal organisations’. It is apparent from the above-mentioned definitions as per the nature of NGOs, that they are not governmental actors, but rather independent citizen organisations or associations of people who act together (Reinalda, 2001; Willets, 2002; Martens, 2002). It is important to add Reinalda’s use of the characteristic ‘formal’ entities, as NGOs have at least some organisational structure such as staff and headquarters (2001).
The definitions of NGOs also include a reference to their non-profit nature (Reinalda, 2001; Willetts, 2002; Martens, 2002). The NGOs aim is to achieve transnational solidarity and ensure that the international commitments are preserved through their cooperation with states, private and international institutions (Tarrow, 2001; Reinalda, 2001). Willetts (2002) refers also to the non-profit nature of NGOs mentioning that they act for some common purpose other than making money or illegal activities. Martens (2002) also finds that NGOs primary aim is to ‘promote common goals at the national or international level’. NGOs differ from other actors, as their aim is not to make
14 profi, but to take the part and support marginalised groups, and work to ensure that the international
commitments are preserved.
The concept ‘NGO’ has become more widespread in the field of humanitarian action. According to the Geneva Convention of 1949, the NGOs are ‘impartial humanitarian organisations’ that are involved in all the phases of the humanitarian cycle. The focus of this research is particularly on humanitarian NGOs. Humanitarian NGOs aim to offer assistance in a neutral, impartial and independent way, in order to gain access to the most contested areas, alleviate suffering and protect human dignity. In that sense, humanitarian NGOs are and should be isolated from economic, political and social factors (Brennen & Sondorp, 2006). Every year, more and more people need humanitarian assistance, and the NGOs need to respond faster and more effectively to these requests. The number of people who need assistance has increased dramatically from 53 million people in 2010 to close to 129 million in 2018 (‘Ongoing Humanitarian Crisis’).
Although from country to country the reasons that humanitarian NGOs intervene and act are various, there are also some common elements, such as human poverty, refugees and migration, internally displaced people, conflicts, under-five malnutrition and mortality, natural disasters, climate change, food insecurity and the need for human development, which are just some of the reasons that make the humanitarian assistance and protection indispensable. Humanitarian NGOs face many challenges such as lack of humanitarian access or compromised humanitarian access in the crisis-affected areas, the threats and violence against humanitarian aid workers who are often seen as a target and finally the inability of NGOs to ensure their material resources and simultaneously their sustainability (Herman & Dijkzeul, 2011). This last challenge that NGOs face, meaning their inability to raise funds in a strategic way and sustain their presence, is the main problem that this thesis identifies, as the inability of NGOs to ensure funds endangers their mere existence.
1.2.1. NGO Independence
As it is clear from the above-mentioned definitions, NGOs are firstly non-governmental actors, meaning private in their nature so they are distinct from the governments. The researchers agree
15 that NGOs work for the promotion of the common good, and their aim is not to make profit but to
preserve the international commitments (Reinalda, 2001; Martens 2002). Finally, the above-mentioned studies find that NGOs are independent organisations. This element is quite important and relevant for the specific research so one needs to better realise their independent role in global politics.
As it is mentioned above, NGOs are independent entities. Many academics have dealt with the notion of independence when they study NGOs. Bossuyt and Develtere (1995) referred to the autonomy of NGOs, mentioning that dependency is a paradoxical situation for NGOs, as civil society actors claim to have their own identity, values and ability to make their own decisions. NGOs have very different aims and values from state and other actors, and thus, they should not be influenced by them (Uphoff, 1986). NGOs primary principle is solidarity and this should not be compromised for any reason (Uphoff, 1986). Both of these definitions entail some weaknesses as they actually explain why NGOs should not be dependent to other actors, without explaining however what exactly means for an NGO to be independent.
Because of the necessity to realise what independence means for an NGO, I turned to Rhoden’s definition. According to him, the organisation’s autonomy or independence, can be defined as the ability of an organisation to act independently and determine its own strategic plan without influence and pressure from external actors such as the state, market institutions and the donors (Rhoden, 2014). In other words, NGO independence is the freedom that the NGO has to pursue its program activities and priorities without external interference, influence or control.
The researchers distinguish between NGOs that put autonomy and identity as a primary aim and those that need to sacrifice autonomy in order to both gain access to a crisis-affected population and gain funding and support from the governments (Bossuyt & Develtere, 1995; Rhoden, 2014). The first category consists of NGOs that have developed their role, mandate, values and expertise and try to work in ‘isolation’ having only some strategic partnerships. The second category refers to NGOs that decided to build alliances with donors, governments, local authorities and other actors in order to be able to implement their projects. However partnerships with various actors also mean
16 that there will be some pressure and influence from their allies, so this will be happening in sacrifice
of autonomy (Bossuyt & Develtere, 1995).
Stroup & Wong (2017) give examples of different NGOs to explain NGO independence. For instance, they refer to MSF, highlighting that they have rejected government funding in order to maintain independence. From the beginning, MSF maintained a competitive position towards governments and other political authorities and decided not to work with the states. This does not mean that they are not effective (Stroup & Wong, 2017). They maintain their autonomy and in this way they manage to gain funds from other actors such as private companies. MSF actually are often criticising ‘state humanitarianism’ as they believe that states have their own goals and advancing humanitarian action cannot be one of them (2017).
On the other hand, according to Stroup & Wong (2017), CARE has opted for cooperation with the American government in order to efficiently deal with global poverty. It is true that CARE has a very strong relation with the American cabinet and in this way it manages to gain great political access (Stroup & Wong, 2017). Thus, in this case, government support results in a loss of autonomy, but also increases the influence to the government.
Oxfam is another case, as it is trying to both work with the state and simultaneously criticise the government (Stroup & Wong, 2017). Their personnel often meet with state officials but they always mention their desire to be politically and financially independent. They are working a lot on advocacy and campaigning, and try to criticize the state without taking it to the extreme. Thus, Oxfam is engaging and cooperating with governments, but it tries to also maintain its independence (Stroup & Wong, 2017). This is the difference with MSF. MSF are both independent and prefer disengagement with any state actor. For MSF, autonomy is the raison d'être.
1.3. NGOs Resources
NGOs need to have resources to act and contribute to the betterment of the vulnerable population, and bring societal change. Through their resources, they manage to act. The notion of resources refers first of all to normative-symbolic resources. NGOs need legitimacy and authority in order to
17 act (Slim, 2002). Secondly, resources that NGOs also need, are the human resources. The NGOs in
order to function, they need people to work. This may include staff under contract - local or expatriates, paid volunteers and unpaid volunteers. Thirdly, NGOs need financial resources in order to act. NGOs need to develop fundraising strategies to advance their performance and improve project quality and impact. This chapter will refer to the various sources that NGOs need in order to act, meaning both the symbolic and material resources that exist for NGOs, as this is relevant for this research and directly relates to the issue of the NGO financial sustainability.
It is commonly admitted that humanitarian NGOs aim to improve the situation of people affected by war, conflict, natural disasters, violence or displacement (Stroup & Wong, 2017). Although it is quite clear what NGOs are doing and which their interventions are, there is still need to understand why they are doing so. This means that for NGOs to act, they need to have authority. According to Hugo Slim’s (2002) definition, authority is:
‘The particular status with which an organisation is imbued and perceived at any given time that
enables it to operate with the general consent of peoples, governments, companies and non-state groups around the world.’
Slim (2002) mentions that NGO authority emerges as a moral authority. This means that it is derived from a case that is based on some values such as human dignity, equality, humanity, independence and justice. It is true that NGOs around the world are working towards the betterment of the vulnerable population and the protection of the people in need (Slim, 2002). Thus, it is morally recognised that NGOs have legitimacy. So, it is really important for NGOs to have values and adhere to the humanitarian principles in order to have authority. According to Fowler (2000) there are civil society actors that emerge, but not all of them can gain authority. The plangency of morality is important for them to exist (Fowler, 2000).
Except for morality, Slim (2000) also refers to another source of authority that is the law. This means that NGOs are acting in accordance with national and international legislation and thus they operate legally. Moreover, they can claim that they work for the enhancement of the law such as either the humanitarian or the refugee law. Equally important, the personnel of the NGOs are protected from the Geneva Conventions, as NGOs are considered to be ‘impartial humanitarian
18 organisations’. All these facts contribute to the recognition of the authority and legitimacy of the
NGOs.
Stroup and Wong (2017) also explain how NGO authority emerges, and this is a more recent explanation in comparison to Slim’s definition. According to them, in theory, the NGOs have access to authority because of their specialisation and meaningful commitments. The reason that NGOs are distinguished from other actors that make commitments, is that they are giving ‘principled’ commitments, and this is that gives them legitimacy as an authority (Stroup & Wong, 2017). Principled commitments mean that their main aim is to help vulnerable people in need, and as they are the actors that have the required expertise, they can do it better than other actors. The authors (Stroup & Wong, 2017) also mention that it seems that the main target for the NGOs is to receive status to the various audiences, but what is truly difficult according to them, is for the NGOs to be able to maintain this status. NGOs to maintain the status, they need to improve their relationship and interaction with the stakeholders at the local, national and international level (Stroup & Wong, 2017). Here, it comes again the issue of independence, and it is linked to authority because on the one hand, for NGOs to have authority they need to persuade the people that they have principled commitments and that they are independent, and on the other hand, when they acquire authority, they need to build partnerships with the state, donors and other actors to maintain their authority, and in this way they gradually lose their independence. This is an important element as it also influences the way NGOs opt for their funding strategies, but this topic will be analysed later in the literature review (3.2.).
Material resources for NGOs refer to human and financial resources. In the NGO sector, human resources are important. There can be three types of human resources: paid staff with a contract - either locals or expatriates, paid and unpaid volunteers. All of these categories are important. For example, volunteers most of the time are doing a job for free and in this way they form part of the NGO resources. However, the focus of this research is on NGOs financial resources as this is closely connected to the NGO financial sustainability. Thus, a more extensive analysis will follow regarding the second type of NGO material resources, meaning the financial resources.
Funds are essential for the survival of NGOs as they ensure the ability of them to achieve their strategic goals. However, the decision of choosing a specific source of funding has many
19 implications to both the financial survival of the NGO, and its operations in substance. The financial
resources of the NGOs can in general be distinguished in institutional/public funds and private funds (Karanth, 2015). The first category refers to bilateral and multilateral aid from external donors and public funds from the government. The second one refers to private acts such as membership contributions, sponsorship fees, and grants from philanthropic institutions. Finally, there are alternative sources of funding such as funds that are coming through own-income generating activities (Karanth, 2015).
The first type of institutional/public funding for NGOs is the government funding, meaning government grants, state subsidies, or ‘hidden’ aid as exemption from taxes (Parks, 2008). As Stroup & Wong (2017) mention, using government funding is the ‘easy way’ as governments usually have enormous sums of money available for NGOs. Moreover, the partnership with the government will allow the NGOs to be more involved in the state affairs, and have a greater role in the ‘crisis’ response (Karanth, 2015).
Although, the government funds give incentives to the organisations to develop projects, opting to public funds means that the NGO will be under strong governmental control and in some way it will be ‘colored’ by political agendas (Stroup, 2012). Moreover, it is well known that for an NGO to be eligible for governmental funds, there are strict criteria and formal regulations that not necessarily all the organisations fulfill or can prove that they fulfil, such as loyalty, conformity to policy objectives and others (Stroup, 2012). Also, eligibility of NGO for government grants, depends on governmental criteria such as loyalty or conformity to foreign policy objectives. Finally, the government is a very strict evaluator and will need a very detailed reporting for the NGOs that may be time-consuming and lead to more bureaucratized forms of control (Corrigall-Brown, 2016; Khieng & Dahles, 2014).
The funding coming from international or regional donors is the second category of public/institutional funds and it is the most common one in the NGO sector. Institutional funds are necessary for the survival of the NGOs as they are always available and in big amounts (Karanth, 2015). These funds may come from international or regional organisations such as the United Nations or the European Union. Multilateral organisations have been created to extend international support and they offer huge amounts of money to the NGO sector in order to contribute in this
20 effort. In this case of multilateral aid, there is weaker control from a single government when
compared to bilateral funding, as the funding is coming from multilateral organisations. The reason is that multilateral organisations obtain their funds from many governments and can spend them on various countries and in different projects (Stroup & Wong, 2017).
However, Antrobus (1987) mentions that there is a tendency of international or regional donors to fund projects rather than programs, not allowing the NGOs to have a strategic long-term financial planning. The fact that the donor will fund a project for a year, does not necessarily mean that it will also fund it for the next year (Antrobus, 1987). This happens because the donors may change their priorities according to the humanitarian needs and emergencies. Consequently, when there is dependency on one or more foreign donors, there is a lack of long-term financial sustainability plan and the impact on independence is also apparent (Van Der Heijden, 1987).
Moreover, institutional donor funding is most of the time project-based funding that means that the personnel of the NGO will have to draft and submit a project proposal for a specific call that was published by the donor. This often comes with specific guidelines and conditions on how to implement the project and how to spend the money and usually it is written in the form of a ‘Logical Framework’. An evaluation and monitoring plan should be part of the project proposal in order to ensure that the donor will be able to evaluate the impact and outcomes of the project (Karanth, 2015). In order NGOs to get funds from multilateral donors, they need to have experienced and well-skilled personnel in project writing.
In addition, receiving funding from foreign donors may have an impact on quality, as the NGOs will also need to reconcile their purposes with the requirements that the donors set (Van Der Heijden, 1987). This may influence operational effectiveness and program integrity (Van Der Heijden, 1987). Especially, in cases of financial strain, NGOs will shift their priorities and design their projects in order to fit the donors’ terms and priorities (Antrobus, 1987). Thus, for the NGOs to survive, they may need to adjust their strategic goals to the program requirements of the donor and sometimes to even change completely direction to their projects in order to achieve financial survival and in this way compromise their independence (Parks, 2008).
21 Following the analysis of the public/institutional funds and their subtypes, there will be now
reference to private funds. Private funding entails money coming from donations and contributions of individuals, businesses and philanthropic institutions. Private funds are easier to access and most of the time they are not related to a specific call or project (Khieng & Dahles, 2014). In the cases of private funds, NGOs are not influenced by the people or the institutions that make the donations and thus, NGOs can design and program their preferred actions and projects as they want (Karanth, 2015). Moreover, as it is easy to access this funding, there is a correlation between private support and emergency programming (Stroup & Wong, 2017).
However, NGOs cannot count solely on these private funds, as it is not predictable whether they will exist, when and in what amount (Parks, 2008). Thus, the NGOs need to develop project proposals without being sure that they will be able to accomplish them if they do not have more available sources of funds. Moreover, NGOs need to invest more time on commercial activities in these cases so that they are well known in the wide public (Khieng & Dahles, 2014; Parks, 2008). It is worth mentioning in the end, that when there is a reference to NGOs resources, it can also refer to income-generating activities. These sources can be membership or subscription fees, publications, sale of products, and in-Kind contributions that are usually generic (Srinivas, 2015). Income-generating activities increase financial sustainability, as the NGO is not dependent on any donor (Parks, 2008). Although this is an important source of income for the NGOs to implement their project activities or even activities beyond the project, it is not always enough to cover all the needs of the NGO through this source of funding. Moreover, although it gives some kind of flexibility and independence to the NGOs, it raises ethical dilemmas as to the mission of the NGO (Khieng & Dahles, 2014).
22 Institutional/Public Funds Government Funding Institutional/Public Funds Multilateral Donors Private Funds Charity Institutions or individuals Own – Income Generating Activities (+)Enormous sums of money
(+)Greater influence/ Partnership with the government
--- (-)Strict criteria
(-)Governmental control/ Colored by political agendas (-)Strict evaluator (+) Most common source - survival (+) Large amounts of money --- (-)Technical Expertise (-)Strict goals arranged by donors (-)Dependence,
adjust to the donors terms
(+)Easy to access (+) Emergency response (+)Organisational Independence --- (-)Unpredictable, not enough (-)Usually,
not for development purpose
(+)No control at all (+)Contributes in the financial Sustainability & Independence --- (-)Not enough (-)Ethical Dilemmas
Table 1: NGO sources of funds - Source: Author. 1.4. Financial Sustainability
Following the analysis of the NGOs resources, this chapter aims to explain what financial sustainability is and how it is linked with the NGO sector. According to Omeri (2015), sustainability is: ‘a measure of an organisation’s ability to fulfill its mission and serve its stakeholders over time’. Financial sustainability is defined as the capability of an NGO to be flexible financially over time and overcome future economic challenges while maintaining organisational capacity (Bowman, 2011).
Bowman (2011) mentions that it is important for an organisation to be sustainable in both the long and the short term. In the short term, an NGO should have enough funding to operate and in the long term it should secure ways and funding to overcome unexpected challenges and be more flexible in times of financial strain (Bowman, 2011). Bowman’s definition of financial sustainability is relevant to this research as in recent years, there is a witness of the increasing
23 importance of NGOs and their increased responsibilities. This means that NGOs need to ensure
funds for the long-term so that they can serve their beneficiaries when there is a need. Abdelkarim’s (2002) definition is also relevant for this study, who acknowledges that financial sustainability is the ability of the NGO to develop diversifying sources of funding in order to continue its operations after funding ceases.
Why do NGOs need to be financially sustainable? First of all, in many countries, not only developing but also developed, the governments do not have the necessary means to deal with a problem (Poledrini, 2015). This ‘inefficiency’ of the government was also the reason that NGOs became some of the most important humanitarian actors (Poledrini, 2015). Furthermore, NGOs often have the expertise and the know-how to deal with crisis-affected communities and contribute to the betterment of the vulnerable population. Thus, NGOs need to be sustainable and independent to always have the ability to intervene in a crisis-affected area and help the people in need.
Moreover, despite the fact that NGOs may get funding for a specific project that may come to an end because the problem is solved, this does not mean that other problems in the community will not arise. Thus, NGOs need to be prepared to face multiple problems especially in developing countries where most of the time the problem is not a single one but a correlation of problems (Holloway, 2001). Financial sustainability is of a paramount importance as many social, cultural or economic problems may arise before, during or in the aftermath of a crisis, and NGOs need to respond to these challenges (Holloway, 2001).
Building sustainability in the NGO sector is a challenge as it entails not only financial sustainability but also organisational capacity to ensure stable fundraising (Abdelkarim, 2002). In recent times, it is true that many NGOs face a lack of funds which may impact both the organisational independence and the quality and importance of the implemented activities (Abdelkarim, 2002). Thus, in practical terms, financial sustainability means the ability for NGOs to continue their core work, even if external donor funding ceases (Hailey, 2014). This statement leads the discussion to the main research question of this thesis: How NGOs’ funding strategies contribute to the financial sustainability and independence of their programme? The next chapter will try to provide the answer to this question.
24 2. Literature Review
This chapter aims to provide the existing literature on how NGOs’ funding strategies contribute to the financial sustainability and independence of their programmes. To answer this question, this chapter will first refer to the mechanisms through which NGOs can be more financially sustainable (2.1). Secondly, this chapter will refer to the theoretical argument that deals with the factors that influence the NGOs choices to opt for their funding strategies (2.2). Specifically, although there is extensive literature on the funding strategies that NGOs use in order to increase their sustainability, research is still missing that explains the factors that lead NGOs to opt for a specific strategy. 2.1. Identified NGOs Strategies to Maximise Sustainability and Independence
As discussed above, financial sustainability is central for NGOs survival and capacity to operate. However, sometimes, NGOs need to cease their operations once the funding is ended. Not only the NGOs will stop their operations, but sometimes they will even collapse due to the limited or nonexistent funding. Thus, funding strategies are highly important for the NGO sector. This subchapter will try to explain the Resource Dependence Theory as the understanding of this theory will make it possible to later identify the NGOs strategies that maximise financial sustainability and independence.
2.1.1. Resource Dependence
First of all, in order to understand the different funding mechanisms that exist for NGOs, one needs to first take stock of the power relations between the NGOs and the donors. The relationship between the NGOs and the donors is asymmetrical, meaning that the donor decides the ‘terms’ of this relationship (Parks, 2008). Others, such as Hillhorst (2003) believe that the relation is also influenced by political and ideological elements and this may change and influence the power imbalance, however the asymmetrical relationship is still persistent. It is apparent that the relation between the NGOs and the donors is not equalitarian, but rather asymmetrical (Hillhorst, 2003; Parks, 2008).
The asymmetric relation between the donors and the NGOs may lead to dependence. Pfeffer and Slancik (1978), founders of the Resource Dependence Theory, explain the way external resources influence organisational behaviour. NGOs cannot generate internally the income they need for their
25 actions. Thus, they need external resources to maintain themselves. According to the Resource
Dependence Theory, an organisation is subject to external control when it depends a large proportion of its funding either on a single donor or solely on external institutional donors. NGOs are many times dependent on institutional donors and actually sometimes, the funds from a single or more external donors may be the sole source of income for the NGO (Malena et al., 2009). This can lead to resource dependence.
According to the academics, in the real context, NGOs prefer to use funds coming from institutional donors (either international/regional or governmental) to fund their activities (Ju & Tang, 2010; Khieng & Dahles, 2014). But why is this happening? Mitchell (2014) studies the funding strategies of some of the US-based humanitarian NGOs, and he explains the reasons that the NGOs sometimes rely solely on institutional and public donors. First of all, dependence on institutional funding brings greater revenue stability (Mitchell, 2014). Governments or large institutional donors can give to the organisations huge amounts of money that contribute to their financial stability. Research has proven the importance of institutional funding as leaders of NGOs admit that inadequate resources may hinder the accomplishment of their goals (Mitchell, 2014). Financial security and survival thus make NGOs opt for big institutional donors. However, in many cases, NGOs are completely dependent on external institutional funding (Malena et al., 2009). Mitchell’s (2014) and Khieng & Dahles’ (2014) research on resource dependence are central for this research as they explain the implications that resource dependence has on the NGOs programmes.
According to Khieng & Dahles (2014), the key negative implication of the resource dependence is that the organisation will be under external control and will have to sacrifice its independence as the external donors will have a say in the NGOs internal affairs and operations. The more dependent an NGO is to a donor, the more influential is the role of the donor to its operations (Khieng & Dahles, 2014). This means that the shifting priorities of the donor may also influence the activities of the NGO (Khieng & Dahles, 2014). This is happening because the relation between the donor and the NGO is asymmetric, thus, the NGOs will be the ones that will need to shift priority areas and adjust to the new requirements of the donor (Parks, 2008). Gradually, they will lose their independence and autonomy.
26 Moreover, government funding is highly unpredictable (Khieng & Dahles, 2014). Not only, the
access to these funds is difficult, but also the collaboration with the government has an impact on the advocacy strategies and the independence of the NGO actors (Young & Salamon, 2002). Especially, when the funding is given in the form of ‘contracts’, it demonstrates that the NGO loses control of its own issues and is turning actually ‘into a government division’ (Khieng & Dahles, 2014).
Resource dependence has an impact also on organisational autonomy and performance (Mitchell, 2014). The external control that will emerge due to the resource dependence will have an impact on the NGOs programmes. NGOs will not be able to engage with innovative activities and will need to stick to what the donor is asking (Mitchell, 2014). The mere identity of the NGOs is also threatened as the organisation will not be considered independent of the state and the market institutions (Mitchell, 2014). Moreover, NGOs will be viewed as ‘subordinate’ instruments of the donors rather than their partners (Mitchell, 2014). It is worth mentioning also that institutional funding is competitive as usually this is published in the form of a ‘call’ where NGOs have to submit project proposals in the form of ‘Logical Frameworks’ and only one will manage to acquire the funding. This has as a result NGOs to adopt business strategies driven by excessive competition on who will gain the funding and they neglect their primary mission which is to bring social change (Mitchell, 2014).
In general, the dependence on solely public and institutional donors is considered to be negative (Mitchell, 2014; Khieng & Dahles, 2014). According to the Resource Dependence Theory, resource and power asymmetry can influence the relationship between the donors and the NGO, making the NGO to gradually lose its autonomy and be completely controlled from the donors (Davis & Cobb, 2010). However, in the struggle of organisational survival, sometimes NGOs decide to rely on institutional funds even if they need to sacrifice their autonomy (Edwards & Hulme, 1995). Even if the reliance on foreign donors may hinder the organisations’ primary aims, this may happen in order for the NGO to sustain its survival and continue offering their services to those in need.
27 2.1.2. Diversification of sources
To address ‘Resource Dependence’, Mitchell (2012) suggests that diversification of sources is the most important strategic response in the NGO sector. He mentions that diversified funding is always a better option for the NGOs and it is a method to reduce resource dependence. Although each source of funding entails its specific risk, Mitchell (2012) suggests that NGOs with diversified funding enjoy more financial sustainability and independence.
Revenue diversification was first discussed in the Modern Portfolio Theory that was analysed by Markowitz in 1952. This theory actually describes the procedure by which an investor opts for a specific portfolio for his investment. An investor wants on the one hand to maximise expected returns and on the other hand to minimise variance (Markowitz, 1952). According to Markowitz (1952), in order to achieve both of these goals, an investor should either give up some returns or assume some risk. There is thus a correlation between risk and reward. Wilson (1997) however mentions that diversification can reduce overall portfolio volatility and thus can help investors accomplish better portfolios. For this reason, diversification should always be a part of the investor’s strategies.
Although this theory was first meant to be for investors, it is also used for non-governmental organisations, as NGOs should also raise capital (Froelich, 1999). Moreover, NGOs from their nature are often subject to resource dependence as donor funding is the most common one in this sector and is necessary for the NGO survival. This means that NGOs may lose viability due to financial shortage and in cases that the donor that funds the specific organisation ceases its funding. Diversification of funds means that NGOs utilise diverse sources of funding with a focus on funds from private institutions and businesses, and they are involved in earned income (Froelich, 1999; Davis & Cobb 2010). Diversification of revenue means that the NGOs will not only use institutional and governmental funding, but will extend their activities to be able to rely on income generating activities and private contributions from individuals or philanthropic institutions (Carroll & Stater, 2009). Private or charitable funding is very important for NGOs. These philanthropic organisations aim to enhance the common good and it is a good method for NGOs to overcome dependence on external funding sources. This source of funding can provide the quickest support to sudden crises
28 as it is not going through many bureaucratic prerequisites and is considered to be unrestricted
(Development Initiative, 2009).
Khieng & Dahles (2015) discuss whether the changing of revenue sources from donor to private funding will have a negative impact on the NGOs identity. According to them, NGOs believe that if they become more reliant on funding from private institutions or contributions, then this will also influence their behaviour. However, the authors conclude that greater reliance on private funding does not have a negative impact on the organisation’s behaviour. To the contrary, the independence from donor and governmental funding and the reliance on diversified sources of funding will make the NGO more sustainable (Khieng & Dahles, 2015).
Diversified strategies are related to financial health and independence in NGOs (Tuckman & Chang 1991). Although it may be difficult for NGO managers to identify multiple sources of funding, adding more revenue streams can indeed increase the financial sustainability and autonomy of an organisation (Carroll & Stater, 2009). Boas (2012) explained what revenue diversification is. According to him:
‘Diversification of sources of funding describes a number of activities that strive to reduce the dependence on a specific type of income that is the only or main source of funding.’
When NGOs seek funding from multiple donors (including private donors and funds from own-income generating activities), this can lead to less revenue volatility in comparison to the case that they are completely based on solely institutional donors (Hilhorst, 2003). Revenue diversification decreases revenue volatility and it is thus linked to the financial health of the NGOs (Tuckman and Chang, 1991). Moreover, the more sources of funds the NGOs utilise, the less the likelihood of their closure when a donor ceases funding (Hager, 2001). The reason is that even if ‘one aspect of a strategy fails, another can succeed’ (Viravaidya and Hayssen, 2001).
Furthermore, there is a positive correlation between the diversification strategies and the advanced project results and outputs (Kim, 2017). The less dependent an NGO is on donors, the greater ability it has to manage the programs without any disruption. The results of a research conducted by Berrett & Holliday (2018), confirm this statement. According to them, it is true that revenue
29 diversification strategies lead to organisational effectiveness and thus, the intended outcomes and
priorities of the organisation are achieved.
All in all, this chapter referred to various academic articles to conclude that academics agree that revenue diversification has been a preferable funding strategy for NGOs, based on the fact that diversified funding sources provide organisational stability, reduced dependence on donors, and increased independence (Berrett & Holliday, 2018; Kim, 2017; Carroll & Stater, 2008). Diversification is an important method to reduce dependence as the NGO will not be under external control. As a result, academics recommend that organisations that are solely based on public/institutional donors for reasons of financial security, should also embrace revenue diversification strategies and increase their financial flexibility (Kim, 2017; Khieng & Dahles, 2014; Carroll & Stater, 2008).
2.1.3. Own-Income Generating Activities
As analysed above, a mechanism that increases NGOs sustainability and independence is the diversification of the funding sources. An important method that contributes to the diversification of the NGO’s sources is to develop activities through which it can generate its own income (Akenji, 2007). Indeed, earned income is a very good way to start diversifying the funding of an organisation (Alter, 2007). This sub-chapter will deal with this issue, and will analyse how own-income generating activities of NGOs can contribute to their greater financial sustainability, increased legitimacy and less dependence on external donors.
There is no single definition for own-income generating activities. This may vary according to the organisation and the programs they implement. Earned income in general can be described as a kind of self-financing activity, where an NGO is trying to create its own resources to cover its expenses (Alter, 2007). This means that own-generating income is raised through the NGO’s own activities which differs from donor and external funding.
There are many ways that NGOs can generate their own funds. Leon (2001) gives some examples: ‘contributions to a trust/endowment fund; fundraising for institution building/operations; sale of goods/services; membership subscriptions consultancy and training services’. According to Gibson (1993) these kinds of activities can be implemented in parallel with other programs. He refers to
30 specific areas such as health, development, poverty eradication and education that can easily be
operated in conjunction with the above-mentioned income generating activities and still be compatible with each other.
Following the definition of the own-income generating activities, there will now be a reference on the importance of the own generating sources for the NGO sector, and it will be examined whether this source of funding contributes to the NGOs financial sustainability and independence. Leon (2001) tried to define an ideal NGO funding strategy, and he mentioned that almost half of NGOs funding should be raised through their own activities. Although NGOs are almost impossible to develop self-financing activities that can cover the total of their financial costs, through these activities they can manage to take control over some of their funds (Alter, 2007; Leon, 2001). For many organisations that cannot easily access government or donor funding, self-generated income can be seen as an important way to increase income.
Regarding sustainability, there is a positive correlation between own income generating activities and financial sustainability (Lewis, 2011). This kind of funds give the opportunity to the organisations to implement their projects in freedom, especially programs that the international donors were not reluctant to fund (Lewis, 2011). Moreover, own-income activities can be also used for unexpected circumstances, and in this way the donor dependence is reduced and the NGO becomes more sustainable even in cases of financial strain (Lewis, 2011).
Many academics confirm that self-generating activities help the organisations be flexible and advance their financial sustainability (Ali, 2012; Leon, 2001; Lewis, 2011). Mitchell (2012), asserts that ‘the commercialization of services provides NGOs with less restraint revenues and greater flexibility, thereby reducing NGOs’ dependence on external sources and control’. Equally important is the fact that this source of funding allows the NGOs to be autonomous and independent focused on their aims and mission (Khieng & Dahles, 2015).
Although generating own income can contribute to the NGOs sustainability and independence, this can also pose many challenges. First of all, Froelich (1999) mentioned that the involvement in own generating activities may be criticised as this is faced as an activity related to business and differs from the typical NGO fundraising processes that are for example drafting proposals for donors. Other challenges that may arise are the lack of capacity and trained personnel to engage in these
31 activities. Finally, a key element is the fact that, because of their non for profit nature, NGOs may
face legal obstacles when it comes to engage in self-funding activities or selling of services. Despite the challenges that may arise, developing own-income generating activities is important for the financial sustainability and independence of NGOs. A number of researchers have mentioned that NGOs are losing their legitimacy as they are becoming dependent on external donors. Bratton (1990) finds that the strongest basis for NGO legitimacy is the ability of the NGO to self-financing. Of course, to overcome the dilemmas that may arise, NGOs should develop good accountability mechanisms, and clear funding strategies, and they should also have strong governance (Busienei, 2017). They should use this source of funding solely to ensure the viability of the organisation and the continuity of their programmes. Finally, there should be transparency on the way these funds are being used in order to enhance credibility (Busienei, 2017).
Finally, NGOs should develop a strategy on how to raise funds and develop a strategic financial planning to ensure sustainability for the future (Akenji, 2007). Strategic fund management helps NGOs to make effective use of sources of funds and invest for both the short and the long term, and thus it contributes to the NGO’s sustainability (Karanth, 2018). Although, strategic fund management and sound financial practices are mechanisms that contribute to the financial sustainability of the NGOs, they will not be analysed extensively in this thesis, as this does not contribute to the theoretical argument of the specific research that will be explained in the next sub-chapter.
2.2. Theoretical Argument: Determinants for the selection of specific funding strategies
The main factors that influence the NGOs choices are on the one hand, their will to be independent, and on the other hand their need for survival (Edwards & Hulme, 1995). First of all, NGOs seek to be independent from states and donors and implement their activities in an autonomous way. NGOs do not want to compromise their flexibility, innovation and weaken their role as independent actors able and willing to speak out in defence of the vulnerable groups and the beneficiaries they represent (Edwards & Hulme, 1995). As Stroup (2012) analyses, humanitarianism per se is based on values and principles and these have a powerful impact on the funding strategies that the organisations opt for. Being solely based on institutional funding may hinder independence, as the power asymmetry between institutional donors and NGOs will have as a result that the donors will have a ‘say’ in the
32 NGOs internal affairs. Both diversification of sources and self-financing are the strongest basis for
maintaining independence. The maintenance of independence can be seen as the first factor that influences NGOs decisions.
However, NGOs need also to ensure their long term organisational survival. NGOs want to do as much as possible to accomplish their mission and build organisational capacity for the future, so they need to secure funding from whichever source, even if this means that they will use solely institutional funds with the danger to sacrifice their autonomy (Edwards & Hulme, 1995). This concerns the NGO mandate per se: NGOs need to exist. They need to be there in order to help and provide aid to those in need. Thus, organisational survival and financial security is the second factor that influences the NGOs decisions.
NGOs sometimes rely solely on external institutional/public donors in order to survive and this is happening in sacrifice of their autonomy and independence, thus, it is negative (Mitchell, 2014, Davis & Cobb, 2010). The literature review concludes also that NGOs often face a dilemma between either losing their independence while gaining institutional funding and thus ensure their survival, or maintaining their autonomy while having difficulties in ensuring funding to pursue their mission (Khieng & Dahles, 2014; Mitchell, 2014).
The asymmetry in donor and NGOs relations often leads to a crisis of legitimacy and independence as NGOs may find it difficult to pursue these two objectives at the same time. What is the most important factor that leads the NGOs' decisions to opt for a funding strategy? How does the principle of independence and the need for the NGO to survive influences the NGOs decisions? There is still no academic research that provides answers to these questions.
The literature concludes that the reason that NGOs use solely institutional funds is to maintain their financial security and survival, and this has as a result the loss of their independence, as the donors will have a say in the internal affairs of the NGO. This thesis seeks to overcome the literature binary distinction between survival and independence as factors that influence the NGOs choices to opt for their funding strategies. Humanitarian NGOs need to operate and be sustainable in order to help those in need and the most vulnerable. Moreover, as these NGOs are humanitarian, they also need to adhere to the humanitarian principles, such as the principle of independence, and plan their activities according to the needs of the persons of concern without influence from the political will
