Unlocking the Right Investment in the Social Sector

At the Social Sector Accelerator and CIVICUS World Alliance for Citizen Participation we spend a lot of time thinking about how more financial resources can flow to organizations and individuals that are focused on social change.

One of the goals of the Social Sector Accelerator is to increase the flow of social investment that reaches civil society organizations. One conduit of social investment is from grants from foundations. The width of this pipe depends on ability of foundations to identify partners that share their values, vision, and can deliver on the social impact they promise.

Similarly and as articulated in their new 2017-2022 strategy at CIVICUS they are focused on the changing resourcing landscape and the need for greater equalization of civil society funding between north and south, particularly at the grassroots level. We have a shared goal - to enhance a network’s  members’ (in this case CIVICUS) access to resources from donors and international non-governmental organizations (INGOs), plus find collaborators for their projects and programs. Their theory is that qualification is a precondition to expanding their members’ access to resources.

Most organizations still rely heavily on the expertise of their program officers and formal and informal networks of advisors to give them feedback on potential grantees.

Last year we reviewed 50 different donors and platforms undertaking ‘partner qualification’ – the process by which they determine whether a nonprofit makes a sound partner.  Through the review process, we culled several lessons about current the practice of qualifying organizations for funding – and have identified an important gap that needs filling.

First, the gap is not around the basics of qualification.  Every platform or donor we reviewed relies on one of three things to aid them in basic qualification -

  1. an external database or registry,

  2. an external service or

  3. documentation of legal registration and matching bank account information provided by their grantees.

This includes the United States  Internal Revenue Services registry of organizations with tax exempt status or third-party services which issue equivalency determination letters (certifying non-US organizations as equivalent to a US-based tax exempt organization). Similar tax exemption models are emulated in other countries, as well.

But beyond basic verification of an organization’s status (such as tax exemption or banking status), few donors or platforms have automated the more substantial parts of their partner qualification process. This is still a largely manual process – as described below- and limits their ability to gain efficiencies, qualify more partners, or help applicants learn through the application process. 

Two platforms – DonorsChoose and Global Giving – are exceptions: they have rapid verification processes supported by technology that enable them to dig deeper into a potential partner’s values, impact, or alignment to a donor’s funding priorities.  DonorsChoose has gone the furthest in capturing and using data to increase automation of the qualification process. They are qualifying over 350k grants per year on their platform and they expect to double the number of projects on their platform in 2017. Global Giving has built a robust system and uses Amazon Turk to streamline one aspect of their process.  Using Amazon Turk they turns components of their process into micro tasks which can be outsourced to reviewers around the world at a fraction of the cost thus freeing up their grants officers to focus on verifying the fit of organizations with their values and gaining insights into impact.

What are the other platforms using?  One group crowd-sources input – relying on users to flag organizations using the platform who do not meet minimum requirements. This is similar to how Facebook relies on users to report organizations or posts that do not adhere to their terms of service. Another, NGO Source, has created a service for grant makers to verify that organizations are equivalent to a US 501c3. This solves one part of the qualification challenge but doesn’t go far enough. And in some ways it goes in a direction that’s not most pertinent to organizations who are not necessarily operating according to US tax compliance frameworks, and never need to. With the rise of global philanthropy, US tax equivalency is but one dimension of qualification.

Most other platforms we reviewed rely on a basic technology infrastructure and the human resources in their grants and programs offices. Most organizations still rely heavily on the expertise of their program officers and formal and informal networks of advisors to give them feedback on potential grantees. Others have formed consortiums that allow them to tap into the networks of consortium members. In some cases these human powered processes can take up to 18 months to qualify a new partner. Those who move faster do so by limiting the number of potential grantees qualified.

Overall, we have identified a solution that deserves attention – using business intelligence tools and technologies to gather and share information on organizations applying for funding. We believe this can go further than all of the approaches above to unclog the qualification bottleneck and increase the number and diversity of groups who receive funding.

How can a business intelligence approach improve qualification? It allows five things to change:

  1. Move beyond reliance on legal registration and bank account documentation - given the politicization of civil society in some parts of the world we have to move beyond reliance on registration and bank account confirmation. In some countries, it takes months if not years and thousands of dollars to register, receive tax benefit status and secure a bank account. For some groups registration is impossible because of the type of work they do. How else might we satisfy ourselves that an organization is doing what it says and will spend the funds we give them in a way that matches our expectations? There are approaches to gathering business intelligence information used by the private sector to manage risk that helps them understand their supply chain partners. What information could we gather from publicly available data sets such as those now available because of IATI (International Aid Transparency Initiative)? What information is available via social media platforms about organizations and their work? What does their Twitter feed say about them? Could we decentralize and place more money in local institutions to regrant? Many national organizations have a greater knowledge of which organizations are legitimate? Could we loosen our requirements to give to organizations and give to individuals?

  2. Take advantage of shared data to aid rapid qualification - could we take better advantage of shared resources such as the Bridge Registry? The Registry, a partnership between GlobalGiving, TechSoup, Foundation Center and Guidestar, assigns numbers to organizations that have been vetted by consortium members and allows others to see which organizations have been vetted by which consortium member. For example, Counterpart International, the Accelerator’s parent organization, has been vetted by Guidestar, Foundation Center and TechSoup. Bridge numbers could form the backbone of a decentralized system that other organizations use to create, maintain and share organizational records. Using newly available data from grantmakers on their grantees we could collect and analyze existing investments in organization and use that as a basis for qualification. For example, if 5 foundations have already made grants to an organization what additional questions might we ask to satisfy ourselves that this is a qualified group? How might we place greater emphasis on values and impact while also automating some of the analysis?

  3. Improve our data collection to gain insights - How might we mine our grantmaking data to improve the qualification process? DonorsChoose is using Looker to capture data from ‘no’ answers to applications so they can more quickly give teachers feedback on what part of their application did not meet their criteria and provide them supports to reapply successfully. Ashoka has taken a community based approach to address this same issue. Applicants to their ‘Challenges’ who are not successful have access to the community of all applicants - including winners - who help coach them to a successful application. 80% of those who were unsuccessful in the first round are successful in the second round. How might grant makers mine the data from thousands of their ‘yes’ and ‘no’ decisions to improve the quality of applications they receive and support grantees to develop successful applications? What if they shared information on their yes and no decisions across their organizations? Michelle Granias, CEO of Peak Grantmaking, predicted the move towards this new operating model in 2015 in her article Predictions and Possibilities; Grants Management in 2025.

  4. Lessen the repeat burden on CSOs – Could we ‘de-risk’ donor investments and help to rebalance the power dynamics between donor and grantee by lessening the burden on grantees? We could create an online briefcase or profile that any organization around the world could use to store their relevant documents and begin to build out their organizational record with reviews from donors, staff, beneficiaries, partners. This moves beyond the Guidestar profiles to a credit report for civil society organizations. While new organizations might begin with a thin file based largely on the reputation and relationships of their founders, board and staff they could build their ‘trust credits’ over time. Donors of all types could use this profile as a starting point when determining the organizations match and qualifications to receive funds. Non profits would save time repeatedly submitting the same documents and focus more on demonstrating value and impact and accessing investment.

  5. Develop new lean approaches to getting at values and impact, and scale- everyone we interviewed was dissatisfied with the current approaches to understanding the values of the organizations they were funding and approaches to understanding the impact the organizations were realizing. Some organizations such as Charity Navigator are well on their way to providing a standard for governance and financial values. Other organizations such as GiveWell have developed strong approaches to getting at impact but their efforts are largely confined to the health sector and because of the cost and length of time required for their process they can qualify a limited number of organizations in a year. At the very least we could be asking groups to describe the ways they are measuring impact of their work, what impact measures they are tracking and how they are/are not adjusting their approaches based on what they are learning about their impact.

Better use of technology is only part of the answer and still does not address the challenge of getting funds to newer, smaller, less well resourced organizations. We believe every platform or donor should implement a diversity policy or fund whose aim is to get more organizations ‘investment ready’. The most recent complete statistics from the Foundation Center are available for 2013. In 2013, US foundations made almost $6.4 bil in grants for international causes with $2.5 bil to organizations outside the United States. 44.8% went to organizations in Western Europe leaving just 55.2% for the rest of the world. Only $185 mil or 7.4% went to neighbors in Central and South America. How much more money and how many more organizations could receive funds if we could make the system more efficient, equitable and accessible? How much greater impact could be realized by the philanthropic community?

While DonorsChoose could spend more of their time and money automating more and more of their process they will always prioritize staff time spent getting underserved schools and school district successfully using the platform and securing donations. The Ashoka ‘re-application’ pool is one way to lessen the burden on applicants and improve the quality of applications. Providing other donors access to ‘rejected’ proposals is another way – an application that wasn’t successful to Macarthur Foundation’s challenge might be a great application for another donor with different criteria or priorities. More foundations and funding platforms should be asking themselves how they could be getting more of their grant funds out to grantees in a way that lessens the burden on organizations and diversifies their pool of potential grant recipients.  Shared solutions for the sector and better utilization of tech enabled partner qualification are two possible ways.

As a follow on to this research we are working together  to improve grant making capacity and together we are experimenting with new approaches to qualify partners for grants. In the next few months we will be learning out loud through that process and sharing additional blog posts about our efforts.

*This blog was co-written by Teresa Crawford (@capdividend) at the Accelerator and Alex Sardar (@alexsardar) at CIVICUS