Elzeney - CSO Financial Sustainability

CIVIL SOCIETY FINANCIAL VIABILITY: KEY FACTORS, CHALLENGES AND PROSPECTS IN A CHANGING STRATEGIC ENVIRONMENT

December 2005

This publication was produced for review by the United States Agency for International Development. It was prepared by Harry Blair, PhD, Susan Burgerman, PhD, Duaa Elzeney and Robert Herman, PhD, Management Systems International (MSI).

Management Systems International Corporate Offices 600 Water Street, SW Washington, DC 20024

CIVIL SOCIETY FINANCIAL VIABILITY: KEY FACTORS, CHALLENGES AND PROSPECTS IN A CHANGING STRATEGIC ENVIRONMENT

Contracted under AEP-I-00-00-00018-00, Task Order number 1 CIVIL SOCIETY FINANCIAL VIABILITY

DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

CIVIL SOCIETY FINANCIAL VIABILITY 3

CONTENTS

ACKNOWLEDGMENTS ................................................................................... 5

EXECUTIVE SUMMARY ................................................................................. 6

I. INTRODUCTION......................................................................................... 11 Challenge of Financial Viability............................................................. 11 Methodology........................................................................................... 12

Narrowing the scope .................................................................. 13

II. DISCUSSION OF MAIN ISSUES....................................................... 15 The Centrality of Sustainability .............................................................. 15 What Price Sustainability?...................................................................... 15 National Versus Local Level .................................................................. 16 Shifting Donor Priorities After the Democratic Breakthrough............... 17 Globalization and CSO Financial Sustainability .................................... 18 The European Union............................................................................... 18 Democracy/Human Rights CSOs and the Role of the Market................ 19 Socio-Economic and Political Conditions .............................................. 19 CSO Accountability................................................................................ 20

III. ENABLING ENVIRONMENT ........................................................... 22 The Basic Structure................................................................................. 22 Trends and Lessons Learned................................................................... 23

IV. KEY FINDINGS AND RECOMMENDATIONS.............................. 31 Strategies and Mechanisms Used by Financially Successful

CSOs ............................................................................................. 31 For Donors and Implementing Partners: Successful Strategies

to Assist CSOs in Achieving Financial Sustainability.................. 37 Broader Lessons for Donors ................................................................... 41

V. ANNEXES ............................................................................................. 46 Annex A: List of Interviewees............................................................... 47 Annex B: Inventory of Legacy Mechanisms ......................................... 51 Annex C: Project Methodology ............................................................. 52

Case Selection............................................................................ 52 Annex D: Universe of Donors, CSOs and Networks............................. 54

Europe & Eurasia (E&E) ........................................................... 54 Asia & the Near East (ANE)...................................................... 54 Latin America & the Caribbean (LAC) – USAID Graduated Out

of the Southern Cone in the Mid-1990s........................ 55 Africa (AFR).............................................................................. 56


Global CSOs .............................................................................. 57 NGO Networks .......................................................................... 57 Donors.. ..................................................................................... 57

Annex E: Bibliography .......................................................................... 58 Financial Viability & Philanthropy............................................ 58 Advocacy ................................................................................... 59 Infrastructure.............................................................................. 60 Public Image/ Social Capital...................................................... 60 NGO Networks .......................................................................... 60 General ………………………………………………………...60 USAID Publications .................................................................. 62

Annex F: Mini Case Studies .................................................................. 66 Batory Foundation – Poland ...................................................... 66 BRAC – Bangladesh.................................................................. 66 Corporación Participa – Chile.................................................... 67 Institute for Public Affairs (IVO) – Slovakia ............................ 67 Kosovo NGO Advisory Program (KNAP) – Kosovo................ 68 Egyptian NGO Support Center .................................................. 68 Inter-American Democracy Network – LAC Regional ............. 69 Nonprofit Enterprise and Self-Sustainability Team (NESsT) -

Cross-Regional (CEE & Chile) .................................... 69 South Africa – Institute for Democracy in South Africa

(IDASA) ....................................................................... 70 USAID’s Governance and Local Democracy (GOLD) –

Philippines .................................................................... 70 US- and Church-Based Global Organizations ........................... 70

Annex G: Profits for Nonprofit Organizations: An American Growth Industry............................................................................ 73


ACKNOWLEDGMENTS

A study of this magnitude is only possible because of the assistance and cooperation of a large number of people. The MSI Research Team would like to express its thanks to our CTO, Bob Groelsema for his continuous support, encouragement, guidance and patience. We would also like to recognize Gary Hansen and Claire Ehmann, who along with Bob, essentially comprised an advisory committee, providing helpful advice and suggestions throughout the process. We also are grateful to other staff members at USAID, including Jerry Hyman, head of the Democracy and Governance Office, and Andrew Green, a member of that office, as well as to representatives of the various implementing partners who took times from their hectic schedules to meet with the Team to share ideas at the outset of the inquiry and then provided feedback toward the end. Along with these individuals, we offer special thanks to all of the experts and senior staff at the various civil society organizations with whom we conducted interviews. Their insights and the information they provided form a large part of the foundation on which the study rests. Thanks also to Cathy Shea and Doug Rutzen of the International Center for Non-for-Profit Law, not only for their advice and insights, but also as the principal authors of the chapter on the legal environment for civil society organizations. ICNL is the pre-eminent group in this field and their contribution to the study is substantial.


EXECUTIVE SUMMARY

Introduction This study has two purposes: first, it seeks to identify the major factors contributing to financial viability of a particular category of civil society organizations; second, it analyzes the strategies pursued by donors, implementing partners, and relatively successful CSOs that have resulted in substantial progress toward this goal. With foreign aid needs far surpassing available resources and with many countries “graduating” from U.S. Government assistance, USAID has a keen interest in ensuring the long-term financial vitality – beyond the termination of USAID funding – of the Third Sector, which it regards as pivotal to vibrant and durable democratic systems. Which CSOs and What Kind of Sustainability? The scope of the study was delimited in two ways. First, it concentrates primarily on democracy and human rights advocacy and watchdog CSOs, since these are the groups that face the biggest challenge in becoming financially self-sustaining and are the object of greatest concern for the Agency as funding decreases or disappears altogether when Missions close down. These so-called “harder core” CSOs tend to be heavily dependent on international donors because the type of public goods that they provide are difficult to leverage for funding purposes, unlike organizations that deliver social services such as community healthcare. Further, even democratizing governments are reluctant to provide resources to organizations that criticize them, that press decision-makers to adopt different policies, or that seek to hold them accountable to accepted standards of practice. Advocacy/watchdog CSOs are not well positioned to tap into private local sources of support, either, whether from individual citizens or the business community. Because they don’t engage in delivery of humanitarian and related services and frequently lack a clearly delineated set of beneficiaries or members, this category of CSOs uniformly faces a tougher financial situation. The second way in which the study was narrowed was to focus principally on the financial dimension of sustainability rather than on sustainability writ large both because a more expansive inquiry would require resources far beyond the funds allocated for this project and because the financial dimension is viewed by USAID as being of paramount importance. It is also the dimension along which most advocacy and watchdog groups falter. CSOs will not survive without obtaining the necessary financial resources, whether from international or local sources. The Team recognized the methodological challenges involved in trying to isolate one dimension of overall sustainability and then drawing judgments about the extent to which various contextual factors, strategies and assistance interventions can be said to have caused success or failure in along that single dimension. Is a conducive legal and regulatory environment a necessary precondition for progress on fiscal solvency for advocacy oriented CSOs? Do groups that are the beneficiaries of donor training and technical assistance programs have a significantly better track record on financial viability than those that do not? These and other fundamental questions helped to guide the Research Team through its work. Methodology The Research Team employed a hybrid approach in undertaking this study. It relied on a wide range of key-informant interviews (following a common protocol) with practitioners and other experts, a review of applied academic literature and related documentation on CSO sustainability, and brief, focused case studies of a few dozen organizations distributed across the world. Preliminary research suggested that these groups had made significant progress along the financial sustainability continuum. As the project did not include fieldwork, the CSO case studies are necessarily less rigorous than the research on


donor/implementer activities. However, the Team was able to conduct in-depth interviews by telephone or e-mail correspondence with senior staff of approximately 20 organizations of the larger roster of groups that we looked at for the study. In many cases, interviews were supplemented by documentation such as annual reports and financial statements. The Team was conscious of the need to have cases from all the major geographic regions and the full range of country conditions, from conventional developing nations and post-communist/ authoritarian societies to fragile, conflict prone and post-conflict states. Case selection could not be entirely systematic given limited resources. Further, there are a disproportionate number of cases from the Europe and Eurasia region, where USAID placed a premium on financial sustainability of the Third Sector. Main Issues A number of broad conceptual and analytical issues arose in the course of the study. None of these questions could be definitively addressed or even fully discussed, but this section lays out several that relate to the issue of CSO financial sustainability in essential ways. • The Centrality of Sustainability. Is it realistic to expect that “harder core” advocacy organizations

can become financially viable, whether through government grants and contracts, membership dues, fees for service or other income-generating possibilities, especially in the relatively short funding cycle of most civil society support programs?

• What Price Sustainability? What if financial viability can only be achieved by abandoning the

CSO’s core mission and principles or reducing its organizational effectiveness? Are there potential trade-offs between survivability and other major goals such as impact?

• National versus Local Level. Organizations that seek to influence policy tend to operate at the

national level and be located in the capital city. However, decentralization is making local level advocacy more important and common and is helping to fuel the growth of community based foundations. These organizations are likely to enjoy greater legitimacy among local residents than their national level counterparts and to have identifiable constituencies that can be mobilized for political ends.

• Shifting Donor Priorities After the Democratic Breakthrough. Donors tend to curtail or terminate

funding for CSOs once an authoritarian regime falls or a consolidating democracy begins to enact far-reaching reforms, in order to channel funding to shore up fledgling governmental institutions.

• Globalization and CSO Financial Sustainability. Increasing density of communications and the

rapid diffusion of knowledge, ideas and values around the world has created opportunities for CSOs to find support through global partnerships and transnational networks.

• The European Union. For democracy/human rights advocacy and monitoring groups in Central and

Eastern Europe, the expectation that membership in the EU would bring financial assistance may have been misplaced as EU priorities are geared toward social service delivery organizations.

• Socio-Economic and Political Conditions. Given the importance for CSO financial viability of

prevailing political conditions, legal framework and level of socio-economic development, should there be different measures for assessing financial sustainability depending on CSO country location?


• CSO Accountability. Domestic and international donors have greater confidence in CSOs whose governance and internal operations are transparent and whose leadership is accountable to stakeholders.

Enabling Environment The enabling environment is short-hand for the constellation of laws, regulations and general political climate within which CSOs must operate. It constrains or encourages the development of such groups and their ability to influence society’s political evolution. At a fundamental level, an enabling environment conducive to CSO financial viability allows groups to form, carry out their missions, and acquire resources both for project activities and for organizational development. A common element in many of the success stories considered in this study is a legal framework supporting CSO formation, operation, and viability. Among the key trends and lessons learned with regard to the legal environment for CSO financial sustainability are: • A growing number of governments are using laws and regulations to restrict CSO access to foreign

funding as a means of stifling advocacy. • Innovative models for improving transparency and depoliticizing the delivery of government funding

(e.g. through “percentage philanthropy”) show that such funding can be an important source of income for advocacy CSOs.

• CSOs have as much of an obligation to operate “in the black” as other legal entities. One critically

important way in which CSOs sustain themselves financially is through fee-generating or for-profit business activities.

• In most countries, philanthropy ranks behind government funding and fee-generated income as a

source of CSO revenue. But when the contributions of volunteers are included, charitable giving becomes a more significant source of CSO support.

Key Findings and Recommendations The key findings are derived both from in-depth interviews with donors, implementing partners, and experts in the field, and from the brief case studies of CSOs that have made significant progress in becoming financially viable. They speak to both sides of the donor-CSO relationship, which is to say strategies pursued by donors and their implementing partners, as well as by CSOs themselves. Strategies and Mechanisms Used by Financially Successful CSOs • Build a Constituency and Maintain Credibility Among Constituents. CSOs that have met with

success in becoming viable financially tend to enjoy considerable credibility with the main beneficiaries or stakeholders of their work, and not infrequently, the broader public.

• Expand and Diversify the Donor Base, both International and Domestic. Pro-democracy

advocacy and watchdog CSOs rarely achieve complete financial independence from international donors. A winning strategy is to multiply the number of foreign and local donors to avoid vulnerability caused by changes in donor priorities, and to explore other sources of revenue, including income generation activities.

• Ensure that the Organizational Structure is Sound. An emphasis on organizational development,

starting with a capable staff and administrative and financial systems, is essential to sustain a group. Demonstrated effectiveness is one key to attracting donors, especially governments or foundations that can fund both projects and operating costs.


• Lobby for a More Conducive Legal Environment. A favorable legal framework is the cornerstone

of CSO financial sustainability. CSOs, with the support of donors, have to work collaboratively to press reluctant governments to adopt and implement legislation that supports the development of civil society, including its financial vitality.

• Explore Government Funding Opportunities. Although advocacy and watchdog groups must be

careful not to compromise their independence or damage their credibility, they should, where appropriate, pursue funding opportunities with the host government at the national and local level. Research and policy analysis groups have the best prospects for securing funds.

• Develop Income-Generating Activities. While not a major source of funding for any of the

organizations examined in this study, some advocacy and watchdog groups have managed to increase their revenues through fees for services and creation of for-profit enterprises, most often through ventures that are closely related to the group’s core mission.

• Develop a Corporate Outreach Strategy. Despite its general proclivity to steer clear of hard core

democracy groups, the business community is a potential source of support even in poor countries, particularly where there is a large inflow of foreign direct investment. Corporations can be donors or clients; some firms are recognizing the important role these CSOs play in society and that they have skills and expertise of value to the business community.

• Take Advantage of Non-Financial Contributions. Communities and local businesses as

well as individuals can contribute to CSO programs, whether in the form of volunteer labor, office space, equipment or other in-kind donations.

• Network with Other CSOs. Participation in national or international civil society networks or in

intermediate service organizations can raise a group’s visibility, open up links to foreign donors and policymakers, and provide capacity building, access to volunteer support, and assistance with resource mobilization

• Harness the Diaspora. Many immigrant communities in wealthy countries maintain strong ties to

their homeland. These linkages help raise a great deal of money for charitable groups but might also be used to secure financial support for democracy and human rights CSOs.

Strategies for Donors and Implementing Partners to Assist CSO Financial Sustainability • Provide Institutional Development Assistance. Civil society support programs should include from

the outset training in management, financial and human resources administration, fundraising and communications/outreach. This requires a more intensive engagement with recipient organizations over a longer period of time, and may mean that donors can only provide assistance to a small number of CSOs, chosen based on a rigorous assessment of their potential.

• Provide Direct Support for Fundraising Activities. Donors could provide small grants to

assist CSOs in bolstering their capacity to do fundraising and income-generating activities, including creating a donor database, producing marketing materials, conducting direct mail campaigns, and assessing the prospects for profit-making ventures.

• Notify Early and Prepare Well in Advance of Termination. Communicate at the start when

funding will end, and build toward financial viability by incorporating technical assistance and skills


training in management, public relations, communications, fundraising, and strategic planning into each project phase.

• Encourage Public Interest/Service Hybrids. Pairing advocacy and monitoring functions with a

service delivery component addresses one of the principal weaknesses harder core democracy CSOs have in attaining financial viability: a tenuous link with constituents.

• Create or Promote Institutions that Support Many CSOs at Once. Examples are community

foundations, local private grant-making institutions, intermediate service organizations (ISOs), and CSO networks.

• Help Ensure a Soft Landing with a Tie-off Gift. This can include an endowment given directly to

the CSO or through a U.S.-based institution, donation of assets such as real property, or financing arrangements such as revolving loan funds.

• Build Public-Private Bridges. Donors can help to create linkages between CSOs and local or

national governments by funding joint projects and can promote corporate philanthropy. Broader Lessons for Donors • Keep Expectations Reasonable. While financial sustainability is almost always desirable, it is often

unrealistic. If donors conclude that democracy-promotion advocacy and watchdog CSOs are pivotal to democratic consolidation, they should be prepared to provide the necessary financial resources to keep highly effective ones operating.

• Fund Overhead. The tendency of donors to strictly limit the amount of overhead that can be charged

to a grant weakens CSOs by forcing them to divert valuable time and resources to chasing operating funds and to hide operating costs in program lines.

• Support CSOs that are Respected by their Constituencies. International donors are well advised to

support CSOs with a strong local base and legitimacy and credibility in the polity. However, this is frequently missing in the case of harder core democracy groups. Newly created organizations may be viewed as creatures of a foreign donor and lack credibility.

• Avoid Funding Beyond the Local Capacity to Replace. Funding levels, at least for the final year of

the grant period, should not greatly exceed the amount that could be replaced locally, whether from government or private sources.

• Do Not Dictate the Agenda. Project goals and objectives should reflect the recipients’ priorities,

while also maintaining the donor’s standards and guidelines. This likely will enhance the group’s legitimacy and credibility with local actors.

• Harvest USAID’s own experience. Because the number of final evaluations has dramatically

decreased over the past several years during a period that has seen a major expansion of democracy support efforts, important lessons from civil society programming have gone unrecorded and are lost to USAID’s institutional memory.


I. INTRODUCTION

The purpose of this study, funded by the U.S. Agency for International Development’s Office of Democracy and Governance and conducted by Management Systems International (MSI), is to understand the major factors that contribute to financial viability of pro-democracy civil society organizations (CSOs) around the world. With foreign aid needs far surpassing available resources and with many countries “graduating” from U.S. Government assistance, USAID has a keen interest in ensuring the long-term financial vitality of the Third Sector, which it views as one of the pillars of a vibrant democratic polity. Through its support to CSOs in every region of the world, the Agency has sought to enhance the effectiveness and longevity of groups engaged in promoting democracy and human rights as well as socio-economic development. In addition to identifying the principal factors that contribute to greater financial viability, the MSI Research Team was charged with analyzing the strategies pursued by CSOs, donors and implementing partners that have resulted in substantial progress toward this goal. The team recognized the methodological challenges involved in trying to isolate one dimension of overall sustainability and then drawing judgments about the extent to which various contextual factors, strategies and assistance interventions can be said to be causal with respect to observed outcomes. Is a conducive legal and regulatory environment a necessary precondition for progress on fiscal solvency for advocacy oriented CSOs? Do groups that are the beneficiaries of donor training and technical assistance programs have a significantly better track record on financial viability than those that do not? These and other fundamental questions helped to guide the Research Team through its work. The Scope of Work for this project was both sufficiently broad and deceptively simple. Over the course of several months, the Team, in consultation with the study’s de facto advisory committee at USAID, had to adjust its focus and work plan to take account of feedback and suggestions from various interlocutors.

CHALLENGE OF FINANCIAL VIABILITY

The study focuses on what the Research Team calls “harder core” civil society groups: those that are engaged in vigorous advocacy activities and/or perform government watchdog functions in the area of democratic governance and human rights. These CSOs tend to face the most formidable obstacles to achieving long-term financial viability and as a result are frequently dependent on foreign donors for the vast majority of funding. In many cases they have a small or inchoate domestic constituency (in contrast to most service delivery or membership-based organizations) and may even face vilification, for example, in reaction to calls for transitional justice in the wake of violent conflict or to other measures that are deeply unpopular with large segments of the body politic. These are the groups that track most closely with USAID political reform priorities –a double-edged sword that is discussed later in the report – and as a result are a natural object of USAID concern as resources become tight or programs come to an end. Around the world, government funding is a major source of support for civil society organizations, a fact of life that is not without its troubling implications and consequences. However, governments are generally reluctant to provide resources to organizations that criticize them and press decision-makers to adopt different policies, or that seek to hold them accountable, for example, for observing the rule of law and international obligations such as human rights standards. Moreover, harder core advocacy/watchdog CSOs are not well positioned comparatively to tap into private indigenous sources of support, whether from individual citizens or the business community, which in any case are generally meager to modest in developing and transition countries. Because they do not engage in delivery of humanitarian and related services and frequently lack clearly delineated set of beneficiaries or members, this category of CSOs uniformly faces a tougher financial situation.


CSO financial sustainability remains a major goal of USAID and other donor-funded civil society programs. Recently, this enormous challenge has taken on even greater importance as many USAID Missions contend with serious budget constraints and the Agency begins to graduate countries from foreign assistance. The issue has been particularly acute in the Europe and Eurasia region where overall funding has declined steeply from the robust levels following the collapse of communist rule and pressure intensifies for accelerating the closing of Missions owing to a combination of overall political and economic progress in many countries and the gradual unfolding of original plans for a relatively short assistance engagement in the region. At the same time, the transitional nature of assistance programs in Central/Eastern Europe and the former Soviet Union meant that concerns about financial sustainability were largely present at the creation. In contrast to the recent history of programming in other regions, USAID Mission personnel and Washington colleagues in the Europe and Eurasia Bureau along with Agency-funded implementing partners were conscious of having to impress upon civil society recipients of U.S. assistance the need to plan for the not-too-distant day when aid would come to an end. Even with the establishment of legacy mechanisms such as the Trust for Civil Society and notwithstanding the prospect of European Union membership for a number of countries, CSOs in the region face a much shorter assistance time horizon compared with counterparts based in countries with more conventional development aid programming. Whether more concerted attention to financial sustainability has led groups in the former communist space to compile stronger track records than their counterparts in other regions is one of the questions examined by the Research Team. It is worth noting that one expression of USAID’s different approach to the region was the launching of the Non-Governmental Organization (NGO) Sustainability Index for Europe and Eurasia that assessed the robustness of the sector in more than two-dozen countries along seven different dimensions, including financial viability. The Index is used by many Missions to track progress toward intermediate results and strategic objectives related to civil society development.

METHODOLOGY

The Research Team employed a hybrid approach in undertaking this study. It relied on a wide range of key-informant interviews (following a common protocol) with practitioners and other experts, a review of applied academic literature and related documentation on CSO sustainability, and mini-case studies of a few dozen organizations scattered across the world. Preliminary research suggested that these groups had made significant progress along the financial sustainability continuum. The MSI Team was well aware that there exists a growing body of literature on civil society, including on various aspects of financial viability. Accordingly, it examined a number of scholarly books, articles and reports. The comparative work of John Hopkins University’s Lester Solomon and his team stand out in analyzing issues such as the role, impact and durability of the Third Sector. We would note that the literature is not limited to the developing world or post-communist transition countries. Interestingly, the challenges faced by pro-democracy advocacy and watchdog groups in such societies are not unlike those confronting counterparts in the developed countries, even taking full account of the considerably brighter prospects for indigenous philanthropy in the latter due to much higher socio-economic levels, more favorable legal and regulatory environment and a stronger tradition of charitable giving. The Team benefited enormously from the insights provided by USAID officials, program implementers and other knowledgeable experts and from interviews with senior representatives of the target CSOs, many of which were recipients of U.S. assistance. While the Team did not attempt to code formally the


more than 70 interviews, it did ask a standard set of questions, answers to which were systematically reviewed and became one of the bases for findings and conclusions about financial sustainability. At the outset of the process, the MSI Team held separate group meetings with USAID personnel and then with USAID-funded program implementers to help it think through alternative approaches and brainstorm about criteria for case selection and other issues. Near the end of the process, the Team made a presentation to the “Tuesday Group,” which was attended mainly by USAID Democracy Office staff and regional bureau civil society specialists. We also conducted a debriefing for the implementing partners with whom we had met at the beginning of the process and shared with them our findings and recommendations and solicited their feedback, which was then incorporated into the final report. Because the Team recognized early on that the broader legal and regulatory environment is a particularly consequential factor shaping the prospects for CSO financial sustainability and was aware of the unique expertise of the International Center for Not-for-Profit Law (ICNL), we sought out the Washington, D.C.-based group to write a section of the report dedicated to this issue, drawing on its experience around the world in a variety of development settings. The lessons learned from years of work on the enabling environment forms part of the core of the report. Placing a special spotlight on the enabling environment is justified in light of the fact that there are precious few instances of CSOs involved in promoting democracy and good governance having registered extensive progress on financial viability where the country’s legal and regulatory framework for civil society is demonstrably deficient. In carrying out the mini-case studies, the Research Team was hampered by limited funds that prevented field work, resulting in a less rich set of data. Still the Team conducted structured, in-depth interviews with senior representatives from the selected CSOs and gathered information from organizations’ websites, and published materials. Our aim was to document the strategies pursued by these groups and, where relevant, by donors and implementing partners to improve financial viability and illuminate critical factors accounting for progress. The Team was conscious of the need to have cases from all the major geographic regions and the full range of country conditions, from conventional developing nations and post-communist/authoritarian societies to fragile, conflict prone and post-conflict states. In the end, the study examined CSOs from all of these categories of states but case selection was not entirely systematic and for reasons alluded to several places, there are a disproportionate number of the cases drawn from the Europe and Eurasia region, where USAID placed a premium on financial sustainability of the Third Sector.

NARROWING THE SCOPE

In consultation with the CTO and other members of the USAID advisory committee, it was decided to limit the scope of the inquiry in two ways. First, the study would concentrate primarily on democracy and human rights advocacy and watchdog CSOs since these are the groups that face the biggest challenge in becoming financially self-sustaining and are the object of greatest concern for the Agency as funding decreases or disappears altogether when Missions close down. These so-called “harder core” CSOs tend to be heavily donor dependent because there is usually an inchoate or diffuse constituency for the public good that they provide – in sharp contrast to service delivery oriented organizations that have a much more coherent constituency that can be mobilized for political ends. Second, the study was narrowed to examine financial viability rather than sustainability writ large because a more expansive inquiry would require resources far beyond the funds allocated for this project


and because the financial dimension is viewed by USAID as of paramount importance. 1 CSOs will not survive without obtaining the necessary financial resources, whether from international or indigenous sources. A few other methodological points merit mention. First, the approach of looking solely at success stories raises legitimate concerns about the validity of findings that identify a given factor as instrumental in shaping outcomes. Had time and resources permitted, it would have been extremely helpful to look also at cases of failure (i.e., organizations that do not register any progress in achieving financial viability) in order to pinpoint factors/conditions that are necessary and sufficient. Secondly, one should be careful about extrapolating from the experience of a set of individual organizations for the purposes of formulating recommendations aimed at progress for the civil society sector as a whole, or at least that segment involved in democracy and human rights advocacy and watchdog activities. USAID and other donors are rightly concerned with the durability of the sector and much less so with the fate of specific organizations. That said, there is a perfectly understandable inclination to want to see succeed those CSOs that have benefited from donor resources and attention. Watching groups fail that had worked closely with USAID personnel and implementing partners invariably raises disconcerting questions about the efficacy of assistance even thought the central issue should be the health of the sector overall or perhaps simply the existence in society of the capacity of citizens to come together to form groups that seek to advance their common interests. All these defensible methodological concessions nevertheless have consequences. The narrowing of the scope and other decisions governing the research design involve some unsatisfying trade-offs that the Team feels should be made explicit. While these compromises do not undermine the integrity of the study, they do invite caution in terms of advancing generalizable conclusions about the factors that determine the prospects for CSO financial sustainability. Narrowing of the inquiry’s scope to focus on advocacy and watchdog democracy/human rights groups robs the study of some potentially promising insights and lessons drawn from service delivery organizations or hybrid groups that combine elements of service delivery and advocacy. The Team came across many examples of financially viable CSOs that fall outside the parameters of the study but whose experience may hold insights applicable to the sub-sector that is the object of the inquiry. The black-white dichotomy of service delivery versus advocacy groups also obscures the process whereby service delivery organizations evolve into hybrid or predominantly advocacy groups. Lastly, using financial viability as a proxy for overall CSO sustainability runs the risk of missing linkages between and among the other dimensions that comprise the NGO Sustainability Index. It also offers too narrow of a slice of what makes the sector thrive, appoint taken up in the next chapter.

1 USAID’s Bureau for Europe and Eurasia has devised a Non-Governmental Organization Sustainability Index that tracks progress along seven dimensions: legal environment organizational capacity, financial viability, advocacy, service provision, infrastructure, and public image.


II. DISCUSSION OF MAIN ISSUES

In the course of this study, the Research Team identified a number of important analytical and conceptual issues (some of which were previewed in the introduction section) for which there was neither adequate time nor resources to explore fully. We briefly examine a few of them here but recommend that any follow-on study do so in greater depth in order to gain a more comprehensive understanding of the factors and processes whereby CSOs have achieved a certain level of financial viability.

THE CENTRALITY OF SUSTAINABILITY

Among the most fundamental questions to emerge from this study is whether USAID’s and the rest of the international donor community’s insistence on financial sustainability for democracy and human rights advocacy and watchdog groups is altogether misplaced. The fact that there are remarkably few such CSOs that have achieved financial self-sufficiency in the developing world is telling. Given the previously described challenges faced by this sub-strata of CSOs in the developing world in reducing dependence on foreign donors, is it realistic to expect them to do so – through government grants and contracts, membership dues, fees for service and other income-generating possibilities – especially in the generally short-time span of most civil society support programs? Most of the Third Sector experts consulted on this study believe that financial sustainability (beyond simply diversifying foreign donor support) for harder core CSOs is a chimera. They quickly point to studies that show that even in wealthy, developed nations, only a tiny percentage of such groups do not depend in large measure on government funding. For every organization such as Human Rights Watch or Amnesty International that does not accept money from state coffers, there are many, many more that must turn in that direction to supplement income derived from philanthropy and assorted revenue-producing activities. These experts by and large concur with the view expressed by one senior USAID official who opined that if the donor community wants these harder core organizations to exist, it is going to have to pay for them. There may well be a practical issue here as well in making such a lofty aspiration an explicit goal for donor programs. Some thoughtful observers argue that holding out the possibility of greater financial viability for pro-democracy advocacy and watchdog groups is dangerous because doing so encourages and compels these organizations to neglect their founding mission in pursuit of an unreachable goal. They reason further that by adopting financial sustainability as a goal, development agencies unnecessarily and misguidedly hold themselves to an impossible standard that gives ammunition to critics of the civil society strengthening enterprise.

WHAT PRICE SUSTAINABILITY?

Closely related to the previous issue about the centrality of financial viability for pro-democracy advocacy CSOs is the matter of possible trade-offs or opportunity costs. It seems axiomatic that CSO sustainability is highly desirable and certainly where the sector as a whole is concerned it’s hard to argue that a vibrant civil society is not a major feature of healthy liberal democratic states. But what if financial viability is achieved at the expense of advocacy/watchdog groups abandoning their core mission and principles or reducing organizational effectiveness? It would make no sense to continue out of allegiance to the goal of financial viability to provide financial support or technical assistance to a specific CSO or a set of CSOs that have proven ineffective in carrying out their work. In short effectiveness in pursuing its mission rather than achieving financial solvency or simply surviving


should be the principal criterion for judging the value and success of donor programs to strengthen civil society. Survival can be a compelling objective but it is virtually never the most important one. Where effectiveness and financial viability move in tandem there is no need to countenance trade-offs. But it is far from guaranteed that those groups that are making a difference in helping to advance the democratic process will be the most successful in securing resources. Conversely, groups that might have an enviable track record of winning government contracts or devising innovative ways to generate income through for-profit activities may be feckless and irrelevant vis-à-vis public policy decision-making. The ability to get things done is only one of many reasons why a group registers impressive progress along the financial viability continuum. Stated differently, those groups that survive the competition for resources may lay claim to being the fittest but they may not necessarily be among the best. And from the standpoint of the donors seeking to bolster democratic governance, considerations of performance should trump sustainability. One other aspect of this issue should be examined. With rare exception, each time a CSO seeks support from a donor – whether international or domestic – it has to tailor its program at least to some extent to fit with the funder’s priorities. Having many donors, all with their own agendas, can be particularly challenging in this regard. CSOs that are or are perceived to be creations of or highly dependent on foreign donors risk undermining their credibility and standing with constituents and the general public – major assets for any organization. Donors should understand that when advocacy and watchdog groups compromise their core mission, their ability to effect changes is greatly diminished even if they are better off financially, at least in the short-run. The trick is to find that delicate balance between overly rigid adherence to mission and compromising its fundamental principles or becoming captive of the donor’s agenda or co-opted by the authorities. Each time the organization finds a new source of support the calculus must be conducted anew. In the final analysis, if a pro-democracy advocacy or watchdog group is to become sustainable, it will continually have to navigate both practical and ethical shoals. What can donors do to assist CSOs in becoming skilled navigators?

NATIONAL VERSUS LOCAL LEVEL

Because the study centers on pro-democracy advocacy and watchdog CSOs, there is a corresponding inherent bias toward national level, often capital-based, groups. These are the organizations that have attracted the lion’s share of donor attention and resources for reasons related to visibility, proximity and access, and agendas that track closely with donor priorities. (More cynically, some critics cite factors such as the polished English language skills of many capital-based civil society leaders and their ability to ‘tell donors what they want to hear’.) Moreover, given USAID and other donors’ interest in trying to influence national decision-makers vis-à-vis the content and implementation of legislation and policy, the study tends to focus its analytical attention on those groups for which this is an explicit goal – the vast majority of which are national groups. This bias is problematic for a number of reasons. For one, while most all of CSOs and community groups operating at the grassroots level are oriented toward service delivery, in many countries decentralization of political power has contributed to an impressive increase in the number and sophistication of groups engaged in democracy-related advocacy in smaller cities and towns and rural areas. The target is most often municipal government with the aim of pressing for greater transparency and accountability, and trying to boost citizen participation in decisions that affect their lives. In some instances, these local groups are part of or loosely affiliated with larger, generally more capable capital-based advocacy CSOs, which have come to recognize the value of political strength in the provinces for effecting change in national level policy.


Second, with far fewer ties to foreign donors, grassroots organizations must rely on scarce indigenous resources (along with volunteer labor) and perhaps for that very reason have to be more innovative in their attempts to achieve financial viability. Similarly, pro-democracy grassroots CSOs are more likely than their national level, capital-based counterparts to be firmly embedded in their respective polities and to have identifiable constituencies that can be mobilized. Because they are ensconced at the community level, they tend to enjoy considerable credibility/legitimacy in the eyes of local residents and there is little doubt about the agenda being homegrown rather than shaped or dictated from outside. Both of these conditions enhance the prospects for local fundraising, including in-kind contributions, while still recognizing that in most developing or transition countries wealth is concentrated in the major cities.

SHIFTING DONOR PRIORITIES AFTER THE DEMOCRATIC BREAKTHROUGH

Programs explicitly dedicated to building democratic institutions and processes are relatively new in the history of development assistance and certainly from the standpoint of being a major component of overall assistance strategies. There is no shortage of criticisms leveled against such efforts, many of them from supporters of democracy assistance who endorse alternative approaches. A common complaint among both recipients of democracy promotion assistance and students of civil society is that donors lack staying power when it comes to financial support for the Third Sector. Specifically, they cite a tendency to curtail sharply or even terminate altogether funding for civil society once an authoritarian regime falls or a nominally democratic one suddenly develops the requisite political will for far-reaching reform. Equally powerful factors causing assistance to decline stem from donor needs to shift funds to new theaters of activity or cutbacks in their own overall budgets. Frequently the pattern is that donors cannot or decline to work constructively with a particular government and adopt a civil society-centered strategy that seeks to generate demand for reform from below. If a newly energized and empowered civil society is instrumental in bringing down an authoritarian regime (e.g. South Africa, Poland, Philippines) or stimulating political will in an otherwise flailing democracy, donors often succumb to the strong and understandable temptation to recalibrate and refocus assistance efforts on capacitating state institutions. Not only does this sudden shift threaten the long-term prospects of financial viability for the pro-democracy CSOs, it also places at risk the broader consolidation of democratic rule by weakening a critical bulwark against backsliding. New or newly committed democratic leaderships often make well-intentioned promises with the hope and expectation that they will not be held accountable. Moreover, these governments are likely to encourage donors to forego support to civil society, which the governments come to see as making unhelpful and unrealistic demands. For their part, donors may conclude that they have a potentially historic window of opportunity to advance the democratic transition by bolstering state capacity, proceeding on the debatable assumption that while civil society may have helped deliver a committed democratic regime, it should play only a minor role in the governing process. But donor thinking may be undergoing an evolution. The concern expressed by officials at USAID and other development agencies about the fate of democracy and human rights groups in the face of shrinking budgets and countries graduating from assistance, conveys an understanding of the pivotal role these groups can play in consolidating democratic rule and ensuring governments continue to traverse that path. It also explains why assistance providers have explored creative ways, including post-presence support mechanisms, to ensure groups will carry on even as foreign donors pass from the scene.


GLOBALIZATION AND CSO FINANCIAL SUSTAINABILITY

Globalization is shorthand for the extraordinary transformation of economic production, the instantaneous movement of capital flows, the increasing density of transnational linkages as well as the rapid diffusion of knowledge, ideas and values around the world. Not surprisingly, globalization involves some potentially enormous implications for civil society and pro-democracy efforts as ties between CSOs in the developing and developed world strengthen and multiply. With respect to promoting financial viability of “harder core” CSOs, one way in which globalization can contribute is by giving groups in the developing world an opportunity to tap more directly into non-governmental resources in the established democracies. Religious groups affiliated with churches, synagogues and mosques offer a promising avenue. Humanitarian oriented organizations have done this for some time and there would seem ample opportunity for the scope to expand to groups engaged in advancing democracy and human rights. The anti-sweatshop movement on U.S. campuses not only forced many U.S. multinational corporations to increase wages and improve working conditions in plants in the developing world but through some innovative strategies also raised money for workers’ rights organizations in those countries. Groups involved in so-called “fair trade” have followed a similar strategy wherein U.S. consumers might pay more for coffee that is certified as having been grown by farmers that receive better prices for their crop. There is no reason why democracy and human rights groups in the Third World could not work with counterparts in the developed countries to come up with ideas for tapping into private philanthropic networks. One other dimension of globalization also is relevant here. The movement of people across borders, whether for travel or immigration, has facilitated the diffusion of ideas and values and also resulted in ever-larger and more prosperous Diaspora communities with growing economic and political clout. In some instances these communities are an under-tapped source of support for pro-democracy CSOs in the home country. See Recommendations section for an elaboration on this point.

THE EUROPEAN UNION

As has been mentioned at various points in this report, the Europe and Eurasia region should probably be regarded differently than Latin America, Asia, Africa and the Middle East, in large part because USAID emphasized CSO sustainability much more owing to the transitional nature of the assistance programs in the post-communist space. The region, at least the Central and Eastern Europe portion of it, is different in another important respect as well – one that could have significant implications for CSO financial viability. As countries such as Poland, Hungary, Czech Republic, Slovakia, the Baltic nations and others begin to gain entry into the European Union or become promising candidates for membership there has been an expectation in many circles that civil society will have access to greater resources even as the U.S. decreases its funding and accelerates the process of closing down USAID offices. But based on interviews conducted by the MSI Team and draft country reports for the 2005 USAID, the hope and expectation that the European Union would bring a huge infusion of money to support civil society needs to be tempered. For one, the magnitude of EU funding is likely to be less than originally. Secondly, and perhaps more telling, the democracy/human rights advocacy and monitoring groups that are the focus of this report and the object of paramount concern for USAID’s DG Office, are unlikely to receive any windfall as EU priorities appear to be geared toward social service delivery organizations.


Civil society officials in the region also express some frustration with the slow pace of EU decision-making and disbursement of funds as well as burdensome administrative requirements. This is not to say that the EU and the accession process have not contributed to strengthening civil society in the region. Among the requirements for membership are a number of provisions that benefit the sector directly and indirectly and the inflow of more resources from Brussels will certainly help ameliorate the adverse impact of USAID’s smaller presence and the scaling back by a number of relevant foundations, including the Open Society/Soros Foundation. But the expanded role of the EU in Central and Eastern Europe and farther a field is no panacea for the region’s CSOs, especially those engaged in democracy-related advocacy and monitoring. These organizations do not appear to be a priority for Brussels, suggesting a decline in overall donor resources for this sub-sector. A realistic set of expectations is also in order with regard to the spate of new laws enacted by many of the region’s governments that permit individual citizens to donate a very small portion (usually 1-2%) of their tax bill to a CSO. For a variety of reasons, ranging from the much greater popularity of charities than pro-democracy groups to the possibility that total philanthropic giving will remain flat or even decrease as people feel they had already contributed, these generally welcome tax laws are unlikely to prove a big bonus for advocacy and watchdog groups that comprise the Third Sector’s harder core segment.

DEMOCRACY/HUMAN RIGHTS CSOS AND THE ROLE OF THE MARKET

The market, the amoral (or immoral, depending on whom you consult) mechanism for determining the allocation of goods and services in society, may offer some promising opportunities for improving the financial health of democracy and human rights advocacy and watchdog CSOs. We tend to think of human rights as a public good provided by the State but there is a strong potential role for the market here as well. If the legal services system develops sufficiently and if citizens are guaranteed the right to sue the state for mistreatment or malfeasance, a private market can arise to allow individuals to obtain redress for human rights infractions. These two “ifs” are huge ones but they have been largely realized in the advanced countries and to some extent in a number of developing nations such as India. Even in established democracies the legal services market remains imperfect, as evidenced by the need for such institutions as the ACLU and Legal Aid Society. Alternative dispute resolution (ADR) is another potential area where market forces could serve the cause of human rights. In the U.S., ADR has become a welcome substitute for an overcrowded (and adversarial-based) judicial system in resolving disputes, both civil (e.g., contract disputes) and criminal (e.g., domestic abuse cases). Much of the ADR system functions in the private sphere, with disputants paying fees to an arbitrator or mediator, thus making the system economically self-sufficient (people are now trained in ADR and can pursue a career track). In the developing world, ADR mechanisms are generally funded by international donors, although demand for such services may be growing to the point that a small market is emerging in some countries. Even if it is highly unlikely that ADR would become a means for resolving human rights grievances against the state, this alternative to the formal – often politicized and dysfunctional – justice system may offer CSOs engaged in rule of law related work a possible source of revenue while also nurturing values of respect for law and compromise that are crucial in a democratic society.

SOCIO-ECONOMIC AND POLITICAL CONDITIONS

The issue here is not so much whether the socio-economic and political setting helps to determine the prospects for CSO financial viability. Predictably, the Research Team found that a less repressive political climate and greater economic prosperity contribute to overall CSO sector sustainability, including


financial viability. The issue we want to flag here is a related, narrower one: to what extent do/should the goals, standards and expectations for sustainability differ depending on the level of political and economic development in the countries where USAID has civil society programs? Should there be different measures of sustainability for CSOs in post-conflict transition countries, fragile states, autocratic or repressive states and states that are fairly advanced in the democratizing process? In the judgment of the Team, the answer to these questions is probably yes; donors have to adjust their expectations – and fashion strategies and programs accordingly – depending on the constellation of factors that comprise the development setting. A country that is both poor and politically unstable is a weak candidate for hosting democracy and human rights groups with promising financial futures not tethered to foreign donor support. Moreover, in countries where poverty defines the lives of the vast majority of the population, donors are generally preoccupied with meeting basic human needs even though they increasingly recognize the link between the lack of political freedom and economic privation. Likewise, in seriously constrained political environments, the very formation of pro-democracy advocacy and watchdog groups is a moral victory; the chances of such CSOs operating without political-diplomatic and financial support from the international donor community is extraordinarily low. The bottom line is that development agencies and other donors have to have either a sliding scale for defining financial viability or adjust their expectations about progress depending on the country setting. This should not be terribly controversial but rather confirms the general proclivity on the part of development professionals to tailor assistance programs to local realities. The strategies pursued by international donors to advance the goal of financial viability for harder core CSOs should look very different in Central Asia than in West Africa or the Andean sub-region. Donors would be well advised to take their cue from indigenous groups about what approaches are more likely to prove efficacious given prevailing conditions.

CSO ACCOUNTABILITY

The issue of CSO accountability has become more prominent as critics and concerned observers alike have raised important questions about whether public interest organizations are or should be accountable and if so, to whom. At one level it should not matter at all whether CSOs have any constituency of membership to which it is accountable; individuals should have the right to form and operate organizations regardless of whether they attract any following or champion an agenda that represents the interests of no one but the founder. In practice, the fact that in many counties the proliferation of CSOs is grounded in the desire of self-interested, sometimes self-promoting and well-connected, individuals to secure grants from foreign donors’ accounts for some of negative attitudes about civil society and internationally-funded democracy promotion efforts among segments of the population. And to the extent that public image is an important factor in the prospects for CSO financial viability, donors should have a compelling rationale for funding organizations that lack an identifiable constituency. The other dimension about accountability has to do with the operation of CSOs. Citizens have a right to expect that organizations abide by laws governing the sector, for example that scheming entrepreneurs do not form a non-profit organization for the sole purpose of camouflaging a money-making entity. Donors also have an obligation to insist on standards of financial accountability and transparency. That legitimate CSOs recognize the problem of a relatively small number of individuals sullying the reputation of the sector is evidenced by steps in many countries toward self-regulation, often in the form of a code of conduct or guiding principles adopted by a coalition of leading CSOs eager to restore public confidence.


Internal accountability and democratic procedures are a related set of issues that also can have an impact on the prospects for financial sustainability. Would-be domestic and international donors are more likely to have greater confidence in CSOs if the sector is seen as putting the precepts of sound democratic governance into practice in terms of its internal operation. Effectiveness is the bottom line but to the extent that CSOs demonstrate impact and living up to the goals and values they champion, they not only would seem to increase the chances of attracting funding, they also contribute to the diffusion of democratic norms across other sub-sectors (e.g. political parties) and to the society as a whole.


III. ENABLING ENVIRONMENT

The enabling environment is short hand for the constellation of laws, regulations and general political climate within which CSOs must operate. It constrains or encourages the development of such groups and their ability to influence society’s political evolution. The pivotal importance of the enabling environment led the Research Team to seek out the International Center for Not-for-Profit Law, to provide an analysis of the key elements of civil society friendly framework from the standpoint of promoting financial viability of CSOs and to offer lessons learned based on the group’s vast experience throughout the world.

THE BASIC STRUCTURE

At a fundamental level, an enabling environment conducive to CSO financial viability allows groups to form, carry out their missions, and acquire resources both for project activities and for organizational development. This is perhaps most graphically illustrated in countries that use the law to restrict the rights of individuals to form organizations to advance their interests -- Turkmenistan, for example, which imposes such stringent controls on CSOs that less than 100 have managed to complete the process for legal recognition, or Belarus, where the use of the laws to harass CSOs has left many struggling to survive. The absence of legal rules protecting the rights of individuals to organize, and the ability of organizations to carry out their missions, creates environments where the very existence of these groups is threatened and the quest for financial viability is at best a chimera. It is therefore not surprising that a common element in many of the success stories considered in this study is a legal environment supporting CSO formation, operation, and viability. The laws of the countries in which these CSOs are located are not necessarily perfect; in many cases CSOs continue to strive for further reform of the legal structure within which they operate. Nonetheless, all but a handful of the countries in which these groups are based have established basic conditions supporting CSO development. Bulgaria, Slovakia, Poland, the Czech Republic, Kosovo, Georgia, Ukraine, Honduras, South Africa, Indonesia and the Philippines all have put in place laws and regulations that to varying degrees facilitate a robust Third Sector. • These countries permit CSOs to form and operate easily, enabling them to carry out their missions

with a minimum of government interference. • Most, however, have gone a step further, creating other laws specifically intended to assist CSOs in

becoming financially viable. These include: o Framework laws that permit CSOs to engage in at least some fee-generating activities as an

additional source of revenue to sustain their non-profit missions; o Tax laws providing for exemptions to CSOs on their income from grants, donations, dues and

in some instances a portion of their income from fee generating activities; o Tax laws granting benefits to individuals and/or businesses that contribute to CSOs. While

philanthropy is not a major source of revenue for CSOs in these or most other countries, even nascent attempts to encourage charitable giving can help strengthen ties between CSOs and the communities they serve.

• A number of these countries have also taken steps to promote government support for CSOs. In some cases this involves direct support in the form of contracts, subsidies, or grants. In other cases, the laws promote cooperative arrangements which, for example, facilitate delivery of social services, or CSO input on public policy formulation.


TRENDS AND LESSONS LEARNED

Pro-democracy advocacy and watchdog organizations, like all CSOs, require a sound legal framework if they are to carry out their work effectively and sustain themselves. As has been mentioned, these harder core CSOs face greater challenges in attaining financial viability than their service-providing counterparts, often remaining dependent on foreign funding. Reasons may range from outright government hostility and interference, or a poor “fit” between the organizations’ missions and available local sources of funding, to the absence of an appealing public face (e.g., needy children) that might help them attract local philanthropy. Moreover, many democracy and human rights CSOs steer clear of government or business funding, fearful that accepting money from those sources will compromise their independence and undermine their credibility with constituents and the broader public. We examine below three trends with respect to the legal enabling environment that may have particular relevance for pro-democracy and watchdog groups seeking a secure financial footing. A GROWING NUMBER OF GOVERNMENTS HAVE MOVED TO RESTRICT CSO ACCESS TO FOREIGN FUNDING AS A MEANS OF STIFLING ADVOCACY The recent democratic revolutions in Georgia and Ukraine were a profound reflection of the power of advocacy groups to affect political change in countries with repressive or corrupt governments. Advocacy CSOs, financed in part by foreign government contributions, succeeded in challenging election results on the grounds of fraud, and forcing a change in the country’s leadership. These events, followed by an uprising in Kyrgyzstan, have been viewed with suspicion by other regimes, clearly worried that local advocacy groups, inspired by the examples of the Rose and Orange Revolutions, will seek to provoke similar changes. As a result, the past two years have seen an unsettling trend by governments to introduce legislation cutting off the foreign funding to advocacy groups that they view as potentially destabilizing to their regimes. • In Kazakhstan, the government proposed laws requiring all international and foreign CSOs to seek

prior approval for receipt of financing by local government officials, and prohibiting the operation of any organization whose goals or actions are directed to “consequences undesirable for the Republic of Kazakhstan causing a threat to national security.” These provisions would have had dire consequences for the ability of foreign organizations to operate, or fund local groups. The proposal was headed off only when the Constitutional Council ruled in August 2005 that such legislation would contravene Kazakhstan’s constitution; it now awaits further consideration by the President. In a country where foreign funding is still the predominant source of financing for civil society groups, which have little opportunity to raise funds locally, this law could severely inhibit the ability of advocacy CSOs to operate.

• In Venezuela, the Chavez government recently proposed heightened criminal sanctions against legal persons, including foundations and associations, that “engage in sabotage against the fundamental and strategic structures of the State” with the financial support or economic participation of any foreign power or organization. The penal code amendments leave undefined the behaviors that could be considered sabotage. Additional legislation that would restrict foreign financing of CSOs is anticipated in the near future.

• Zimbabwe in 2004 enacted a “CSO Bill” that prohibits local CSOs engaged in “issues of governance” from accessing foreign funds and foreign CSOs involved in these activities from registering. The bill was decried as a direct attack on human rights groups and attempts to scrutinize Zimbabwe’s human rights record. Indeed, upon introducing the bill, Zimbabwe’s President Mugabe declared “[we] cannot allow [CSOs] to be conduits or instruments of foreign interference in our national affairs.”2

2 Njabulo Ncube, “Outcry over CSO law,” The Financial Gazette (Jul. 29, 2004) [http://www.fingaz.co.zw/fingaz/2004/July/july29/6100/shtml ]


Mugabe ultimately declined to sign the controversial bill, citing “one or two issues he wanted to be addressed,”3 but there is concern that the Bill will be revived.

• In Eritrea, the government introduced CSO Administration Proclamation No.145/2005 prohibiting the UN and other organizations from funding CSOs, and requiring all donor funds to flow through government ministries. The proclamation also imposed taxes on food aid and other donations, outlawed CSO work in fields other than relief and rehabilitation, and increased reporting requirements.4

• In Uzbekistan, in 2004 the government took greater control of foreign funding of CSOs by requiring CSOs to deposit funds in one of two government-controlled banks, thereby allowing monitoring and control of all money transfers. Shortly after enactment of these provisions, the government moved quickly, obstructing the transfer of over 80% of foreign grants to CSOs. Worse still, the system is administered according to unwritten policies and verbal instructions, making it difficult for CSOs to follow the rules or to appeal adverse decisions. More recently, the government suspended the operations of foreign democracy and governance organizations that have partnered with and funded local groups, and has refused to register others.

• New regulations in Belarus impose reporting and approval mechanisms that give the government control over donor funds and projects. In addition, these rules force many CSOs to pay up to 30% tax on foreign aid, “causing some donors to reconsider their support.”5

These countries join others with existing restrictions on foreign funding of CSOs. India, a country with a proud democratic tradition has for nearly 30 years enforced the Foreign Contributions Regulation Act (1976), which permits only those associations that have “definite cultural, economic, educational, religious, or social programme” and obtain permission of the government to receive foreign contributions. A new draft law has been introduced, which also, according to analysis by leading CSOs will restrict the development of the sector.6 In Egypt, Law 84 enacted in 2002 prohibits CSOs from receiving funding from a foreign entity without prior permission of the Ministry of Social Affairs. This law continued a long history of legislation restricting the ability of Egyptian CSOs to form and to become financially viable. Experience has shown that these types of laws can be among the most difficult to counter, as foreign funding prohibitions have the effect not only of depriving advocacy groups of badly needed resources to carry out their activities, but also of isolating them from outside technical and political-diplomatic support. With varying degrees of success, CSOs have pursued different strategies to challenge restrictive provisions. • In some countries, advocacy groups have sought to organize under the laws governing commercial

companies, thereby inviting less scrutiny of their activities and obtaining more flexibility in the ways in which they fund their operations. In China, for example, it is reported that CSOs, frustrated with unsuccessful attempts to find a government sponsor for their organizations as required to complete the registration process, instead have registered as corporations, saving both time and money.7

3 “Mugabe Rejects Notorious NGO Bill,” Mail and Guardian Online (May 19, 2005) [http://www.mg.co.za/articlepage.aspx?area=/breaking_news/breaking_news__africa&articleid=238779.] 4 2004 USAID NGO Sustainability Index for Central and Eastern Europe and Eurasia 5 2004 USAID NGO Sustainability Index for Central and Eastern Europe and Eurasia 6 See http://www.vaniindia.org/FCMC/fcmc_index.asp#2 for several analyses of the issues.

7 Chinese CSO’s -- Carving a Niche Within Constraints: A January 2003 report from Embassy Beijing, http://www.usembassy-china.org.cn/sandt/ptr/CSOs-prt.htm


• In others, CSOs have rallied local expert and international support, distributing analyses of the restrictive provisions among a wide range of stakeholders, convening meetings, and generating media attention. In the Kazakhstan example cited above, these types of activities were successful in convincing the government to withdraw some of the offending provisions even before the drafts were submitted to the Constitutional Council.

• Direct challenges under a county’s constitution have succeeded in blocking restrictive provisions, at least temporarily. Again, in Kazakhstan, consideration by the Council resulted in a finding that restrictive laws were not constitutional. In Egypt, a challenge in the constitutional court led to the invalidation on procedural grounds of a law that was the precursor to the aforementioned Law 84.

• Challenging restrictive provisions before an international tribunal on the ground that they do not comport with a government’s obligations under international conventions protecting the rights to association, assembly, and speech is another strategy. A series of challenges to the laws of Turkey and Greece before the European Court on Human Rights led to rulings that restrictions on the ability of CSOs to form did not comply with those countries’ obligations under the European Convention on Human Rights. In principle, restrictions targeting CSO financing could also be challenged in such international fora.

These and other strategies have helped CSOs to survive in hostile environments. But they cannot compensate for the severe reductions in CSO funding in circumstances where foreign assistance is one of the few available sources of support. INNOVATIVE MODELS FOR IMPROVING TRANSPARENCY AND DEPOLITICIZING THE DELIVERY OF GOVERNMENT FUNDING SHOW THAT SUCH FUNDING CAN BE AN IMPORTANT SOURCE OF INCOME FOR ADVOCACY CSOS Traditionally, advocacy and especially watchdog groups have expressed skepticism regarding government funding of their activities, primarily grounded in fears of compromising their independence, opening themselves up to government interference and scrutiny, and jeopardizing their credibility with the citizenry. Even in cases where such CSOs might countenance or seek government funding, financial support from state coffers is overwhelmingly directed toward service delivery or procurement of goods. In countries in transition, government funding mechanisms have frequently been plagued by a lack of transparency and politicization of decision-making. For example, it is a fairly common practice for government officials or their family members to form CSOs, which in turn receive preferential treatment in funding decisions. Equally problematic is the practice of establishing Government Organized Non-Governmental Organizations (GONGOs) that get preferred treatment in doling out public grants and contracts. Nonetheless, in many countries government funding remains a significant source of support for CSOs,

Despite the challenges posed by government funding for advocacy organizations, some groups have found innovative ways to engage with governments in funding their initiatives. In Albania, one human rights organization has negotiated funding from various ministries to provide individual rights training to police officers and to provide human rights education in the schools. This is an example of how an advocacy organization not only identified a new source of government funding, but also achieved wider buy-in from government to its mission. Other “think tanks” provide research and consulting on legislation and other government policy issues.


including advocacy CSOs (broadly defined). According to one study on CSOs in transition and developing countries, state funding makes up 22% of the budget for CSOs overall, and 34% of funding for civic and advocacy groups.8 Two models that promote depoliticization of government funding decisions may assist in making such support more accessible and acceptable to advocacy groups. • “1%” laws. Percentage philanthropy, or 1% laws, were established in Hungary in the mid-1990s

with the aim of creating a pool of resources to fund CSOs, and were subsequently adopted in Slovakia, Poland, Romania, and Lithuania. These laws permit taxpayers to designate a percentage of their taxes (usually 1 or 2 percent) to be contributed to CSOs of their choice. While much of the literature regarding these laws has focused on whether they constitute true philanthropy, they can also be viewed in another light – as an indirect source of government financing for the civil society sector. In other words, CSOs benefit from taxpayer funds that would otherwise be dedicated to general government spending. Advocacy groups have the opportunity to access these funds on equal terms with other CSOs. From the perspective of facilitating advocacy groups’ access to government funding, percentage laws have two key advantages:

o By allocating decision-making authority to taxpayers regarding the destination of their percentage contribution, these laws depoliticize the funding process. The types of organizations eligible for funds are established in the law, and beyond applying these criteria, the government has no role in determining which groups benefit and how much they receive. The process is shielded from government political preferences.

o Percentage laws have had the welcome effect of encouraging CSOs to market themselves to stakeholders so as to garner taxpayer designations. In the process, CSO have an opportunity to build stronger connections with stakeholders and would-be constituents/members and to promote their missions. Some types of advocacy groups have succeeded in appealing to the public through “1%” campaigns but these have not for the most part included human rights and pro-democracy organizations. One interesting question that remains is how advocacy groups, given this even playing field, can better market themselves to the public so as to avail themselves of support under percentage law schemes.

• Commissions, liaison offices, foundations, and other institutional structures can also be used to depoliticize the funding process. These structures are often comprised of representatives of both government and the sector. Recent examples include:

o The Croatian National Foundation for the Development of Civil Society is a public, not-for-profit entity that seeks to strengthen civil society.9 It supports innovative programs developed by CSOs as well as informal, community-based initiatives. It is funded in part by 50% of Croatian lottery game proceeds. The Foundation is considered an important step towards greater decentralization of the funding system for CSOs. It also operates a number of programs designed to promote CSO sustainability sector-wide.

o The Hungarian National Civil Fund Program is financed annually by matching the year's actual tax designations under the 1% Law, or 0.5% of personal income taxes collected, whichever is greater. At least 60 percent of the Fund’s resources each year must be dedicated to providing institutional support (core costs) to CSOs in Hungary. This is an important

8 Salamon, L, Sokolowski, S, and List, R., Global Civil Society: An Overview (Baltimore, 2003), pp. 29-30, Figure 10. Advocacy groups in this context, however, are defined as including civic groups (not simply traditional human rights and other cause-oriented advocacy groups), a somewhat broader conception than is employed in this study. 9 Croatia Enacts National Foundation for Civil Society Development Law, ICNL News Release, October 27, 2003, <http://www.icnl.org/PRESS/Articles/2003/20031027.htm>.


provision, as most government funds for CSOs have been dedicated to project financing rather than institutional support and administrative costs.

o In the Czech Republic, the Governmental Council for Non-State Non-Profit Organizations, an advisory body of the government, has primary responsibility, along with the Foundation Investment Fund, for distributing one percent of the voucher privatization portfolio10 to eligible foundations. This was a means of restoring at least part of the foundation assets confiscated during the communist regime. Over time, the Council developed new functions in addition to distributing funds, including pressing for a more favorable legal environment for CSOs.

These types of entities have not been without controversy. The first year of operation of the Hungarian Civil Fund was emblematic of the problems that can arise in government funding of the sector. The Fund was criticized for its lack of a strategy to develop the CSO sector, unfair competition in choosing grantees, non-transparent and inconsistent funding processes, and conflicts of interest in the grant-making process. In Estonia, a commission that makes recommendations for government funding of CSOs was criticized when it made awards to two of the most well known organizations in the country, representatives from which had seats on the Commission.

Other mechanisms may hold promise as well. In the service delivery field, the use of vouchers has been used successfully to strengthen the role of consumers by giving them the responsibility to select the service-provider – again with the aim of depoliticizing the funding process. Governments provide vouchers for the services it is obligated to deliver to beneficiaries, who then choose their provider, paying with the voucher. This system can indirectly help to support certain types of hybrid groups that combine advocacy and service delivery, for example, childcare providers that advocate for better laws affecting children’s services. ECONOMIC ACTIVITIES The accepted definition of “not-for-profit organization” recognizes that while such an organization may earn a profit, it may not distribute it as a business would, but must use it towards the group’s mission. Indeed, CSOs have as much of an obligation to operate “in the black” as other legal persons. One critically important way in which CSOs sustain themselves is through fee-generating or economic activities. Research has demonstrated that in countries around the world, including developing and transitional countries fees charged for membership, goods, or services, are in fact the predominant source of non-profit organization (NPO) income. In a study of 32 countries researchers found that 53% of all CSO revenue was derived from fees.

10 In 1992, the Czech National Council enacted an amendment to the Privatization Act allocating part of the portfolio of state industry privatized by the voucher privatization method for the needs of foundations. The State Privatization Fund established the Foundation Investment Fund as a shareholding company to administer the one percent voucher privatization portfolio and then to distribute the shares or dividends from it to foundations. See Petr Jan Pajas, “Endowments of Foundations Receive Contributions form the State Privatization Fund of the Czech Republic” 2 The International Journal of Not-for-Profit Law (August 1999), http://www.icnl.org/journal/vol2iss2/pajasczech1.htm.


Fees as a Source of CSO Revenue, Select Countries (with comparison to other sources of support) 11

Fees Government

Support Philanthropy

All Countries 53% 35% 12% Developing and Transitional

62% 22% 16%

Philippines 92% 5% 3% Argentina 73% 19% 7% Poland 60% 24% 15% Slovakia 55% 22% 23% Czech Republic 47% 39% 14% South Africa 32% 44% 24%

Governments face two key questions with respect to NPO economic activities: (1) whether to permit these groups to engage in such activities; and (2) how to tax the income in such a way as to create appropriate incentives for beneficial activity. As the data cited above suggests, the first question has in most countries been answered affirmatively. Governments around the world have recognized that permitting fee-generating activity is an important step towards ensuring the long-term sustainability of the sector. The second question by contrast has yielded a number of different strategies for addressing the taxation of income from economic activities. Generally governments and NPOs in designing tax legislation seek to develop incentives that will create the greatest opportunity to devise activities that will help organizations support their missions. At the same time, governments usually seek to discourage economic activity such that a CSO becomes little more than a commercial business, in effect permitting the group to compete on unfair terms with for-profit firms. One mechanism by which the tax laws accomplish these goals is to stipulate that revenues from economic activity will be free from tax if they are related to the CSO’s mission. Under this “relatedness” test, a CSO for the disabled that, for example, provides transportation to wheelchair users would be entitled to claim an exemption from tax for revenue it collects from users to cover a portion of the transportation costs. In contrast, if the CSO were to run a restaurant, the income from that business would be subject to tax. One question that arises is the degree to which exempting revenue from certain types of economic activity but not others creates an incentive for CSOs to engage in particular revenue-generating activities. If properly crafted, such tax incentives can be socially beneficial – encouraging CSOs to carry out government contracts, create social enterprises, and otherwise direct their fee-generating activities in ways that benefit the public. On the other hand, there have been instances in which inappropriately targeted incentives have led to problems. In Russia, major tax benefits were limited to a very small group of CSOs, among them associations of Afghan war veterans. Some of these associations trafficked in alcohol and tobacco, creating a bad public image for CSOs generally. Ultimately, all CSOs were restricted from claiming tax benefits, a situation that has only recently been remedied. 11 Salamon, L, Sokolowski, S, and List, R., Global Civil Society: An Overview (Baltimore, 2003), pp.28-29, Figure 11.


PHILANTHROPY AND VOLUNTEERISM In most countries, philanthropy ranks behind government funding and fee-generated income as a source of CSO revenue. But when the contributions of volunteers are included, philanthropy becomes an important source of CSO support.

Percent of CSO Revenue from Philanthropy (with and without volunteers) in Select Countries12

Revenue from Philanthropy – not

including volunteers

Revenue from Philanthropy –

including volunteers

Net change

All Countries 12% 30.4% +18.4 Developing and Transitional

16% 31.7% +15.7

Philippines 3% 43.2% +40.2 South Africa 24% 45.9% +21.9 Argentina 7% 23% +16 Czech Republic 14% 30% +16 Poland 15% 20.1% +5.1 Slovakia 23% 25.1% +2.1

This reflects the fact that contributions of time, even when valued conservatively at the average wage in the fields in which volunteering occurs, can be greater – in some cases as much as 12 times as large – as contributions of money or material.13 Since the UN International Year of Volunteers in 2001, there has been increased attention on promoting volunteerism in many countries, including public education campaigns touting its benefits. This has brought into sharper focus the importance of the enabling environment regulating volunteerism. A legal framework is one of many factors affecting volunteerism; others include public awareness, support of the private sector, research on the impact of volunteering etc. Despite the fact that volunteerism makes up such a large part of overall support for CSOs, and makes significant contributions towards CSO sustainability, in a number of countries the law imposes significant impediments to volunteerism. Unfortunately, CSOs and governments alike often fail to recognize why it is important to address these impediments. Among others, they include: • Laws that fail to distinguish between volunteers and paid laborers and therefore impose upon

organizations the obligation to comply with labor laws (e.g., paying a minimum wage and providing benefits);

• Laws that impose restrictions on the types of services that volunteers may provide free of charge (e.g., legal services);

• Contracts with volunteers for their services may not be recognized under the laws governing contracts;

• Unemployed individuals serving as volunteers run the risk of having their unemployment benefits rescinded by the State;

12 Salamon, L, Sokolowski, S, and List, R., Global Civil Society: An Overview (Baltimore, 2003), pp. 32, 36, Figures 11 and 14. 13 Ibid.


• Laws that impose difficult tax obligations in connection with volunteering, (e.g., travel reimbursements are treated as taxable income, or CSO employers are required to pay social insurance tax on volunteers.

Where laws promoting volunteerism have been instituted to remove impediments to volunteering, the results can be remarkable. In Hungary, for example, a new law on volunteerism resulted in recognition of more than 400,000 new volunteers. A number of other countries either have or are in the process of establishing specific laws addressing the needs of volunteers, or amending existing laws to remove obstacles to volunteering. It should be noted that anecdotal evidence suggests that pro-democracy advocacy and watchdog organizations probably do not attract nearly the number of volunteers that service-delivery and humanitarian-oriented groups. It’s possible this may be due to higher skill sets sought for volunteers in such CSOs


IV. KEY FINDINGS AND RECOMMENDATIONS

The key findings are derived from the range of sources consulted for this report but draw extensively on the mini-case studies of CSOs that have made significant progress on the path to financial viability. We have covered both sides of the donor-CSO relationship, which is to say strategies pursued by donors (and their implementing partners) as well as by CSOs themselves. As the project did not include fieldwork, the CSO case studies are necessarily less rigorous than the research on donor/implementer activities. However, the Team was able to conduct in-depth interviews by telephone or e-mail correspondence with senior staff of approximately 20 organizations of the larger roster of groups that we looked at for the study. In many cases, interviews were supplemented by verifiable documentation such as annual reports and financial statements.

STRATEGIES AND MECHANISMS USED BY FINANCIALLY SUCCESSFUL CSOS

Build a Constituency and Maintain Credibility Among your Constituents. CSOs that have met with success in becoming viable financially frequently have a strong public image or at least enjoy considerable credibility with the main beneficiaries or stakeholders of its work. If the organization is not recognized as representing an identifiable group, it is in a relatively weak position to attract local donors and volunteers and is less likely to influence government policy – even if it succeeds in garnering foreign donor support. CSOs that provide public goods such as championing the advancement of democratic reform or pressing a government to abide by the rule of law have a real challenge on their hands in that the beneficiaries are not a coherent, closely linked constituency but rather the vast majority of the population. The lack of a clearly defined set of beneficiaries makes mobilizing political as well as financial support a formidable task owing to a combination of the diffuse nature of the projected benefits and the so-called free-rider problem wherein people have an incentive to let others do the work to effect change. A constituent base can be tapped for resources, through membership dues or in-kind resources such as volunteer labor, and be mobilized for advancing the goals of the organization. Membership dues or private donations (e.g., through door-to-door or phone canvassing, direct mail campaigns etc.) can be an important source of income – small contributions do add up – but are generally contingent on an organization’s standing with its supporters and prospective supporters. Public image, in turn, is a function of many factors but among the most notable are visibility and perception of effectiveness and integrity. Would-be members, constituents and beneficiaries should include other CSOs (and the resulting opportunities for coalition building), corporations, and institutions as well as individual citizen donors. Increase and Diversify the Donor Base, Both International and Domestic. In many instances, the best that harder core CSOs can do to attain financial viability is to increase the number of foreign donors while also exploring opportunities for indigenous support as well as income-generating activities. CSOs should use every opportunity to leverage their current donor agencies’ expertise in fundraising (beyond proposal writing) and obtain assistance in making contacts with prospective donors, including in the private sector and the host government. Where grants permit spending on institutional overhead, they should include technical assistance for fundraising in the budget and bring in local fundraising experts to identify and approach new donors with appropriately tailored proposals. CSOs that initiate contact and have proposals that are grounded in their own organization’s mission have a much better chance of not becoming captive to the donor’s agenda and priorities. CSOs should focus on cultivating long-term rather than one-off donors and seek to include international foundations and foreign government development agencies, as well as domestic state agencies (when


appropriate) and academic institutions on the list of potential contributors. In Poland, the Stefan Batory Foundation was able to avoid spending down its endowment because they attracted a range of new donors, primarily international foundations and foreign governments, but also some homegrown contributors. Another possibility, which applies to a relatively small number of CSOs and primarily concerns income-generating economic activity, is to seek no-interest or very low interest loans from banks, including multilateral lending institutions. We encountered a few examples of groups that had done so (e.g., to purchase a building) and think it may have some, albeit, limited potential. Ensure that the Organizational Structure is Sound. In most cases, financially viable CSOs have both skilled leaders at the helm and a solid organization. Charismatic individuals may be indispensable for creating a group, raising its visibility and increasing its immediate impact, but longevity requires a commitment to building an effective organization capable of attracting resources over the long haul and weathering the departure of the founding mother or father. A study by the National Democratic Institute found that skilled and committed leadership was essential to the success of its CSO partners and that part of the equation was a talent for organizational development.14 An emphasis on organizational development, starting with a capable staff, is essential to sustain a group that produces top-notch work, on time and within budget. Demonstrated effectiveness is one of the keys to attracting more donors, especially governments or foundations that can fund both projects/programs and operating costs. Having a strategic plan, business model and a development strategy are one sign of a well-managed CSO and elements of a broader financial viability plan. Other important elements common to groups with a high degree of professionalism and promising financial future include: • A Board of Directors that is engaged and effective both in guiding the organization (including

ensuring seamless transitions between leaders) and in mobilizing resources. It’s always the case that a board that includes highly respected and/or well-connected individuals can be extremely beneficial vis-à-vis the group’s financial prospects, especially if they are knowledgeable about and committed to the organization.

• Leadership should be able to both communicate a vision and create a strategic plan or model that

supports the organization’s core mission. Without a solid strategic plan the CSO is vulnerable to having donors impose their priorities or agenda. People in leadership positions should have at least basic management skills and be capable of assessing the organization’s strengths and weaknesses – and acting to build on the former and address the latter.

• Finance staff, in addition to basic accounting skills, some personnel should be able manage grants,

calculate overhead, invest and carefully manage an endowment or sinking fund (for groups fortunate enough to have to worry about such things), and devise bridging techniques to buffer the organization from the ebbs and flows of donor assistance.

• Staff training and retention are key ingredients in financially viable organizations. Upgrading the

skills of paid staff (and volunteers) has the double advantage of raising the CSO’s overall capacity while providing employees an added incentive to stay. In addition to contributing to greater continuity and stability, this accumulated expertise can translate into a more effective operation. Foreign-donor funded groups generally offer higher salaries and more training opportunities, clear advantages in

14 See NDI Citizen Participation Team, “Review of Partner Relationships with GONG and Transparencia” (November 1, 2004).


attracting and keeping talented staff, although the pay-scale may be unsustainable in the absence of donor financial support.

• Marketing and communications capacity is essential. A CSO’s fundraising potential can be greatly

enhanced by gaining wider public recognition through savvy use of media and skilled public outreach. For example, Cedro in Peru was effective in gaining access to government decision-makers and successful in mobilizing resources because it established a reputation for quality work early on through well-publicized opinion surveys, publications placed in respected journals, and community outreach. This higher profile also brought in volunteers, freeing resources that would have been spent on staff salaries.

Lobby for a More Conducive Legal Environment. As discussed at length in Section III, a favorable legal framework is the cornerstone of CSO financial sustainability. The prospects for economic viability of the CSO sector – especially for the harder core sub-sector of democracy and human rights groups – are dim where the prevailing legal and regulatory framework is weak or hostile to civil society development. CSO activists have a powerful incentive to get the enabling environment right and this often requires collaborative efforts to persuade executive branch decision-makers and legislators that are indifferent or hostile to civil society. There is no shortage of successful cases of CSOs coming together to effect changes in the legal and regulatory environment, often with financial and technical assistance from foreign donors. In every region, CSOs have formed coalitions, sometimes composed of very different types of groups, to promote legislation (e.g. CSO registration; laws on charitable giving) that advances collective interests. In some instances, the groups have been invited to help craft legislation while in others they have had to battle to influence its content. Of course, CSOs have also learned that enactment of legislation is often not sufficient; they must maintain pressure on the authorities to implement sound legislation and in general monitor compliance. Even in countries with governments that have enacted and faithfully implemented supportive laws, there is always more that could be done to facilitate individual and corporate giving and to improve the legislation. For example, according to the Venture for Fundraising (Philippines), the national tax law permits individuals to claim contributions to non-profits as tax deductions, but only for the first $50 they donate. Because the amount of the deduction is so small and because the amount of paperwork involved is tedious and cumbersome, would-be larger donors are dissuaded – although the laws on corporate giving are much better. Develop Relations with the Government. Where the political climate allows and where the organization’s core mission will not be compromised, CSOs should pursue partnership opportunities with national or local governments. CSOs in advanced democracies receive the majority of their funding through government grants and contracts, not through philanthropy. Even in less developed democracies, in certain cases public interest organizations can secure government research contracts where a government agency or department is interested in a particular issue-area and open to advocates’ policy recommendations. For the subset of CSOs that are the focus of this study, think tanks and research-oriented groups have both a better chance of securing government support than do more activist organizations and have less concern about compromising their independence and mission by carrying out research or providing public policy advice to government officials, although even here the danger of waning objectivity and cooptation are present. For other types of pro-democracy advocacy organizations and certainly for watchdog groups that invariably have a more contentious relationship with the government – there is a need to balance any financial support/contracts from the government or just simple links with various operating units that


could yield access to and influence with policymakers – against the possibility of losing autonomy and/or credibility with constituents or the general public. In authoritarian settings these concerns seldom arise since democracy/human rights advocacy organizations are unlikely to seek or to receive government funding. In general these CSOs should forego direct government support) so as to maintain their independence, objectivity, credibility and effectiveness. Altering core principles in order to conform to government (or foreign donor) preferences can be costly in both political as well as financial terms. Ultimately, an organization’s biggest asset in the quest to become financially viable is a stellar reputation. Short-term gains derived from accepting government support can undercut longer-term fiscal solvency by eroding hard–won strong public standing. Income-Generating Activities. For reasons examined previously, pro-democracy advocacy and watchdog organizations are in a much weaker position than other types of CSOs to become financially self-sustaining through revenues from services and products. That said, some public interest groups have managed to increase significantly the amount of revenue gained through economic enterprises, most often through ventures that are closely related to their core mission. Laws covering CSOs usually require such a direct link for tax exemption purposes. But even where permitted, CSOs should avoid for-profit activities where the product or service is tangential or unrelated to the organization’s purpose and could distort its mission. Different types of successful “social enterprise” activities: • Fees charged for relevant services such as advocacy training programs, seminars, website hosting,

and consultancies. In Slovakia, the Institute for Public Affairs (IVO) earns income from consultancies in financial, information and institutional management. The Egyptian NGO Support Center does consulting work for clients such as GTZ, CIDA, the World Bank, and UNICEF.

• Product sales, usually publications. These can include textbooks, studies, policy briefs, reports,

manuals, and directories. The IVO (Slovakia) earns income from the sale of in-house publications, and has developed innovative ways of selling their products through a website with an e-shop that is also available in English. They also have negotiated a contract with the CEE Online Library to offer their publications, and have expanded domestic and international distribution. There is a trade-off; public awareness of an organization’s achievements, issue positions, and general track record will be seriously limited if publications are only distributed through sales. Information about the organization’s achievements and activities should appear in annual reports, press releases and promotional materials widely disseminated without charge.

• Contracts or subcontracts with bilateral and multilateral donors. USAID and other donors have turned

to former grantees or technical assistance recipients to perform various assignments -- not as an alternative way to continue providing financial support but because these organizations have the requisite skills to carry out the work. Sometimes these CSOs are direct spin-offs of donor-funded implementing partners but they cannot count on a steady stream of work from their former benefactor and have to diversify their client base. Philippine Center for Investigative Journalism (PCIJ) in the Philippines, Participa in Chile, several groups in Central and Eastern Europe and elsewhere have made the transition from USAID/other donor grantee or aid recipient to service provider for those same agencies. Such a transition presupposes that the donor will continue to stay engaged in the country even if the nature and level of support undergoes major changes.

• Creation of a for-profit division. This goes well beyond other revenue-generating options and can be

particularly useful to circumvent poorly crafted or overly restrictive tax laws that prohibit or impede legitimate not-for-profit organizations from supplementing their income. This was the route taken by


a Ukrainian CSO, which had to establish a for-profit affiliate in order to sell its publications. The not-for-profit group “donated” the material to the profit-making arm. This form of “cross-subsidization” can be efficient but also runs all sorts of risks beginning with compliance with often vague tax laws and the familiar concern about straying from the central mission. The Research Team was told about instances of successful for-profit wings becoming the focal point of a group’s activity at the expense of its advocacy work, notwithstanding the welcome increase in resources that accrued to the non-profit side of the organization.

• Creation of spin-off organizations. Donor-funded implementing partners or donors themselves can

create spin-offs that may be better positioned to tap into indigenous and foreign resources. The Open Society Institute’s Romania foundation decided to spin off many of its individual program components into separate organizations, most of which have fared quite well in attracting host government and other funding. Importantly, these new entities were aided by continued but progressively declining financial support (using a changing matching formula) from OSI. Again, spin-off strategies are more likely to result in greater financial viability for the new entity when it’s a think tank or service delivery organization that is not engaged in aggressive advocacy and monitoring.

• Income tax allocations. As detailed in section III on the enabling environment, there are a number of

different blueprints whereby a portion of tax, lottery or other public revenues are set aside for CSOs. This framework is most highly evolved in the countries of Central and Eastern Europe. Other parts of the developing world are further behind in putting in place the constellation of laws and regulations to facilitate public support for CSOs.

• Earned interest and dividends from investments. Endowments are one way that groups can earn

investment income but they are far from common. There are other ways. The IVO in Slovakia earns interest on overnight deposits and on an investment fund for non-profits, as well as through currency exchange. The Stephan Batory Foundation in Poland uses real estate donated by OSI to earn income from office rentals while the value of the building also appreciates. The Egyptian NGO Support Center uses its website as an investment property by selling advertising space.

Develop a Corporate Outreach Strategy. Despite the challenges for advocacy and watchdog groups in securing funding from the private sector, the business community remains a potential source of support, particularly in countries where there is a large inflow of foreign direct investment. Private sector support may come through CSO-corporate partnerships such as those created by USAID’s Global Development Alliance, corporate philanthropy, in-kind donations, matching grants, volunteers and pro bono technical advice (e.g., training/cooperation in areas such as marketing, public relations, and business development) etc. A strategy to leverage these sources should offer different levels and types of giving options, such as endowments, named gifts, and targeted gifts. While international firms traditionally have geared their philanthropy toward humanitarian causes, increasingly they have been willing to support groups engaged in aspects of democracy building. Establishment and enforcement of the rule of law is one area where the goals of activists and the interests of the business community converge. This may be especially true of the small business sector, which in most developing countries lacks the clout of large, well-connected business interests and is more dependent on a level playing field in terms of the application of laws so as to compete effectively in the larger economy. Protection of intellectual property rights may be another area in which democracy advocates and the business community can find common ground. Financial support from the business community to democracy-related advocacy groups is still a relatively new idea and whether this emerges as an important source of funding remains to be seen, although Western firms have been shedding some of their long-standing reluctance.


In Slovakia, the IVO partners with large national and multinational corporations (including the local divisions of Hewlett Packard, U.S. Steel, and Philip Morris) on a German Marshall Fund grant program that passes funds through IVO to other CSOs. Based on its sound management of this grant program, the IVO is currently seeking corporate support for its own internal projects. Similarly, the Czech VIA Foundation partners with Philip Morris, Levi Strauss, Proctor & Gamble Unilever, Citigroup, Pfizer, and Juniper Networks, plus domestic corporations, on community development projects. In poorer countries, CSOs have devised creative ways to tap into local businesses, at the national and even more so the municipal level, where tripartite arrangements bringing together representative from the private sector, CSOs and local government hold promise. Take Advantage of Non-Financial Contributions. This report makes numerous mentions of various forms of non-financial contributions as a potentially important part of a larger financial viability strategy for CSOs. Volunteers represent one compelling example, assuming a group is sufficiently equipped to attract them and put them to productive use. Thinking beyond individuals, whole communities can become a source of non-financial support. Numerous USAID and other donor programs to strengthen local governance or to bolster participation at the local level provide financing for community-determined small infrastructure or other projects on the condition that the city/town also contribute, usually in the form of labor or office space and equipment. The local business community can also be a source of modest support for these projects. Network with Other CSOs. Organizations that are financially vulnerable can become more viable by partnering with other, more established CSOs. Rural community-based CSOs, which generally do not have equal access to foreign donor or capital-based funding opportunities, may survive by forming cooperative alliances with like-minded organizations in larger cities. Membership in national or international civil society networks or in intermediate service organizations, where available, not only can raise the visibility of individual groups and open up links to foreign donors and policymakers, it can also provide capacity training, access to volunteer support, and assistance with resource mobilization. Networks can be transmission belts for best practices and other helpful information and arrange mentoring by more established groups of nascent ones. The Inter-American Democracy Network promotes cooperation among members through sub-granting programs that fund collaborative strategic projects in areas such as participatory budgeting and transparent local democracy. Harness the Diaspora. Financial donations and membership contributions may be far more available from Diaspora communities than from domestic sources owing to higher living standards enjoyed by the emigrants (in most cases), who also continue to follow events in the homeland. In some Diaspora communities, philanthropic giving is very well established and institutionalized, providing opportunities for CSOs to reach out for financial support. The Jewish community in the U.S. is frequently cited for its fundraising prowess vis-à-vis financial support for both state institutions and non-governmental groups in Israel. Likewise, the Armenian community in the U.S. and France has been highly successful in raising comparatively large sums to help support family and friends in the former Soviet Republic, sometimes via Armenia-based CSOs. The VIA Foundation explored the charitable interests of various Czech-American communities in the U.S. and set up an annual giving program, the VIA Foundation Czech Heritage Society. And although Kosovar Albanian communities in the U.S. and Europe are not especially prosperous, they have been successfully tapped for contributions to CSOs in Kosovo. Many other immigrant communities have strong ties to a homeland – evidenced by the flow of remittances that can be a significant source of national income – generating promising opportunities to build on these linkages to steer funds to effective but financially vulnerable democracy and human rights groups in those countries. It remains the case that local groups engaged in humanitarian activities have an inherent advantage over advocacy and watchdog groups in terms of attracting support from Diaspora


communities. But that may be changing as men and women who have fled developing countries for socio-economic and especially for political reasons and settled in democratic countries, should be more receptive to fundraising appeals from organizations pursuing democracy and human rights-oriented agendas.

FOR DONORS AND IMPLEMENTING PARTNERS: SUCCESSFUL STRATEGIES TO ASSIST CSOS IN ACHIEVING FINANCIAL SUSTAINABILITY

A number of the strategies and mechanisms employed by CSOs to become financially viable are far more likely to be successful if they also are integrated into approaches pursued by donors and implementing partners. A good example of donors promoting and reinforcing a strategy devised by CSOs revolves around the critical condition of the enabling environment. It is up to the leaders of the indigenous civil society sector to organize an effort to press for a legal and regulatory framework conducive to CSO financial viability but there is clearly a significant role for donors both in lobbying the host government and providing support to the CSOs to wage an effective campaign to enact and enforce the desired legislation. Institutional Development Assistance. Many donor-funded civil society strengthening programs give short shrift to institutional development, focusing instead on short-term goals (that often reflect donor priorities) that may have little to do with building organizations with staying power. Civil society support programs should include from the outset training in management, financial and human resources administration, and fundraising. The latter should emphasize the various dimensions of an integrated fundraising strategy and how to capitalize on the organization’s assets/strengths. The Stefan Batory Foundation (Poland) and VIA Foundation (Czech Republic) both offer institutional development grants to local CSOs, in Batory’s case through open competition. The Inter-American Democracy Network provides training and technical support in leadership and administrative skills necessary to become financially viable through its online Virtual Training Campus. Some of these courses are offered without charge, others involve a nominal fee that is used as supplemental income for the Network. Partners for Democratic Change designs and executes a sustainability strategy with each center that it establishes. It creates the CSO with an unrestricted core grant, and then works very closely with the center on institutional development (fundraising, management skills, project management) over the course of the multi-year grant. Training during this period is based on an initial assessment of country conditions and realistic expectations for financial viability. With assistance from the project implementation staff, the target organizations should be required to create strategic plans that address funding needs and potential sources, looking at least five years beyond the project’s end date. CSO leadership should be trained in grants management and in crafting presentations for private donors. Where appropriate, the donor should consider providing short-term technical assistance for a management consultant or fundraising expert. CSO representatives and donor implementing partners with whom we met stressed the limited value of generic training sessions compared with more intensive sessions customized to the needs of individual organizations. The problem, of course, is funding. Such a labor intensive approach to ensuring targeted groups have the skills they need to be successful in raising funds can get quite expensive. It also entails the likely trade-off of working with a smaller number of groups – a trade-off the Research Team thinks is worth making if it can reasonably be expected to yield a core set of effective, more financially sound CSOs. A review carried out by the National Democratic Institute of some of its programs concluded that a very close


working relationship with a given organization over an extended period of time, an approach it characterized as stewardship, produced the best results in terms of CSO sustainability.15 Before starting a program, donors should assess the country context and economic situation, local capacities, and the level of skills among CSO staff. This assessment should be used to generate empirically-grounded expectations about the prospects for advocacy and watchdog organizations’ financial viability and what it will take to achieve that goal. Technical support should be given in successive stages and tailored to the level of organizational development of the recipient groups – advanced for some, more elementatry for others. Donors also should work more strategically with recipient CSOs on internal accountability, rather than impose standards without offering training on how to meet them. One approach would be to use service contracts as learning experiences. Offer contracts or sub-grants to local CSOs through competitive bidding, then follow through by working in tandem to accomplish mutually agreed upon performance goals, meet regularly to review progress, and provide technical assistance where needed if it becomes clear that the organization is failing to meet those standards. Given the labor intensive nature of the strategies outlined above, it may make sense for donors to provide more assistance to a much smaller number of CSOs, chosen based on a rigorous assessment of their organizational sustainability potential. This would entail engaging in longer-term and closer relationships with targeted CSOs, providing them with a broader range of intensive training and technical assistance, including help in expanding constituencies, improving public image, and identifying possible funding sources. While this approach has the downside of donors selecting “winners” and is extremely labor intensive, the Team concluded it is preferable to untargeted blanket programs that cannot hope to provide the intensive, multi-year technical assistance these CSOs require – if the goal is financial viability as opposed to other possible objectives. Provide Direct Support for Fundraising Activities. CSOs often lack the resources for such activities as creating a donor database, producing pamphlets, or conducting direct mail campaigns. Although it would appear unlikely that a CSO in a developing country could survive on local contributions, small donations do add up and it is often worth the effort to pursue individual charitable giving. This requires that the CSO be able to undertake the aforementioned activities: develop and cross-reference a database, produce publicity materials, and distribute a large direct mailing. Donors such as USAID could provide small grants to assist organizations in carrying out fundraising activities – as an investment in the CSO’s future sustainability. VIA Foundation provides direct technical assistance in this area, by training local fundraisers, publishing a “Guide to EU Funds for Nonprofit Organizations,” assisting CSO staff in applying directly for EU funding, and supporting projects that could be eligible for EU funding. The Venture for Fundraising in the Philippines directly assists CSO fundraising through its research, such as a household survey on charitable giving; market research on who is receiving philanthropic donations and why; and how remittances can be used for community development. Notify Early and Prepare Well in Advance. Do not wait until the end of the project cycle when funds are drying up to begin to prepare the CSO for termination of funding. Communicate at the start that funding will end, and build toward financial viability by incorporating technical assistance and skills

15 NDI Citizen Participation Team, “Creating Developmental Partnerships with Local Organizations and Using Sub-Awards to Promote Organizational Development” (2005).


training in management, public relations, communications, fundraising, and strategic planning skills from the outset. Exit strategies should be developed in consultation with recipient CSOs, and the donor should walk the organizations through the process of developing a plan. Plan the withdrawal process so that each stage builds on capacities developed in the previous stage, beginning with strategic planning and setting benchmarks. Involve all members of the organization in the process. It is essential to tailor phase-out assistance to the particular needs of the CSO and to use a combination of appropriate mechanisms. The timing of an exit strategy should vary with a CSO’s organizational capacity, but donors should count on providing at least five years to get it to a point of overall sustainability. Warn the organization as far in advance as possible prior to close out (if not done at the start). OSI as a matter of policy gives a minimum of three years warning of phase out. This strategy proved successful in tying off IVO in Slovakia; OSI made clear at the outset that it would decrease funding by fixed percentages and provide support only if the organization secured other sources of funding. The phase-out was implemented according to plan. IVO diversified its donor base in response to the incentive structure put in place by OSI. Another case of successful advance notification and planning is Corporación Participa in Chile, which came into existence through a USAID grant that was conditioned on the development of a sustainability plan. The amount of U.S. funding was decreased each year to be replaced by own-source funds. Participa prepared itself by conducting an organizational assessment two years prior to USAID’s phase-out, analyzing current and possible future missions. They decided to expand their range to include new activities, but still remain within the core mission. USAID provided institutional development support that enabled them to strengthen staff administrative skills and to bring in a management consultant who assisted them in developing a strategic plan that guided them through the cessation of foreign donor support. USAID also provided help on how to raise matching funds – mainly through membership and corporate philanthropy. Encourage Public Interest/Service Hybrids. Expecting democracy and human rights CSOs in poor countries to become financially self-sustaining while only doing advocacy and watchdog work is generally unrealistic. The bulk of development resources in such countries, whether from foreign donors or the host government, tend to be in the humanitarian/social services sphere, broadly defined. Groups would be remiss if they did not explore opportunities to combine these two potentially compatible orientations. Having a service delivery component addresses one of the principal weaknesses of advocacy and watchdog organizations seeking greater financial viability: a tenuous link with constituents. Provision of social services that have a direct impact on the quality of peoples’ lives (e.g. access to potable water, sanitation, and health facilities) can be a powerful complement to provision of public goods such as government respect for human rights. Community-based organizations may be particularly well positioned to take on this dual role of service provider and advocate. They tend to enjoy high credibility among the local population, an enormous asset in efforts to influence policy. It also is worth noting that groups that begin as service providers can over time transform into advocacy-oriented organizations, usually because they find themselves needing to press for more resources to meet beneficiaries’ needs and/or they see the necessity of attacking the root causes of social and political problems rather than merely treating symptoms. Create or Promote Institutions that Support Many CSOs at Once. • Community foundations. The community development foundation in Banska Bystrica, Slovakia is a

successful example that began as a local initiative. Its work attracted international funding from the Charles Stewart Mott and Rockefeller Brothers Foundations, support from which has gradually been


replaced by domestic sources. Another example is the Charity Aid Foundation in Russia that assists schools in several communities.

• Local private grant making foundations such as Fundación Corona and Fundación Carvajal in

Colombia, Stephan Batory Foundation in Poland, VIA Foundation in the Czech Republic and many others in every region of the world.

• Intermediate service organizations (ISOs) such as the Egyptian NGO Support Center, the Venture for

Fundraising in the Philippines, and the Social Service Network (RSS) in Colombia, which UNDP, the EU, and SIDA created to assist small CSOs in conflict areas. Using funds from the Charles Stewart Mott and Ford Foundations, the Stephan Batory Foundation established a three-year sinking fund for ISOs that support CSOs in Poland.

• Regional or cross-regional CSO networks such as the Inter-American Democracy Network, OSI’s

local governance network, and the African Liaison Program Initiative are mutually supportive, even when they are composed of organizations working on similar issues and therefore competing for the same funding sources.

Help Ensure a Soft Landing with a Tie-off Gift. • Endowments where the regulatory system permits. There are concerns that once an endowment has

been established the donor loses control over how the funds are managed and how they are spent, that an endowment gives the recipient CSO a sense of entitlement and relieves it of the need for accountability to funders, and that it unfairly privileges that CSO over other local organizations. Despite these legitimate concerns, the benefits of endowing a local foundation or ISO (as opposed to an individual organization) outweigh the potential disadvantages. The terms of the endowment can place requirements to ensure accountability. The Stephan Batory Foundation is largely sustained through a well-managed endowment left by OSI, which has enabled the former to provide needed support to an array of Polish CSOs.

• Another option would be to encourage U.S.-based corporations to create endowments in countries where they do business to promote democracy-related goals that are demonstrably in their own interest such as respect for the rule of law. Rather than channel their philanthropy through corporate foundations, it could be more efficient for businesses to pool their resources and form endowments.

• Purchase and donate assets such as office space and income-generating rental property. Purchasing

office space from the beginning of an operation goes far toward ensuring CSO financial sustainability.

• Financing arrangements such as a purchasing stock or other instruments in the CSO’s name, setting

up investment funds or certificates of deposit, and establishing revolving loan funds. Build Public-Private Bridges. Donors can create linkages between CSOs and local or national governments by funding joint projects. Where appropriate (see discussion ‘Develop Government Relations’ in the previous section) international aid agencies can use their funding and convocation powers to facilitate dialogue between local governments and CSOs that would increase the CSOs’ acceptance by and capacity to work with government and the possibility of securing government contracts. Donors should help promote local corporate philanthropy by publicizing corporate contributions or holding awards ceremonies to recognize major corporate donors. Another idea, used by the Egyptian


NGO Support Center, is to award small grants to corporations for sponsoring a CSO project in an area of advocacy that resonates with the company’s public image. Building connections between CSOs and the private sector also entails educating local businesses in corporate social responsibility and the benefits of supporting CSOs. APREDE, a USAID program in Guatemala aimed at preventing young people from joining gangs that is being implemented by Creative Associates, receives only 40% of its funding directly from USAID. The balance comes from a public-private partnership through GDA (Global Development Alliance). In this case, the program’s relevance to government and corporate interests attracted funding which may not be typical of most advocacy work.

BROADER LESSONS FOR DONORS

Keep Expectations Reasonable. A constant theme throughout this report is the need to maintain realistic expectations about the financial viability of pro-democracy advocacy and watchdog organizations. Given the sobering track record of many such groups in the developed world, where the opportunities for securing support from government, the private sector, and individuals, is considerably higher, there is every reason to have modest goals for CSOs in poor or transition countries. This does not mean that groups should be discouraged from pursuing this laudable objective or that donor programs should discontinue training and other technical assistance dedicated to progress in this sphere. To the contrary, with the caveat that the goal of greater fiscal solvency ought not to come at the expense of effectiveness with respect to advancing an organization’s core mission, CSOs and donors should strive for sustainability including on the financial front. In addition to enhancing the prospects for organization longevity, reduced dependence on foreign donors increases the chances of local ownership over democratic political reform and yields a corresponding diminution of donor-driven priorities. The bottom line is that while financial sustainability is almost always desirable, it is often not possible. The Research Team has chronicled how the harder core CSOs that are the subject of this study face serious impediments in this area; if donors have concluded that these pro-democracy and human rights CSOs engaged in pointed advocacy and watchdog activities are essential to the democratic consolidation of the target country then the U.S. and its allies should be prepared to provide the necessary financial resources to keep this civil society sub-sector going. Accepting this logic would still lead to some difficult logistical challenges, for example, in cases where USAID has closed up shop. There are post-presence and other mechanisms that can compensate up to a point. But the inescapable reality remains that for advocacy and watchdog groups, full financial viability that goes beyond simply diversifying the number of foreign donors is a rarity and should not guide expectations on the part of the donors or the CSOs themselves. The situation faced by OMAES in Mali is a case in point. The group is reliably reported to have multiplied and diversified its donor base but still depends heavily for funding on USAID and very likely would fold if USAID pulled out. The majority of countries in which Western donors operate lack the resources to sustain these public interest organizations. Cash-strapped national and local governments, low levels of socio-economic development, weak business sector, no tradition of philanthropy, and an inhospitable legal and regulatory environment add up to poor prospects for financial viability. Donors need to be prepared for the likelihood that no combination of innovative mechanisms and strategies will prove sufficient to ensure the long-term financial wellbeing of these democracy and human rights organizations.


In general, “niche” CSOs with specific aims such as fair labor laws for indigenous women are less attractive to donors than those with a broad focus such as human rights and democracy, while groups that advocate for locally unpopular causes are not likely to find sufficient domestic donors to support their work. These organizations will probably require ongoing international assistance and that should be factored into the initial decision to support them. Even for the “most likely to succeed” public interest CSOs, it is counter-productive and exceedingly unrealistic to expect that they will be self-sustaining by the end of a project cycle. Fund Overhead. While no panacea, covering overhead costs would make a big difference in the financial shape of many CSOs. Grants and other forms of financial support should permit groups to cover administrative costs. The tendency of donors to strictly limit the amount of overhead that can be charged to a grant weakens CSOs by forcing them to divert valuable time and resources to chasing operating funds – often at the expense of the their advocacy work – and to hide operating costs in program lines. Groups that have proven effective in lobbying legislators or building a strong grassroots constituency frequently can attract funding to carry out specific programs but still face a terrible time securing resources to fund day-to-day operations. Providing additional funds to cover overhead/operating costs is likely to involve the unwelcome trade-off of support to fewer groups as overall assistance budgets decline. Most decision-makers could be expected to countenance such a trade-off if they were confident it would produce a more effective and financially viable sub-sector of advocacy and watchdog CSOs. But as with any plan that calls for concentrating resources on a smaller number of organizations, the donor or implementing partner is put in the position of having to pick would-be winners – groups that are projected to register results as a consequence of the support they receive. This can be extremely dicey, though the risks can be mitigated somewhat by targeting groups that have an established track record and perhaps have shown themselves innovative and adept at attracting resources without foreign donor support. Support CSOs that are Respected by their Constituencies. Organizations led by individuals who are well known and highly regarded in the foreign aid community tend to be successful in attracting funding, but often are both donor and capital centric. They make little effort to create or expand the CSO’s base of support and are attentive to donor priorities at the expense of cultivating homegrown support grounded in local needs. This may be less of a problem in the case of think tanks where the quality of policy-relevant advice and access to government decision-makers is paramount. But from the standpoint of building organizations that have political clout to press the government, a disconnect between the organization and the citizenry is a recipe for failure. The phenomenon of “Me Alone NGOs” (so-called MANGOs) is an extreme form of the tendency for a well-regarded or charismatic individual to form a group without any discernible constituency and little prospect for having a meaningful impact. Moreover, the group stands little chance of outliving the tenure of the founder. Regardless of whether one uses the term constituency or membership (the latter implying a more formal relationship, probably involving the paying of dues), a CSO must reach out to those in whose interest it works if it wants to stake a legitimate claim to represent them. In some cases, a CSO’s base of support will be weak, incipient, diffuse, or difficult to locate – particularly where the organization advocates on behalf of an unpopular minority or cause. In other cases the most visible constituency may be the donors themselves, as with a "critical moment" CSO that exists only for a short period of time to promote a specific piece of reform legislation.


As well as being recognized and respected by stakeholders, CSOs must also become and remain accountable to them. Indicators of accountability might include: • surveys that measure the degree to which a constituency is aware of and satisfied with the activities of

the CSO; • existence, expansion, and routine maintenance of a membership database; • regularly held elections to leadership positions in the CSO that are open to the membership; • evidence that members or advisory boards have some degree of decision-making authority; • measurable responsiveness to the needs of the constituency. Work with existing local CSOs wherever possible, rather than create new ones that run the risk of being viewed as creatures of a foreign donor and lack credibility – and indigenous funding prospects – with the local population for that reason. Working with existing groups increases the likelihood that funded activities will reflect local needs, conditions and priorities, rather than the donor's agenda or bureaucratic structure. When choosing local partners with which to work on advancing democratic reform, it may be preferable to approach groups that are already engaged in advocacy and have demonstrated staying power and effectiveness, even if their expertise is not in the democracy and governance sphere, rather than target marginal or poorly run organizations that have the desired agenda but little prospect of becoming financially viable or making a difference. At least some USAID implementing partners have found it advantageous to pursue groups with strong track records on the financial viability front and explore with them the possibility of broadening their mission and orientation to include a focus on democracy and human rights. Undoubtedly there is a risk that the targeted group will not succeed in taking on the added challenge or worse, that it will register less impact in its original field of endeavor due to confusion stemming from a now expanded mission. Depending on the circumstances, the risk can be worth taking because the potential payoff – a financially sound group effectively engaged in pro-democracy advocacy/watchdog activities – can be quite high. Avoid Funding Beyond the Local Capacity to Replace. In general, donors should provide funds only in amounts that can conceivably be sustained through local source contributions once the program terminates and the donor leaves. Funding levels for at least the final year of the grant period should not greatly exceed the amount that could be replaced locally, whether from government or private sources. This is not to suggest that donors should refrain from funding CSOs in poor countries, rather that they should avoid a familiar scenario in which a major donor comes in with a large sum of money and then disappears leaving structures and staffs that are much too expensive to support by other means. An exception may be in the case of an endowment, wherein a donor provides a large amount of money with the organization usually obligated to spend annually no more than the amount of interest earned. There also may be instances in which the donor ramps up funding for a particular organization or set of groups fully recognizing that the groups will have to downsize with subsequent reductions in funding. Financial sustainability may still be possible but not at the temporarily higher funding level. Donors would be well advised to assess the economic context and potential sources of eventual funding, and use that information to determine what level of financial support would be appropriate. This could mean distributing smaller amounts spread over a longer period of time, calibrating annual budgets to match the CSO’s internal management and absorption capacities, and decreasing the funding according to a fixed schedule while identifying replacement sources to prevent a sudden catastrophic loss of income.


Do Not Dictate the Agenda. Donors should be very careful not to impose their own agendas on local CSOs. Project goals and objectives should reflect the priorities of the recipients, while also maintaining the donor’s standards and guidelines – and providing training and ongoing support to meet those standards. In practice, it is sometimes difficult to know whether a group that receives outside funding is simply following that donor’s agenda. One admittedly imperfect test is whether a group pre-dated the onset of foreign assistance programming. But even here it may not be clear whose agenda is being pursued. In the former communist countries, where advocacy and watchdog CSOs were all but non-existent (Helsinki Committees being the most notable exception), did the launching of democracy building programs by the U.S. and European partners constitute an imposition of Western values and priorities or merely provide support for a long-suppressed indigenous movement? The larger point is that from the standpoint of championing the goal of CSO sustainability, donors would be well served to emphasize local ownership of the democratic reform process. While the availability of donor funding is sure to bring out lots of people – well-intentioned and not – eager to take the money to try to advance democracy-strengthening goals, it is up to the funders to ensure that the recipient of international largesse has an identifiable constituency, even if it is diffuse and inchoate as is frequently the case with democracy and human rights groups. Many multilateral lending organizations such as the Inter-American Development Bank and a number of UN agencies have begun including “stakeholder analysis” – a more institutionalized process of consulting with CSOs mostly at the project design phase and sometimes in devising overall country strategies. This is a welcome development. Unfortunately, the CSOs are generally not compensated for the time they spend contributing to this process and international donors tend to consult with the same well-known set of organizations in each country. Sometimes the process can seem like a perfunctory exercise that allows donors to “check the box” on consultations with citizens. In addition, it is frequently not clear to the groups that participate whether and if so how their advice and feedback was taken into account. Bilateral development assistance agencies and international PVOs are less constrained by the need to work directly with the host government than are multilateral banks, which rarely work directly with civil society organizations. As such, these donors have more latitude to include input from local CSOs in shaping civil society programs to ensure they reflect local concerns and priorities. Harvest USAID’s Own Experience. The precipitous decline in USAID evaluations of all kinds (and especially of final evaluations) over the last decade has to be seen as reflecting a general lack of Agency interest in learning from its own experience (see figure below). USAID has funded countless projects and programs and along the way accumulated many examples of CSO sustainability that are eminently worthy of chronicling and analyzing for replication and inclusion in the Agency’s stock of knowledge for promoting democracy. But the diminishing importance of evaluations over the past several years, a period that has seen the expansion of democracy support efforts, means that these lessons have gone essentially unrecorded and thus lost to USAID’s institutional memory. Recently departed Administrator Andrew Natsios had called for a renewed emphasis on evaluations, but what can be done to ensure that this exhortation will go beyond the rhetorical level in an Agency (and a DCHA/DG Office) already stretched thin toward providing field support to its operating missions? If USAID is to advance its knowledge about inducing CSO financial (and other kinds of) sustainability, it must capture the lessons of its own experience, which it presently does not do. Both final evaluations and – in a smaller set of cases where evidence seems to justify it – post-program evaluations should become part and parcel of the Agency’s standard operating procedure. And since field missions have the incentive to invest in evaluations that will largely benefit practitioners elsewhere, the impetus for such efforts will have to come from USAID/Washington. The cost would be relatively small, and the benefit to our knowledge of making harder core public interest advocacy would be huge.


0

100

200

300

400

500

600

700

800

900

Num

ber o

f Eva

luat

ions

1990 1992 1994 1996 1998 2000 2002 2004

ALL USAID Evaluations, FY 1990-2005

All Evaluations: includes Final Evaluation Report; Evaluation Summary; Special Evaluation;Audit Report; Other USAID Evaluation; Program/Projeect Evaluation Guide; Non-USAIDEvaluationFinal Evaluations

Source: USAID, DEC database


V. ANNEXES


ANNEX A: LIST OF INTERVIEWEES

Organization Name Title

USAID Jerry Hyman Director, DCHA/DG David Black DCHA/DG Andrew Green Democracy Fellow,

DCHA/DG Jeff Malick Director, AED/DIS Peter Burke Manager, DGIU Liz Hart Senior Anti-Corruption

Fellow, DCHA/DG Carol Sahley Democracy Fellow,

DCHA/DG Judy Gilmore Director, Private

Voluntary Cooperation, DCHA/PVC

Neil Levine Chief of Governance, DCHA/DG

Margaret Sarles Director, Strategies DCHA/DG

Chris Runyan Program Analyst, DCHA/PVC

David Timberman Former DG Advisor, A/NE

Mara Galaty E&E Kevin Brownawell Program Manager, E&E Michael Eddy DG Officer, Macedonia

OTHER DONORS: BILATERAL/

MULTILATERAL

UNDP Alejandra Pero

Programme Specialist, CSO Division

World Bank Stephen Commins Senior Civil Society Specialist, Global CS Team

World Bank Reidar Kvam Senior Social Scientist, South Asia Social Development Unit

IDB Janine Perfit Senior Civil Society Specialist, Sustainable Development Department

NED Chris Sabatini Senior Program Officer, LAC

IRI Chris Sands Director, Strategic Planning and Evaluation


OTHER DONORS:PRIVATE

Ford Foundation Michael Edwards Director, Governance and Civil Society Unit

OSI George Vickers Regional Director for Latin America

OSI Jonas Rolett Liaison with OSI Foundation in Central and Eastern Europe

Rockefeller Brothers Steve Heintz President The Asia Foundation William Cole Charles Stewart Mott

Foundation Shannon L. Lawder

IMPLEMENTING PARTNERS

Partners of the Americas

Cynthia Smith Director, Civil Society

InterAction Patricia MacWilliams Committee on Development Policy and Practice

InterAction Sylvain Browa Program Manager, Africa Liaison Program Initiative

Winrock International Christie Getman Monitoring & Evaluation Specialist

Freedom House Jennifer Windsor Executive Director Pact Connie Paraskeva

Senior Technical Advisor, Civil Society

Pact Elizabeth Kummer Program Officer, Capacity Building Services Group

Creative Associates David Holiday Chief of Party, Civil Society program, Guatemala & El Salvador

ICNL Doug Rutzen President CAP Joan Goodin Associate Director IFES Al Decie Program Manager –

Caucasus, Europe & Eurasia Division

World Learning Preeti Shroff-Mehta Director, Civil Society and Social Change Programs

Bonnie L. Ricci Program Director


Julio Ramirez Director, Education Programs

AED Michael Kott Vice President and Director, Center for Civil Society and Governance (CCSG)

Synergos Institute Shari Turitz Director, Strengthening Bridging Organizations Program (community foundations)

ARD Stevens Tucker Senior Associate Creative Associates Kim Clark Senior Associate Solidarity Center Mark Hankin Coordinator for

Program Development SPECIALISTS John Hopkins

University Lester Salamon Director, Center for

Civil Society Studies RTI Gary Bland Stanford University Larry Diamond International Crisis

Group (ICG) Mark Schneider

MSI Joel Jutkowitz CSOS Transparency

International Cobus de Swardt Global Programmes

Director, International Group

Partners for Democratic Change

Jennifer Lofing Director of International Programs

Partners for Democratic Change

Megan Ryan

Associate Director of Operations

VIA Foundation Hana Pernicová Director of Programs VIA Foundation Táňa Hlavatá

Senior Manager for Philanthropy

VIA Foundation Jiří Bárta Executive Director Global Rights Scott Campbell Director for Field

Operations Global Rights Jennifer Rasmussen Deputy Director of

Programs NESsT Lee Davis Co-founder & CEO Venture for

Fundraising (VFR) Mayan Quebral Executive Director

GOLD, Philippines Paul Lundberg Former Chief of Party, 1998-2001

Institute for Public Affairs (IVO)

Grigorij Mesežnikov President

IDASA Paul Graham Executive Director Corporación Participa Andrea Sanhueza Executive Director


East-West Management Institute [Kosovo NGO Advisory Program (KNAP)]

Fron Nazi Vice President, Programs

Humanitarian Law Center

Budimir Ivanisevic Financial Director

Humanitarian Law Center

Matthew Holliday Fundraising and Outreach Director

Egyptian NGO Support Center (ENGOSC)

Shareef Ghoneim Director

Batory Foundation Justyna Blinowska Civil Society Programs, CSO Development Grants

Batory Foundation Jakub Boratyński Director of International Programs


ANNEX B: INVENTORY OF LEGACY MECHANISMS

Government Funding (Direct and Indirect)

• Tax allocation, 1%/2% • Tax exemptions on income from donations, membership dues, fees for service, other economic

activities (renting out office space) • Tax deductions for donors • Proceeds from sale of state assets • Proceeds from national lotteries • Government foundations and trusts • Government contracts • Partnership with local governments on projects of mutual interest (research, civic education,

literacy) • Government grants • Government in-kind allocations such as office space, staffing (Egypt, China) or free utilities • Government-subsidized loan programs

International Donors Other Than USAID

• Grants from or partnerships with transnational advocacy organizations • Development assistance from IOs and other bilaterals • Technical assistance/service contracts or subcontracts from multilaterals or other bilaterals • Sister city programs

Private Philanthropy and Private Sector Funding (Cash or In-kind)

• Community foundations • Volunteerism • Direct mail and other public fundraising tools • Fees for services • Consulting and other contract work • Corporate matching grants. • Fundraising campaigns targeted at Diaspora communities in wealthy countries

Self-generated Revenues

• Social enterprises • Venture philanthropy (e.g. NESsT) • Investment income from endowments • Membership dues • Franchise model for transnational NGO networks (e.g. Transparency International)


ANNEX C: PROJECT METHODOLOGY

The research design for this study followed two tracks. First, we conducted a series of in-depth interviews with donors and implementing partners to obtain information about their experiences with strategies used to ensure CSO recipients’ financial sustainability. We developed a set of common questions for these interviews, which were provided to interviewees along with some background material (the project description, an inventory of relevant strategies and mechanisms) in advance of the meetings. The interviews were structured around the questions but with sufficient time left for open-ended discussion. Interview data was supplemented to the extent possible by program documentation and evaluations, but we found that evaluations of civil society programs, especially final and follow-up reports, were not systematically conducted and that documentation to support the interview data was rarely available. Therefore, any claim to scientific rigor in this part of the desk study must rest on the number and diversity of organizations interviewed. On the other side of the relationship, we identified (primarily through anecdotal means and institutional memory) a number of financially viable and effective CSOs in each region – 11 in Europe & Eurasia; 10 in Asia & the Near East; 6 in Latin America & the Caribbean; 2 in Africa; 4 global-based – and collected available documentation for each organization through public sources such as annual reports, financial statements, and websites. A list of standard interview questions, plus additional queries based on the information gathered on from the public sources, was developed for use in telephone interviews. As the project did not include field research, the CSO studies were necessarily less rigorous than the research on donor/implementer activities. The team was able to conduct interviews by telephone or email with senior staff of only sixteen out of the 33 CSOs that were included in the study.

CASE SELECTION

A. Keyword search of R4 database 1. Search each year 1996-2003, searching on “civil society,” “NGO,” “CSO,” “advocacy” (other). Search may be limited to DG, or may include other units (Environment, Public Health, or Private Voluntary Cooperation) – to be decided. This will produce a global list for seven years of countries with relevant programs (see Harry Blair 2002, Table B2). 2. Follow with keyword search using BASIS search engine for the years since 2003. This may not be possible, I don’t know if BASIS organizes the data in a way that can be accessed using our parameters. If BASIS isn’t helpful, we’ll probably have to manually search through Annual Reports. B. Using this global list, for each region 1. Identify the countries with significant Civil Society programming (as measured by percentage of mission’s DG budget; number of SOs in support of civil society) with start dates of FY99 (i.e., five years ago) or earlier. 2. From the above set, create a report organized by start and end dates. Identify and strip off the countries with terminated Civil Society programs (whether through mission graduation or for another reason) to create a second set.


This should produce:

• a set of countries with CS programs still in operation after a minimum of five years; • a set of countries with terminated programs that may have operated for at least five years,

depending on start and end dates. One or two illustrative cases can be selected (steps 3 and 4) from each set making 2-4 cases per region. 3. From the “programs still in operation” set, we can select on any of several factors:

• feasibility of obtaining information • stage of program design and implementation • organizational purpose: advocacy, service delivery, or mixture of both • cross-regional comparability – e.g., for LAC region, the Central American post conflict states are

more likely to have something like exit strategies built in, to support the scheduling of the accords implementation. Nicaragua might be more similar to the E&E former communist states in having had no continuous AID presence prior to 1989-1990.

4. From the “programs terminated” set, we can select the countries whose former recipients are now more viable (successful) and less viable (unsuccessful) according to the Sustainability Index indicators – for regions other than E&E, we would only be able to evaluate viability based on in-country interviews. These successful and unsuccessful cases would provide our best practices material.


ANNEX D: UNIVERSE OF DONORS, CSOS AND NETWORKS

EUROPE & EURASIA (E&E)

Regional Baltic-American Partnership Fund Central European and Eurasian Law Initiative (CEELI) Nonprofit Enterprise and Self-Sustainability Team (NESsT) Armenia Armenian Apostolic Church The Eurasia Foundation Sourp Khatch Armenian Apostolic Church Saint Mary’s Armenian Apostolic Church Bulgaria Bulgarian Association for Fair Elections and Civil Rights (BAFE) Care, Bulgaria Centre for Liberal Strategies (CLS) Foundation for Local Government Reform (FLGR) Cyprus Bi-communal Development Programme (BDP) Czech Republic People in Need VIA Foundation Croatia Civilnoga Društva National Foundation for Civil Society Development Georgia Caucasian Institute for Peace, Democracy and Development (CIPDD) Kosovo Kosovo NGO Advisory Program (KNAP) Latvia U.S.-Baltic Foundation (USBF) Moldova Interaction, Tiraspol

Poland Polish American Freedom Foundation Stefan Batory Foundation Romania IMAS (Institute for Marketing and Polls) Romanian Academic Society Russia Charity Aid Foundation (CAF) The Glasnost Defense Foundation League of Women Voters Moscow Helsinki Group (MHG) Union of the Committees of Soldiers’ Mothers of Russia (UCSMR) Serbia Humanitarian Law Center Slovakia Institute for Public Affairs (IVO) Pontis Foundation Spain ADRA (Adventist Development & Relief Agency International) Ukraine ARD/Checchi Counterpart Creative Center (CCC) Freedom House Uzbekistan Civic Advocacy Support Program (CASP)

ASIA & THE NEAR EAST (ANE)

Regional Asia Pacific Philanthropy Consortium (APPC) Bangladesh BRAC Egypt Egyptian NGO Support Center (ENGOSC) - (formerly NGO Service Center, NGOSC)


India Scojo Foundation Swashakti Indonesia Civil Society Strengthening Program (CSSP) Internews Indonesia Sintesa Foundation WALHI/Friends of the Earth Indonesia (Wahana Lingkungan Hidup Indonesia) Iraq IIACSS (Independent Institute for Administration & Civil Society Studies) Korea East Asia Institute Philippines Coconut Farmer Groups Building Unity for Continuing Coconut Industry Reform (BUCO) COCOFED (Philippine Coconut Producers Federation) COIR (Coconut Industry Reform Movement, Inc.) PKSMMN (The Pambansang Koalisyon ng mga Samahang Magsasaka at Manggagawa sa Niyugan) Fisherfolk Groups FASAR(Fisherfolk Advocacy for Sustainable Aquatic Reform) NACFAR (Nationwide Coalition of Fisherfolk for Aquatic Reform) American PVO supporting coconut farmer and fisherfolk groups with USAID grants ACDI/VOCA American PVO supporting financial sustainability groups with USAID grants TAF (The Asia Foundation) Financial Sustainability Association of Foundations (AF) Venture for Fund Raising (VFR)

Legal Assistance Groups FREE LAVA (Free Legal Assistance Volunteers’ Association) SIBOL (Sama-Samang Inisyatiba ng Kababaihan sa Pagbabago ng Batas at Lipunan) SALIGAN (Alternative Legal Assistance Center) Indigenous Peoples Groups Cordillera Peoples Alliance (CPA) CWERC (Cordillera Women's Education and Resource Center) KAMP (Kalipunan ng mga Katutubong Mamamayan ng Pilipinas) PANLIPI (Tanggapang Panligal ng Katutubong Pilipino) Media Philippine Center for Investigative Journalism (PCIJ) The Governance and Local Democracy (GOLD) Various Others Philippine Council for NGO Certification (PCNC) Center for Legislative Development, Inc. (CLD) – (formerly Congressional Research and Training Service, CRTS) CODE-NGO (Caucus of Development NGO Networks) PBSP (Philippine Business for Social Progress) SWS (Social Weather Stations) League of Municipalities Taiwan Institute for National Policy Research (INPR) Thailand Duang Prateep Foundation King Prajadhipok’s Institute Sri Lanka Sarvodaya

LATIN AMERICA & THE CARIBBEAN (LAC) – USAID GRADUATED OUT OF THE SOUTHERN CONE IN THE MID-1990S

Regional Nonprofit Enterprise and Self-sustainability Team (NESsT)


Partners of the Americas Argentina Asociación Conciencia Centro de Implementación de Políticas Públicas para la Equidad y Crecimiento (CIPPEC) Grupo de Analisis y Desarrollo Institucional y Social (GADIS) Fundación Poder Ciudadano Brazil Central Única dos Trabalhadores (CUT) Movimiento Voto Conciente Bolivia Ciudadanos Trabajando por la Justicia

Chile Corporación Participa Colombia Corporación Acción Ciudadana Corporación Grupo de Apoyo Pedagógico (GAP) Congreso Visible Fundación Carvajal Fundación Corona Fundación Social Costa Rica Fundacion por la Paz y la Democracia (FUNDPADEM) Instituto Interamericano de Derechos Humanos (IIDH, Inter-American Institute for Human Rights) Dominican Republic Asociación para El Desarrollo de la Provincia Espaillat (ADEPE) Participación Ciudadana Ecuador Fundación Esquel Ecuador El Salvador Fundación de Estudios para la Aplicación del Derecho (FESPAD) Probidad El Salvador Red Para el Desarrollo Local de El Salvador Guatemala

Acción Ciudadana Asociación Bilinguë Internacional (AQBI) Asociación de Prevención del Delito (APREDE) /Alliance for Crime Prevention Instituto de Investigacion y Autoformacion Politica (INIAP) Red de Mujeres por la Construcción de la Paz Honduras Caritas de San Pedro Sula Federación de Organizaciones para el Desarrollo de Honduras (Foprideh) Fundación Democracia y Desarrollo de Honduras (FDDH) Fundación para el Desarrollo Municipal (FUNDEMUN) Mexico Alianza Cívica Nacional Attention of Victims of Crime Limac (Asociación Libertad de Información -México, A.C.) Fundar, Centro de Análisis e Investigación Fundación Centro de Atención para Victimas del Delito (CENAVID) / Foundation Center for the Nicaragua FUNDEMOS (Nicaragua) Paraguay National Integrity Program Peru Asociación Servicios Educativos Rurales (SER) CEDRO (Centro de Información y Educación para la Prevención del Abuso de Drogas) Grupo Propuesta Ciudadana Instituto de Defensa Legal (IDL) Pact Perú

AFRICA (AFR)

Regional Trust Africa Cameroon Serve the Orphans Foundation Ghana Center for Democratic Development (CDD)


Kenya Citizens Against Violence (CAVi) Mozambique Foundation for Community Development (FDC) Nigeria CEDPA Civil Liberaties Organization (CLO) South Africa COSATU (Congress of South African Trade Unions) IDASA Zambia The Zambian HIV/AIDS Learning Initiative (ZHLI) (September 2003 – September 2008)

GLOBAL CSOS

ACLU (American Civil Liberties Union) American Jewish World Service Amnesty International The Atlantic Philanthropies CARE Catholic Relief Services (CRS) Center on Budget and Policy Priorities Christian Children’s Fund Church World Service The Civic Trust Clingendael, Netherlands Institute of International Relations Green Peace Global Development Alliance (GDA) Global Rights Helsinki Citizens Assembly Human Rights Watch International Development Enterprises International IDEA International Labor Rights Fund (ILRF) -previously International Labor Rights Education and Research Fund) Lutheran World Federation (LWF)

Mercy Corps Omidyar Network PACT Partners for Democratic Change Save the Children Skoll Foundation Soros Foundation Networks Sustainability Institute Synergos Transparency International World Society for the Protection of Animals (WSPA) World Learning World Vision

NGO NETWORKS

African Liaison Program Initiative (ALPI) Civicus Civil Society Support Initiative (CSSI) Foundation for Development of Democratic Rights (FDDR – DemNet) Institute for Development Research Inter-American Democracy Network National Council of Churches, USA, USA (NCC – part of WCC) SEEP (Small Enterprise Education Program) Trust for Civil Society in Central & Eastern Europe

DONORS

Canadian International Development Agency (CIDA) Department for International Development, UK (DFID) Dutch Development Corporation EuropeAID Co-operation Office German development agency (GTZ) Global Development Alliance (GDA) Inter-American Development Bank (IDB) Japanese International Cooperation Agency (JAICA)

The John Merck Fund Milton S. Eisenhower Foundation National Endowment for Democracy (NED) NORAD (The Norwegian Agency for Development Cooperation) Oxfam United Nations Development Programme (UNDP)


ANNEX E: BIBLIOGRAPHY

FINANCIAL VIABILITY & PHILANTHROPY

Aga Khan Foundation. February 2001. “Towards Financial Self-Reliance: A handbook on Resource Mobilization for Civil Society Organizations in the South.” London, UK: Earthscan Publications. Amott, Natasha, et. al. “The Quest for Financial Sustainability: Foundations in Southeast Asia Introduction to Financing Development in Southeast Asia: Opportunities for Collaboration and Sustainability.” Synergos Institute, was produced with support from the Sasakawa Peace Foundation. Available from World Wide Web: (http://www.synergos.org/globalphilanthropy/04/asiafinancingintro.htm) Cannon, Lisa. 1999. Life Beyond Aid: Twenty Strategies to Help Make NGOs Sustainable. Initiative for Participatory Development. Davis, Lee, Nicole Etchart and Katalin Zsamboki. 1999. “Sustaining Social Change: An Analysis of Self-Financing Among Local Civil Society Organizations.” The Aspen Institute, Non-Profit Sector Research Fund. Available from World Wide Web: (http://www.nonprofitresearch.org/newsletter1531/newsletter_show.htm?doc_id=17284) Edwards, Michael. Working Paper. “Funding Foundations: Report on Ford Foundation Support of Grantmaking Institutions, 1975 to 2001.” Elyachar, Julia. Fall 2002. “Empowerment Money: The World Bank, Non-Governmental Organizations, and the Value of Culture in Egypt.” Public Culture 14 (3): 493-513. Grantcraft. 2005. “Advocacy Funding: The Philanthropy of Changing Minds.” New York: Ford Foundation. Holloway, Richard. February 2001. Towards Financial Self-reliance. London: Earthscan/James & James. Kuti, Eva and Agnes Vajda. 2002. “Citizens’ Votes for Nonprofit Activities in Hungary.” The Aspen Institute, NonProfit Sector Research Fund. Low, W and Davenport E. December 2002. “NGO Capacity Building and Sustainability in the Pacific.” Asia Pacific Viewpoint 43 (3):367-379. Montague, Joel and Ava Kabouchy Clough. 1995. “Private and Voluntary Development Agency Consortia in Tropical African Countries: Lessons for Both Donors and the International Development Community.” The Aspen Institute, NonProfit Sector Research Fund. Available from World Wide Web: (http://www.nonprofitresearch.org/newsletter1531/newsletter_show.htm?doc_id=29793) Salamon, Lester M. and S. Wojciech Sokolowski. 2001. “Volunteering in Cross-National Perspective: Evidence From 24 Countries.” Baltimore: The John Hopkins University Center for Civil Society Studies. Available from World Wide Web: (http://www.jhu.edu/ccss/pubs/cnpwork/) Fox, Leslie M. and S. Bruce Schearer, ed. 1997. Sustaining Civil Society: Strategies for Resource Mobilization. CIVICUS.


Ortiz, Alfredo. February 2001. “Core Costs and NGO Sustainability.” Washington, DC: Pact Inc. Vincent, Fernand and Piers Campbell. 1989. Towards Greater Financial Autonomy, a Manual for Financing Strategies and Techniques for Development NGOs and Community Organizations. (IRED: 1989) Biekart, Kees. The Politics of Civil Society Building: Private Aid Agencies and Democratic Transitions in Central America. Amsterdam: Transnational Institute. “Local fundraising: Benefits and Limits of Local Support.” 1999. Give and Take: A Journal on Civil Society in Eurasia. Summer 1999. Available from the World Wide Web: (http://www.isar.org/pubs/GT/GT2-3.pdf) Lee Davis and Nicole Etchart. 2004. “Supporting Nonprofit Enterprise in Emerging Markets.” In Generating and Sustaining Nonprofit Earned Income: A Guide to Successful Enterprise Strategies. San Francisco: Jossey-Bass. Siegel, Daniel and Jenny Yancey. 2002. “What’s left behind? Reflections on international partnerships & NGO capacity building in Eastern Europe.” The Aspen Institute, NonProfit Sector Research Fund. Available from the World Wide Web: (http://www.nonprofitresearch.org/usr_doc/SiegelYancey.pdf) Synergos Institute. 2000. “National Directory of Civil Society Resource Organizations: Philippines.” New York: The Synergos Institute Series on Foundation Building in Southeast Asia.

ADVOCACY

Community Foundations Malombe, Joyce. November 2000. “Community Development Foundations: Emerging Partnerships.” Washington, DC: World Bank. Funded by The Ford Foundation and located at http://lnweb18.worldbank.org/ESSD/sdvext.nsf/60ByDocName/CommunityDevelopmentFoundationsEmergingPartnershipsNovember2000/$FILE/CDFsEmergingPartnerships.pdf Sacks, Eleanor W. May 2005. “2005 Community Foundation Global Status Report.” Brussels: WINGS (Worldwide Initiatives for Grantmaker Support). Available from the World Wide Web: (http://www.wingsweb.org/information/downloads/GSR2005_p1a.pdf) United Nations Development Programme (UNDP). May 2005. “A Guide to Civil Society Organizations Working on Democratic Governance.” Available from the World Wide Web: (http://www.undp.org/oslocentre/docs05/3665%20Booklet_heleWEB_.pdf) WINGS. May 2005. “2005 Community Foundation Global Status Report Part II: Country Profiles.” Brussels: WINGS (Worldwide Initiatives for Grantmaker Support). Available from World Wide Web: (http://www.wingsweb.org/information/downloads/GSR2005_p2.pdf) Environment Falkner, Robert. May 2003. “Private Environmental Governance and International Relations: Exploring the Links.” Global Environmental Politics 3 (2): 72-87. Hochstetler. November 2002. “After the Boomerang: Environmental Movements and Politics in the La Plata River Basin, Global Environmental Politics.”


Gender Claudia MarÍa Vargas. September 2002. “Women in Sustainable Development: Empowerment through Partnerships for Healthy Living.” World Development 30 (9): 1539-1560. Human Rights Bell, Christine. May 2004. “Human Rights Nongovernmental Organizations and the Problems of Transition.” Human Rights Quarterly 26 (2): 330-374. Nelson, Paul J. and Ellen Dorsey. December 2003. “At the Nexus of Human Rights and Development: New Methods and Strategies of Global NGOs.” World Development 31 (12): 2013-2026. Brysk, Alison. 2005. Human Rights and Private Wrongs: Constructing Global Civil Society. New York: Routledge.

INFRASTRUCTURE

Brynes, Kerry. Working Paper, 2005. “QUASAR: Reengineering Donor Support for NGOs.” Washington, DC. Salamon, Lester M. and Stefan Toepler. 2000. “The Influence of the Legal Environment on the Development of the Nonprofit Sector.” The John Hopkins Center for Civil Society Studies: Working Paper Series No. 17. Available on World Wide Web: (http://www.jhu.edu/ccss/pubs) Carroll, Thomas F. 1992. Intermediary NGOs: The Supporting Link in Grassroots Development. West Hartford, CT: Kumarian Press.

PUBLIC IMAGE/ SOCIAL CAPITAL

Howard, Marc Morjé. 2003. The Weakness of Civil Society in Post-Communist Europe. Cambridge University Press. Social Development Staff. 2002. “World Bank-Civil Society Collaboration – Progress Report for Fiscal Years 2000 and 2001.” Washington, DC: World Bank. World Bank. March 2003. “Enabling Environments for Civic Engagement in PRSP Countries.” Social Development Notes, Note No. 82.

NGO NETWORKS

Karl, Marilee, ed. 1999. Measuring the Immeasurable: Planning, Monitoring and Evaluation of Networks. New Delhi: Women’s Feature Service, NOVIB.

GENERAL

Anheier, Helmut K. 2004. Civil Society: Measurement, Evaluation, Policy. London; Sterling, VA: Earthscan Publications. Ashman, Darcy, L. David Brown and Elizabeth Zwick. 1998. “The Strength of Strong and Weak Ties: Building Social Capital for the Formation and Governance of Civil Society Resource Organizations. Institute for Development Research 14 (2).


Brown, L. David and Archana Kalegaonkar. 1999. “Addressing Civil Society’s Challenges: Support Organizations as Emerging Institutions.” Institute for Development Research 15 (2). Caliguire, Daria. January 1996. “Renewing Civil Society.” Journal of Democracy 7 (1): 56-66. Clark, John. 1991. Democratizing Development: The Role of Voluntary Organizations. West Hartford, CT: Kumarian Press. Edwards, Michael and David Hulme (eds). 1996. Beyond the Magic Bullet: NGO Performance and Accountability in the Post-Cold War World. West Hartford, CT: Kumarian Press. Edwards, M. February 1999. “NGO Performance – What Breeds Success? Evidence from Asia.” World Development 27 (2): 361-374. Fowler, A. 1997. Striking a Balance: A Guide to Enhancing the Effectiveness of NGOs in International Development. London: Earthscan. Holloway, R. 1997. Civil Society Toolbox. New York: Pact Publications. Judge Anthony J. 1994. NGOs and Civil Society: Some Realities and Distortions. A paper presented to a Seminar on State and Society at the Russian Public Policy Center, Moscow (6-8 December). Brussels: Union of International Associations. Kuti, Eva. 1997. “Individual Giving and Volunteering in Hungary.” The Aspen Institute, NonProfit Sector Research Fund. Lewis, David and Tina Wallace, eds. 2000. New Roles and Relevance: Development NGOs and the Challenge of Change. Bloomfield, CT: Kumarian Press. Lindenberg, Marc and Coralie Bryant. 2002. Going Global: Transforming Relief and Development NGOs. Bloomfield, CT: Kumarian Press. Micou, Ann McKinstry. July 1997. “Listening to the Stakeholders: The Impact of U.S. Private Foundation Funding in Southern Africa.” Institute of International Education, Southern African Information Exchange Working Paper Number 33. Funded by The Aspen Institute, NonProfit Sector Research Fund and The Rockefeller Foundation. Available on World Wide Web: (http://www.iie.org/Content/NavigationMenu/Research_Publications/Archives/saie.pdf) Plavsa-Matic, Cvjetana, ed. November/December 2004. CivilSociety.hr. National Foundation for Civil Society Development 1 (1): 4-30. Richmond, Oliver P. and Henry F. Carey. November 2005. Subcontracting Peace: The Challenges of NGO Peacebuilding. London: Ashgate. Salamon, Lester M., S. Wojciech Sokolowski, and Associates. 2004. Global Civil Society: Dimensions of the Nonprofit Sector, Volume Two. Bloomfield, CT: Kumarian Press.

Siegel, Dan and Jenny Yancey. 1992. “The Rebirth of Civil Society: The Development of the Nonprofit Sector in East Central Europe and the Role of Western Assistance.” New York: Rockefeller Brothers Fund, Inc. Available on World Wide Web: (http://www.rbf.org/pdf/Rebirth.pdf)


Tandon, R. and M. D. de Oliveira, ed. 1994. Citizens: Strengthening Global Civil Society. CIVICUS.

USAID PUBLICATIONS

Abelson, Adam. 2003. “NGO Networks: Strengths in Numbers?” Washington, D.C: Office of Private and Voluntary Cooperation, Bureau of Democracy, Conflict and Humanitarian Assistance, U.S. Agency for International Development.

AED. July 1998. “Democracy Network Project Poland: Final Report.” Submitted to USAID under Cooperative Agreement 181-A-00-95-00002. AED. September 2001. “Croatia NGO [non-governmental organizations] Development Program: Final Report.” Submitted to USAID Bureau for Europe and Eurasia, Office of Energy, Environment and Urban Development under Contract number EEU-C-00-98-00022-00. Andriyani, Nori, Steve Mintz, Fatima Shabodien and Sheila Town. July 2002. “Indonesia CSSP [Civil Society Support and Strengthening Program]: Impact Assessment.” Submitted by Chemonics International, Inc. to USAID/Indonesia under Contract number 497-C-00-99-00053-00. ARD, Inc. June 2001. “Cost-effective Approach to Cross-sectoral Programming on a Nationwide Scale: Final Report.” Submitted to USAID/Philippines under Contracts number 492-0471-C-00-5089-00 and 492-C-00-95-00089-00. ARD, Inc. September 2002. “The Impact of USAID DG Programs on Political Change: Guatemala Case Study.” Prepared for USAID/Guatemala under contract number AEP-I-00-99-00041-00. Blair, Harry, Leonardo Dayao, Azwar Hasan and Roy Salomo. September 18, 2002. “Civil Society Strengthening Program: Mid-term Evaluation.” Submitted to USAID/Jakarta under Contract number AEP-I-809-00-00018-00.

Bodley, Anne. December 1993. “Endowments, Trusts and Debt Swaps in the Agency for International Development: A Discussion Paper.” USAID Bureau for Research and Development, Center for University Cooperation in Development.

Bureau for Democracy, Conflict, and Humanitarian Assistance, Office of Private and Voluntary Cooperation, USAID. December 2002. “A Strategic Framework for the Office of Private and Voluntary Cooperation: FY2003-2007.” Washington, DC. Checchi & Company Consulting, Inc. and DevTech Systems, Inc. March 2002. “Assessment of USAID civil society programs in the Dominican Republic.” Submitted to USAID/Dominican Republic under Contract number AEP-I-00-00-00022-00. Chemonics International. February 2001. “Indonesia Civil Society Support and Strengthening Program: Internal Evaluation.” Submitted to USAID/Jakarta under Contract number 497-C-00-99-00053-00. Chemonics International. October 2002. “Indonesia Civil Society Support and Strengthening Program: Third Annual Report October 2001 – September 2002.” Submitted to USAID/Jakarta under Contract number 497-C-00-99-00053-00.


Chemonics International, CARE International, IFES, International Development Professional Inc., Center for International Private Enterprise. November 2004. “Indonesia Civil Society Support and Strengthening Program: Final Report November 1999 – November 2004.” Submitted to USAID/Jakarta under Contract number 497-C-00-99-00053-00. Clark, Jeffrey and David Rhoad. April 11, 2001. “Humanitarian assistance assessment in Ukraine and Moldova.” Prepared by Development Associates, Inc. for USAID. Bur. for Europe and Eurasia | USAID Regional Mission to Ukraine, Belarus, Moldova. Creative Associates, Inc. September 2001. “Proyecto INCIDENCIA: Final Report.” Submitted to USAID/Guatemala under Contract number 520-A-00-97-00058-00, Project number 5200424. Creative Associates, Inc. September 2001. “Proyecto INCIDENCIA: 2000-2001 FAD Baseline Targets Report: Democratic Support Fund (FAD).” Submitted to USAID/Guatemala under Contract number 520-A-00-97-00058-00, Project number 5200424. Creative Associates, Inc. January 2005. “Grants Measurement and Technical Assistance (GMTA): Final Report.” Submitted to USAID/SA/SO 1 under Contract number 674-C-00-97-00091-00. Development Associates, Inc. August 14, 2003. “Mid-term Evaluation of the NGO Service Center.” Submitted to USAID/Egypt under AEP-00-00-00004-00. Fishstein, Paul and Stephen Sacca. September 30, 1997. “Subproject Final Report: Planning for Sustainability – Cooperating Agency/NGOs, December 1995-May 1997.” A study supported by USAID Bureau for Global Programs, Field Support, and Research, Center for Population, Health and Nutrition and USAID/Bangladesh under Contract number CCP-A-00-95-00000-02. Hansen, Gary E. December 1990. “Terms of Endowment: A New AID Approach to Institutional Development.” Innovative Development Approaches, No. 3, USAID Bureau for Program and Policy Coordination, Center for Development Information and Evaluation (CDIE). Hansen, Gary E. February 1996. “Constituencies for Reform: Strategic Approaches for Donor-Supported Civic Advocacy Programs.” USAID Program and Operations Assessment Report No. 12, Center for Development Information and Evaluation. Herman, Robert, David Moore, and Stephen Larrabee. 2005. “The 2004 NGO Sustainability Index for Central and Eastern Europe and Eurasia.” USAID Bureau for Europe and Eurasia, Office of Democracy and Governance. ICNL (International Center for Not-for-Profit Law). February 28, 2004. ICNL [International Center for Not-for-Profit Law] Final Report: “Partners in Sustainability,” July 25, 2002-November 30, 2003. Prepared for Office of Democracy, Governance and Social Reform, USAID. Bur. for Europe and Eurasia under Grant Agreement No. EDG-A-00-01-0011-00. Institute for Central American Studies and Management Systems International, Inc. December 1995. “Evaluar el pasado para construir el futuro : informe final de la segunda fase de la evaluacion del impacto del Programa del Centro DEMOS (Evaluate the Past to Build the Future: Final Report of the Second Phase of the Evaluation of the Impact of the Centro DEMOS Program).” Submitted to Center for Development Information and Evaluation (CDIE), USAID Bureau for Policy and Program Coordination and USAID/El Salvador under Contract numbers AEP-0085-I-00-3001-00 and 519-0411-A-00-3206-00.


Institute for Sustainable Communities. June 2004. “Partnership Grants Activity in Poland and Hungary 2001-2004: Final Report.” USAID. Bur. for Europe and Eurasia. Ofc. of Energy, Environment and Social Transition, Contract number EEE-G-00-01-00017-00. Internews Ukraine. March 18, 2003. “Internews Network Ukraine: Final Report including Progress Report for August-December 2002.” Prepared for USAID regional Mission to Ukraine, Belarus, Moldova under Grant Number 121-G-00-99-000716-00.

IREX. 2005. “Media Sustainability Index 2004: The Development of Sustainable Media in Europe and Eurasia.” Washington, DC. Prepared for USAID under Contract No. DGS-A-00-99-00015-0. Jutkowitz, Joel and Mauel Antonio Garreton. October 1994. “Civil Society and Democratic Development in Chile.” A CDIE (Center for Development Information and Evaluation) assessment, USAID Working Paper No. 208. USAID Bureau for Europe and Eurasia, Office of Democracy and Governance. October 1999. “Lessons in Implementation: The NGO Story.” USAID Bureau for Europe and Eurasia, Office of Democracy and Governance. USAID/Dominican Republic. June 22, 1996. “PVO Co-financing Project.” Project number 5170247. USAID/El Salvador. March 3, 1995. “Project assistance completion report : drug awareness and abuse prevention project .” Under Contract number 519-0377-A-00-0399-00, Project number 5190377. USAID Office of Private and Voluntary Cooperation (PVC), Bureau for Humanitarian Response. August 1996. “Mid-term evaluation of the cooperative development program of the Office of Private and Voluntary Cooperation, Bureau for Humanitarian Response, US Agency for International Development.” Office of Private and Voluntary Cooperation (PVC), Project number 938-0192. USAID Office of Democracy and Governance. April 2005. “DCHA/DG Guide to Technical Services.” LAC Bureau. 2004. “Organizational Management for Sustainability (OMS): Hypothetical Case Fundación para la Agricultura y el Medio Ambiente (FAMA).” Washington, DC.

Liebler, Claudia and Marisa Ferri. November 2004. “NGO Networks: Building Capacity in a Changing World.” A Study supported by Bureau for Democracy, Conflict and Humanitarian Assistance, Office of Private and Voluntary Cooperation. Available on World Wide Web: (http://www.usaid.gov/our_work/cross-cutting_programs/private_voluntary_cooperation/conf_leibler.pdf) Management Systems International, Inc. July 1996. “Democratic and Electoral Processes Project: Evaluation of the Citizen Participation Component of USAID/El Salvador's project no. 519-0391 – Final Report.” Submitted to USAID/El Salvador under Contract number 519-0394-C-00-6075-00, Project number 5190391. Medical Service Corps International. July 15, 1999. “Displaced and Street Children's Project, PROCIPOTES: proyecto de chicos integrados por trabajo, educacion y salud (children unified by work, education, and health project) Final Report.” Submitted to USAID/El Salvador under Contract number 519-0420-G-00-4111-00, Project number 5190420. Peyser, Melanie and Andrei Barannik. July 2001. “Final: Initiative for Social Action and Renewal (ISAR) Central Asia Activities Evaluation.” Prepared by DevTech Systems, Inc. as a Subcontractor to


Checchi/Louis Berger Joint Venture for USAID/CAR, USAID/Washington and ISAR under IQC Contract AEP-I-00-00-00022-00. Pieterse, Edgar and Joseph M. Thomas. November 1999. “Results Package: Consolidating Democracy through Fostering Strategic and Sustainable Partnerships.” Creative Associates: Prepared for USAID/South Africa Strategic Objective #1 under contract number 674-0322-C-00-7091-00. Price, Monroe and Peter Krug. January 2002. “The Enabling Environment for Free and Independent Media: Contribution to Transparent and Accountable Government.” Occasional Paper, DCHA, Office of Democracy and Governance. Available from World Wide Web: (http://www.usaid.gov/our_work/democracy_and_governance/publications/pdfs/pnacm006.pdf) Save the Children. August 2003. “Democratic Governance: Final Report for the Period 30 September, 1997-30 June, 2003.” Submitted to USAID/Mali and USAID. Bur. for Africa. Regional Economic Development Services Ofc. (REDSO) West Africa under Contract number 624-A-00-97-00067-00. Schumacher, Henry A. December 30, 1996. “Final report : participatory evaluation of the Counterpart Consortium cooperative agreement -- project 115-0001, Central Asian Republics.” MSI: Prepared for USAID Bureau for Global Programs, Field Support and Research. Center for Democracy and Governance and USAID Regional Mission for Central Asia. Thomas, Joseph (presenter). February 1999. “Consultancy on NGO Sustainability: USAID South Africa Policy, Guidance and Training.” IGI: Prepared for USAID/South Africa under contract number 674-0318-C-00-6091-00, under Sub-contract with Macro International, Inc. Thomas, Joseph (presenter). July 20, 1998. “Final Report: Consultancy to Perform Preliminary Research and Formulate Options Concerning the Sustainability of South African NGOs.” IGI: Prepared for USAID/South Africa under contract number 674-0318-C-00-6091-00, under Sub-contract with Macro International, Inc.


ANNEX F: MINI CASE STUDIES

BATORY FOUNDATION – POLAND

The Soros Foundations founded the Stefan Batory Foundation in 1988. Its mission is to increase citizens’ participation in public life, and to enhance the role and efficiency of civic institutions, including by providing grants to NGOs. Sustainability Strategies & Mechanisms Utilized Promoting sustainability of the NGOs that receive Batory support: • Institutional development grants offered through open competition (Civil Society Program) to “help

NGOs build stable foundations for continued functioning, develop successful action and financing plans and contribute to raising the standards of the organizations’ work and management.”

• 3-year sinking fund (Mott, Ford, and Batory) established for infrastructure organizations acting in the field of support and development of NGO sector in Poland. The Civil Society Development Foundation manages the Fund.

Sustaining Batory: • Careful management of endowment. • Diversified donor base – primarily international foundations (initial endowment from OSI) and

foreign governments, some foreign and domestic individual donors (approximately 10 to 1), Polish commercial union.

• Corporate donors – one corporate partnership (Levi Strauss Poland) for student scholarships, a few small corporate donors.

• Revenue generating activities – sizeable amount from office rents and “other revenues.” • Tax income – significant amount from tax donations.

BRAC – BANGLADESH

BRAC recognizes women as the primary caregivers who would ensure the education of their children and the subsequent inter-generational sustainability of their families and households. Its comprehensive approach combines Microfinance under BRAC's Economic Development program with Health, Education and other Social Development programs, linking all the programs strategically to counter poverty through livelihood generation and protection. Sustainability Strategies & Mechanisms Utilized • Two programs have programmatic support from diverse donor consortium: the European

Commission, Department for International Development (UK), RNE (Royal Netherlands Embassy), CIDA (Canada), NOVIB (the Netherlands), UNICEF, DANIDA (Norway), World Food Programme (WFP), Government of Bangladesh, Australia Aid, UNDP, SIDA (Sweden) and The Global Fund.

• Otherwise, “self-financed” but no indication of whether this is entirely through individual contributions, or income earning activities, or other.

• Avoid advocacy – domestic financing is plentiful even in a country as poor as Bangladesh, provided that the organization refrain from activities that would either annoy donors or cause the government to seize assets.

• Small donations add up – a locally respected CSO can find sufficient resources regardless of GDP


CORPORACIÓN PARTICIPA – CHILE

Participa looks to improve the quality of citizen participation in democracy, focusing on areas of public interest. The organization’s strategic objectives are: to strengthen and exercise the knowledge of citizen rights at national, regional and global level; to promote citizen participation through actions that are informed, organized and responsible in the public scope; to strengthen public institutions through monitoring and changing public policies. Sustainability Strategies & Mechanisms Utilized • Planning ahead for donor withdrawal – conducted an organizational assessment two years prior to

USAID graduation, analyzing current and possible future missions. Produced a strategic plan that guided them past major donor withdrawal.

• USAID institutional development support enabled them to bring in management consultant and develop a strategic plan, and to strengthen staff administrative skills.

• Expanded range to include new activities, but still within core mission, being careful not to distort mission while seeking operating funds.

• Diversified donor base to include Chilean governmental agencies; US, UK, Czech, and Canadian agencies; multilateral banks and OAS; large and small foundations.

• Fees for services – consulting work, probably many of those listed as donors are in reality clients.

INSTITUTE FOR PUBLIC AFFAIRS (IVO) – SLOVAKIA

The Institute for Public Affairs (Slovak acronym IVO) is an independent non-governmental, nonprofit organization bringing together experts from many different areas of study. It was founded with the aim of promoting the values of an open society and a democratic political culture in public policy and decision-making. Sustainability Strategies & Mechanisms Utilized • OSI’s tie-off strategy of decreasing funding by fixed percentages and funding only through matching

grants was communicated at the outset, implemented according to plan, and forced IVO to diversify donor base. OSI recommended other donors but no direct capacity training in fundraising.

• Donor diversification – New donors are identified with assistance from fundraising experts. Institutional funding has only come from Ford (cut off this year) and OSI (tying off, will disappear in 2007). A plethora of international foundations and foreign government agencies provide funds for specific projects, but they have yet to replace institutional funding from its two major donors and this remains a problem. In additional to the internationals, Slovak state and academic institutions fund some projects.

• Reputation for doing good work attracted new donors and made it easy to sell projects. • Corporate support/partnerships: Slovenská sporiteľňa (telecom), local HP, US Steel and Philip Morris

branches, Západoslovenská energetika (energy) corporate partners on German Marshall Fund grant program that passed through IVO to other CSOs. IVO currently seeking corporate support for internal projects.

• Enabling legal environment: Recent legislation allows corporations to receive tax breaks when they donate to NGOs, leading IVO to develop a corporate donor strategy.

• Interest from investments: overnight deposits and Charity Set investment fund for nonprofits administered by Tatra Bank.

• Product sales, mainly in-house publication of books and working papers – innovative ways of selling IVO products: developed a website with an e-shop; brought out an English version of the site; negotiated a contract with CEE Online Library to offer IVO publications; expanded domestic and


international distribution. Also sell “new instruments and work systems based on the latest information technologies and foreign know-how in financial, information and institutional management” (quoted from the 2001-2003 Annual Report).

• Engaged, proactive Board that concerns itself with sustainability and management of the organization.

KOSOVO NGO ADVISORY PROGRAM (KNAP) – KOSOVO

The objective of KNAP was to assist in developing self-sustaining Kosovar NGOs. Sustainability Strategies & Mechanisms Utilized • None utilized – USAID and Euro donors over-funded the existing NGOs, no incentive to find

alternative funding sources. • Proposal to tap the diaspora by providing NGOs who were seeking funding from Albanian-Americans

with document indicating that the organization had USAID funding, was legitimate, accountable, etc. • Event-based fundraising. • Outreach to Diaspora communities. • Development of services for fees. • Product sales, establishment of revenue generating businesses.

EGYPTIAN NGO SUPPORT CENTER

Started in January 1932, there are now 27 national Save the Children organizations working in more than 100 countries to ensure the well-being of children. The Egyptian NGO Support Center (ENGOSC), which is managed by Save the Children, began with USAID funding as the NGO Service Center (NGOSC). USAID funded the center from 2000-2005. ENGOSC was launched as a successor organization in February 2005. It serves as an ISO supporting the local NGO community. Sustainability Strategies & Mechanisms Utilized Sustaining ENGOSC: • Marketing and communications – communicated services and activities to both NGOs and

prospective donors through events, website, news media, and brochure. • Reputation of staff and affiliates for high quality professional work. Credibility and attractiveness to

non-US clients increased when it became a wholly Egyptian organization. • Fees for services – consultancies for clients such as GTZ, CIDA, MEPI, World Bank, Unicef. • Membership dues – members include NGOs, corporations, individual donors and institutional donors. • Product sales – manuals, directories, website hosting services, website advertising space. • Endowment – the initial project had an endowment as one of its objectives, but USAID decided

against. However, the project was able to raise income from product sales and those funds ($170k) were turned over to the successor organization and ENGOSC treats it as seed money. They avoid spending spend down the principal and invest as much as Egyptian law will allow.

Promoting sustainability of the NGOs that receive ENGOSC support: • Small grants program – awards to corporations for sponsoring an NGO that is conducting a pilot

project in one of ten advocacy fields. • Training and technical assistance in organizational capacity building – with ADF assistance, the

Center has reviewed and updated its training materials and methods.


• Promoting a favorable legal environment – is working with NGOs on legal awareness, advocating for NGOs rights, and developing local volunteerism.

INTER-AMERICAN DEMOCRACY NETWORK – LAC REGIONAL

Established in 1995, now includes over 380 CSOs in 24 countries with an active core of approximately 100 CSOs. IADN training focuses on building strong leadership and advocacy skills. Sustainability Strategies & Mechanisms Utilized Promoting sustainability of IADN member NGOs: • Institutional development – provides training and technical support in leadership and administrative

skills necessary to become financially viable, especially through its online Virtual Training Campus. • Promotes collaboration among members through granting programs for collaborative strategic

projects (e.g. in participatory budgeting, transparent local democracy, etc). • Pays overhead – granting programs will cover operating costs. • Communications – provides assistance and logistical support for members’ website development. Sustaining the Network: • Diversified donor base – initially solely a USAID project, now IADN gets funding from the OAS and

the Inter-American Foundation. Also, other funding sources have been leveraged for at least one sub grant program.

• Membership dues – still a small amount relative to donor funding, but should increase over time. Dues assessed on a sliding scale.

• Fees for services – charge a small fee for online courses.

NONPROFIT ENTERPRISE AND SELF-SUSTAINABILITY TEAM (NESST) - CROSS-REGIONAL (CEE & CHILE)

NESst is a nongovernmental organization dedicated to finding lasting solutions to systemic poverty and social injustice through the development of social enterprises -- mission-driven businesses that increase the financial sustainability and social change impact of civil society organizations. Sustainability Strategies & Mechanisms Utilized Promoting sustainability of the NGOs that receive NESsT support: • NESst Venture Fund – a philanthropic investment fund providing capacity-building & financing

support to a portfolio of high-impact social enterprises in emerging markets. • NESst University – promotes accountability, innovation, leadership & professionalism in the social

enterprise field worldwide through forums, workshops, trainings, internships, and publishing. • NESst Consulting – offers professional services in social enterprise development to clients

worldwide, typically foundations, national and international organizations. • NESst Marketplace – a global, on-line shopping portal designed to enable social enterprises to reach a

wider consumer market for selling their products and services. • “Real Sustainability for Virtual Projects: A Guide for Self-financing for Nonprofit Websites”

http://www.politika.lv/polit_real/files/lv/realsust.pdf • Provide long term (3-5 year) support; remain engaged in CSO’s sustainability. Sustaining NESsT: • Rockefeller’s withdrawal strategy – gave three 2-year grants, warned of impending withdrawal prior

to third grant period and gave additional exit grant to assist with developing financial base.


• Skoll Foundation’s institutional development support enabled them to hire a communications and fundraising officer. Focus on cultivating long term rather than one-off donors.

• Planning ahead for donor withdrawal – used tie-off grant to create multi-year financial plan, business plan, and establish corporate entity.

• For-profit arm of not-for-profit organization – NESsT Corporate is a for-profit division that provides approximately 30% of the not-for-profit’s annual revenue through product sales.

• Corporate donor strategy — impressive list of major corporations, heavy on the finance sector. Also private individual donors and in-kind contributors.

SOUTH AFRICA – INSTITUTE FOR DEMOCRACY IN SOUTH AFRICA (IDASA)

IDASA is an independent public interest organization committed to promoting sustainable democracy in South Africa and elsewhere by building democratic institutions, educating citizens and advocating social justice. Sustainability Strategies & Mechanisms Utilized • Fees for services – provides services to national, provincial and local government. Organizations in

South Africa cannot receive more than 15% of budget through income generating activities and retain they’re NFP status.

• Networking – made use of connections with political actors in other countries to leverage funds. • Focused from the start on having a diversified donor base; was not established by means of a large

donor grant. • Reputation and credibility – they have a compelling program, provide deliverables on time, turn in

reports on time, and create realistic budgets. • Special overhead financing arrangement with USAID allows to IDASA to receive overhead funding;

expenses are carefully audited. • May have raised an endowment.

USAID’S GOVERNANCE AND LOCAL DEMOCRACY (GOLD) – PHILIPPINES

The Governance and Local Democracy (GOLD) activity has institutionalized participatory development tools and approaches in 46 of the 75 Philippine provinces, 23 of the more than 70 cities, and more than 400 of the 1,500 municipalities. Using GOLD's tools, LGUs are now better able to promote investments in their communities, manage the environment, involve more people in governance, and adopt measures of excellence in public service. Sustainability Strategies & Mechanisms Utilized • Worked with service delivery CSOs. • To promote political (not necessarily financial) sustainability, created linkages between CSOs and

local/national government – e.g., funded joint projects. • Advice to donors – do not impose a foreign agenda by offering grants for projects that local CSOs

would not independently propose and don’t emerge from local perceived needs.

US- AND CHURCH-BASED GLOBAL ORGANIZATIONS

For the following organization, we are interested in how they contribute to the sustainability of their partner CSOs or subsidiary offices in countries that receive international assistance.


Partners for Democratic Change Partners works to promote sustainable local capacity to build civil society and a culture of change and conflict management. In 1993, Partners began establishing local non-governmental organizations (NGOs) known as Centers for Change and Conflict Management, based in Bulgaria, the Czech Republic, Hungary, Poland, and Slovakia. Sustainability Strategies & Mechanisms Utilized • Partners implements a sustainability strategy with each center that it opens: creates the NGO with an

unrestricted core grant, works closely for several years on institutional development (fundraising, management skills, project management) prior to withdrawal. Training during this period is based on an initial assessment of country conditions and realistic expectations for financial viability.

• Strategic plan should be designed to support the NGO’s core mission – to prevent donors from imposing their own agendas.

• Fees for services – where possible and as appropriate, NGOs are encouraged to develop products that can be marketed to government or public.

• For-profit arm of not-for-profit organization – creation of a limited liability for-profit entity that can sell services or products. This model is especially useful where the legal environment is not favorable, as it enables CSO to generate income without losing its legal status as an NGO.

• Diversified donor base – should include corporate donors, international foundations, government funding.

Venture for Fund Raising (VFR) – Philippines VFR’s mission is to assist NGOs with fundraising. They have helped over 400 organizations from 13 countries raise funds better through professional training, consulting, and research and public information services. Sustainability Strategies & Mechanisms Utilized Sustaining VFR: • Fees for services: USAID and other agency contracts for program implementation, TA/training, and

research. Promoting sustainability of the NGOs that receive VFR support: • Institutional development – VFR provides training, consulting, and public information to Philippine

and other regional NGOs on better strategies and practices for fundraising, especially communication and marketing skills.

• Small donations add up – focus on individual charitable giving via direct mail marketing, development of donor databases.

• Research: studies of NGOs’ fundraising strategies; household survey on charitable giving; market research on who’s receiving philanthropic donations and why; how remittances are and can be used for community development.

VIA Foundation - Czech Republic The VIA Foundation is a Czech charitable organization that provides small grants, and expertise to non-profit community initiatives in the Czech Republic. VIA Foundation is CEE Trust’s partner organization in the Czech Republic, therefore promoting CSO sustainability is part of its mission.


Sustainability Strategies & Mechanisms Utilized Sustaining VIA: • Donor diversification – long list of international foundations and PVOs, foreign and Czech

government agencies. • Planning ahead for donor withdrawal: is beginning to raise unrestricted annual operating funds in

preparation for future unavailability of general support funding; also raising endowed funding. • Some individual membership – mainly in US, however, not local. • Developed a corporate marketing strategy similar to US nonprofits, with various giving options, e.g.

endowment, named gifts, targeted gifts, etc. Evidently successful, partner with Èeská spoøitelna, Philip Morris, Levi Strauss, Proctor & Gamble Unilever, Citigroup, Pfizer, Juniper Networks, and Plzeòský Prazdroj on various community development projects.

• In-kind contributions from manufacturers, services, and host agencies. • Leadership: key factor in the transition from donor dependence to sustainability was that it had a

credible staff in place that stayed on, especially at the leadership level. • Reputation – VIA’s good reputation within the corporate community led several corporations to

channel their grant programs through VIA; VIA worked extensively with corporate donors after the 2002 floods. (Completing a 15-month strategic planning process and a development audit probably helped build its reputation.)

• Tapping the Diaspora – VIA also explored the charitable interests of various Czech-American communities in the United States and set up an annual giving program, the Via Foundation Czech Heritage Society.

Promoting sustainability of the NGOs that receive VIA support: • Enabling legal environment: working toward new legislation. • Distribute institutional development grants. • Create local fundraising expertise: hold training courses for local consultants; train local fundraisers,

assist with fundraising campaigns; assist other national foundations and non-endowed funds in seeking funds from outside sources to serve as grant opportunities for local NGOs.

• Direct technical assistance: Published “Guide to EU Funds for Nonprofit Organizations,” assisted NGO staff in applying directly for EU funding, supported projects that could be eligible for EU funding.

• Promote Czech corporate philanthropy: funded “Corporate Philanthropy” guide, created Donors’ Club, give seminars on CSR, have awards ceremonies for best corporate donors.

Advice for donors: • Allow at minimum five years for withdrawal period, providing support for institutional development

in order for an NGO to become financially viable. Plan the withdrawal process so that each stage builds on capacities developed in the previous stage, beginning with strategic planning and setting benchmarks. Involve all members of the organization in the process.

• Provide institutional development support that combines direct funding and technical assistance targeted at developing the skills and infrastructure to become financially viable. Support should be given in successive stages, starting small and gradually increasing as managerial capacity increases.

• Provide unrestricted funds for overhead and investment; set the CSOs up with their own office space at the outset.

• Support development of a favorable legal environment to promote local philanthropy. • Do not expect advocacy organizations to attract sufficient funding to become self-sustaining.


ANNEX G: PROFITS FOR NONPROFIT ORGANIZATIONS: AN AMERICAN GROWTH INDUSTRY

Nonprofit organizations have raised money through revenue-generating enterprises in the United States for many decades and probably centuries. We might think of the museum shop at the National Art Gallery in Washington, which has been selling prints and postcards at least since the 1960s. Before that, there were Girl Scout cookies, college football tickets. Even further back, the church rummage sale can trace its lineage deep into the 19th century, if not earlier. “Profits for nonprofits” have been around for a long time. In the last couple of decades, however, revenue generation for nonprofits has expanded greatly. The Metropolitan Museum of Art’s shop in New York City now occupies several thousand square feet of space on two floors, along with several annex outlets elsewhere in the museum, and Pennsylvania State University has shops purveying sports memorabilia at shopping malls all over the central part of the state. Small wonder that the Johns Hopkins research group headed by Lester Salomon recently reported that nonprofit revenue between 1977 and 1997 had grown (after adjusting for inflation) by 144%, nearly twice the pace of the American gross domestic product (81% growth over the same period).16 Why this explosive growth in nonprofit commercial enterprise? The answer lies partly in the zeitgeist of the times with the 1990s business boom that seemed to touch everything, surely, and also in the urging of nonprofit organizational board members (generally business people themselves) and philanthropic funders promoting self-sufficiency.17 A fourth reason lies in the downsizing of so much public sector support for service delivery initiatives in the 1990s, as taxes were rolled back, welfare budgets cut, state allocations for higher education were trimmed, etc. Whatever the causes, there has been a huge enthusiasm in recent years for nonprofit organizations mounting commercial efforts to help defray part of their expenses. Professional associations devote much attention to this topic in their journals and meetings,18 studies are conducted,19 books published,20and competitions are held to elicit creative new ideas for nonprofit enterprise.21 Following a somewhat similar logic but substituting international foundations and donors for board members, philanthropic trusts and state budgetary allocations, NGOs and CSOs in developing countries are likewise being urged to craft and expand schemes for generating their own resources through commercial efforts. International NGOs have been launched to assist such initiatives, like the Nonprofit

16 Salamon (2003: 50-51). Lester M. Salamon, The Resilient Sector: The State of Nonprofit America (Washington: Brookings Institution, 2003). 17 See Foster and Bradrach (2005). William Foster and Jeffrey Bradrach, “Should Nonprofits Seek Profits?” Harvard Business Review (February), 92-100. 18 The Association for Research on Nonprofit Organizations and Voluntary Action (ARNOVA) has allotted a good portion of panels at its annual meeting to this topic in recent years. See for example the 2004 annual meeting program at <www.arnova.org>. 19 For example, Massarsky and Beinhacker (2002) and Community Wealth Ventures or CWV (2003). Cynthia W. Massarsky and Samantha L. Beinhacker, “Enterprising nonprofits: Revenue generation in the nonprofit sector,” (New Haven: Yale School of Management/Goldman Sachs Foundation Partnership on Nonprofit Ventures, 2002). Community Wealth Ventures: “Powering social change: Lessons on community wealth generation for nonprofit sustainability” (Washington: CWV, 2003). 20 For instance, Oster et al. (2004). Sharon M. Oster, Cynthia W. Massarsky and Samantha L. Beinhacker, eds., Generating and Sustaining Nonprofit Earned Income: A Guide to Successful Enterprise Strategies (San Francisco: Jossey-Bass). 21 The Yale School of Management/Goldman Sachs Foundation Partnership on Nonprofit Ventures implemented a 3-year competition ending in 2005


Enterprise and Self-Sustainability Team (NESsT), which has been especially active in Latin America and more recently Eastern Europe.22 Given the widespread American enthusiasm for commercial enterprise among nonprofits and an interest in promoting similar ventures in the developing world, it makes sense to take at least a brief look at the experience in the United States. One widely noted survey (Massarsky and Beinhacker 2002) gathered data from 519 nonprofit organizations, finding that 42% of them were currently operating earned-income ventures (while another 5% had done so in the past), and that of these a bit more than half reported either breaking even (19%) or generating a financial surplus from their ventures (35%); only 35% required subsidies to say in operation. On average, firms operating ventures reported them to be generating 12% of annual net income for the NGO. Another survey (CWV 2003) of 72 nonprofit organizations operating ventures found 27% reporting themselves as breaking even and another 42% claiming a profit, while only 13% reported a loss. The core missions represented by responding organizations concerned mainly service delivery activities (e.g., health, human services, education, arts and culture), though a few declared themselves to be engaged in advocacy. Most prominent among the venture activities were retail/thrift stores, employee training, clerical services and light manufacturing. But lest one jump to the conclusion that the American nonprofit sector has constructed a self-sufficiency model that, with a couple of adaptive tweaks to meet different local conditions, is ready for export to developing countries, a few caveats would be in order. First, most of the revenue went to nonprofit organizations in the health, education and social services sectors, which can and do charge fees for their services – 81% of aggregate nonprofit revenue reported for 1977 and the exact same proportion in 1997. The “civic/social” share (which presumably would include advocacy organizations) actually dropped from 4% of the total in 1997 to 2% twenty years later.23 More importantly, according to Foster and Bradrach (2005), who conducted their own study of nonprofit revenue generating enterprises, the organizations themselves tend all too often to miscalculate their returns. They discount (or fail to count) management time devoted to their commercial enterprises, as well as the overhead and startup costs. When these costs were factored in, they found, only 24% of surveyed firms seemed to be generating a profit on their enterprises, while fully 71% found their ventures to be unprofitable. Many appeared to confuse revenue (total income) with profit (net income).24 For some organizations, the operating losses might be justified, in terms of providing affordable service to poor constituencies, making services accessible to underserved clienteles, hiring disadvantaged community members, and the like, but in strict bottom-line terms, their activities did not make sense. Perhaps worse, in quite a few cases, the non-profit organizational management ended up spending excessive energy on money-losing ventures, allowing what should be a sideline effort to displace core organizational mission to a disturbing degree. The problem resembles the difficulty faced by so many NGOs when they find themselves changing or distorting their original purposes and even core mission in chasing after donor support. Among American NGOs, the healthier ones can surmount such challenges and do very well at sponsoring ancillary enterprises that pull in extra income without disturbing their primary purpose, but this kind of effort is clearly not appropriate for all NGOs, especially those at organizational risk in developing countries.

22 For a brief overview of the NESsT approach, see Davis and Etchart (2004). Lee Davis and Nicole Etchart, “Supporting nonprofit enterprise in emerging markets,” in Oster et al. (2004L 181-203). 23 See data cited in Salamon (2003: 51). 24 This should not be too surprising for an NGO, David and Etchart point out, given that so many of them subsist on grants, where revenue and income are essentially the same.

Documents

Elzeney - CSO Financial Sustainability