COVID-19

How to reform NGO funding so we can deal with threats like COVID-19

Workers upload a truck with donated aid for poor families of the Rocinha slum as the coronavirus disease (COVID-19) outbreak continues, at the Acao da Cidadania NGO headquarter in Rio de Janeiro, Brazil March 27, 2020. REUTERS/Pilar Olivares - RC2HSF9GQ3R1

Charities have a part to play responding to immediate needs and helping with recovery. Image: REUTERS/Pilar Olivares

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COVID-19

  • Coronavirus has triggered a funding crisis for NGOs when they are needed most.
  • The economic downturn means future aid budgets and donations are likely to decline.
  • A liquidity fund could help NGOs cover overheads in the short term.

We all know that this pandemic is unprecedented in scale and need. Almost every household, community, organization, sector and nation is reeling from its impacts on health, the economy and society. Our world has fundamentally changed.

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We also know that populations affected by conflict and those trapped in states of fragility and protracted crises, such as Yemen, Syria and the Democratic Republic of Congo, will be especially vulnerable to the pandemic’s impact: health and economic effects certainly, but also risks to social order and cohesion.

The global humanitarian NGO community stands ready to respond to the extraordinary needs that this crisis is generating. Organizations, including Mercy Corps and many others – especially local NGOs most connected to the communities where they work – are already scaling up our responses, and preparing to do so much more.

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We are acutely aware of our role and responsibility in continuing to meet the needs of the millions of people who rely on us. The humanitarian community has a huge part to play, both responding to immediate needs and in helping with recovery in the medium to longer term. In 2008/9, I was working in Ethiopia and saw first-hand the deep, devastating impact of the global financial crisis on food security and livelihoods there and the need for longer-term market systems and economic recovery programmes.

And yet the international humanitarian and development sector is itself rapidly facing a critical threat from this pandemic, due to funding constraints which risk forcing us to downsize and lay off staff at the precise moment when our work has become vitally important.

Funding Gap (2009–2019)
Even before COVID-19 the humanitarian funding gap was growing. Image: Global Humanitarian Overview 2020

To be clear, this is not a fundraising attempt by one NGO. While many generous people are already contributing in many different ways to this global response, and no doubt many more will, what we really need is nothing short of a new, innovative humanitarian financing model.

We urgently need your brightest ideas, your networks and power to bring people together, to help us innovate our way through this crisis.

The reality is that there has been an immediate and significant reduction in our organizations’ liquidity. Our business model is structured around our ability to pay team members centrally and in country programmes around the world, for delivering measurable, pre-agreed upon impact through programmes that we have designed and our funders have agreed to. It is not adequately structured to anticipate and adapt to a large-scale change in context.

With the changed context of the COVID-19 pandemic, our programmes need to pivot rapidly to respond to different and additional needs, while coping with restrictions on travel, lockdown requirements and health concerns. This requires a massive amount of flexibility, as the parameters and cost structures of our work shift, with the duration of these shifts entirely unknown. The implications of this for cash flow and liquidity are critical and acutely time sensitive for both international and local organizations across the NGO community.

We are starting to see some flexibility from several institutional donors to help us manage this, but we urgently need a sector-wide approach to address the following challenges:

  • An acute liquidity crisis.
  • Pressure to rapidly downsize operational capacity prior to scaling up response.
  • A financial and operational risk burden that falls disproportionately on NGOs and other implementing partners.
  • A massive economic downturn that means shortfalls in our ability to cover costs are unlikely to be made up by future aid budgets and individual donations.

Reducing capacity now would be catastrophic to NGOs’ ability to respond to both the immediate and longer-term needs we will see escalating all over the world as a result of this pandemic.

Many of our institutional donors pay in arrears and often only after long delays and audits. This differs from the for-profit business sector which, when faced with an anticipated large surge in orders, might either require significant payment upfront, or raise finance for the surge. The private market has to date not offered the types of short-term financing facilities for NGOs that businesses access to fund surges in capacity. We do not have conditional grants or anticipatory financing mechanisms in place that can be triggered when pre-defined conditions are met. With few exceptions, somehow donors have been unable to establish these terms for their recipients and instead expect organizations to be able to maintain cash on hand to front the surge in capacity needed to respond to a crisis.

To help us address these challenges, we need new ideas and innovative solutions. Never have we been so in need of cross-sector collaboration, harnessing our respective areas of expertise and capacities across the private sector, governments and civil society. The Forum’s COVID-19 Action Platform provides us with this opportunity for collaboration and a rapid mobilization and sharing of innovative ideas and identification of creative solutions.

Potential solutions might include:

  • An anticipatory financing mechanism to make finance raised in advance available at scale to address immediate needs, and to evolve and adapt as those needs and contexts change. We already know many of the key solutions that we need to roll out as soon as possible: from educating people on how to stop the spread of the disease; resources for hospitals; cash distributions to those in need; food supply chain maintenance; and so on.
  • Establishing a COVID-19 response investment vehicle, for example, an outcome funding model that supports households and communities economically as they undertake social distancing, linked to a measurable medium-term reduction in economic fallout of the pandemic.
  • There’s been much talk over the years of establishing an NGO Liquidity Fund. Now more than ever there is a need and opportunity for such a fund, which NGOs can use to cover overheads in the short term, and potentially pay back over time once response funding starts to come in.
  • Developing a Risk Framework Mechanism that underwrites the increased risks to which NGOs are exposed. We need to find a model that enables a much greater risk-sharing approach so that NGOs do not shoulder the burden of financial risk alone – but that is also acceptable to donors. Many retail businesses plan for 1-3% theft and destruction losses. They create processes and procedures to stay within this pre-determined acceptable risk threshold. Donors' zero tolerance for loss risk is out of touch with reality and is an unhelpful framework for guiding decisions – particularly for humanitarian organizations working in the most volatile, high-risk environments even when the most stringent controls are in place. What is an acceptable level of risk for life-saving operations in the most insecure and high-risk environments in the world, where humanitarian needs are extensive? Can we agree on what it might be and all collectively manage within an agreed threshold?

The global humanitarian community must be at the forefront of responding to the rapidly escalating humanitarian needs around the globe – saving lives and so much more, through this pandemic and beyond. And, as with any crisis, there’s opportunity. Opportunity here to design and develop new financing solutions, which could help to find new and better ways to tackle global challenges together. This has never been more needed than now.

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Related topics:
COVID-19Humanitarian ActionDevelopment FinanceSocial Innovation
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