How to retail wholesale money

Rien van Gendt

Like most big northern funders, the Bernard van Leer Foundation (BVLF) likes to support small local NGOs, often with very small grants. Sometimes this is only practicable if you use grantmaking intermediaries. In this case, BVLF prefers to work with local rather than international NGOs. This preference arises out of our wish to contribute to civil society development as well as to the substance of early childhood development.

BVLF has no civil society projects per se but we aim to help build civil society infrastructure through the way we execute our projects and work with partners in the field. This means working as much as possible with local NGOs, both as programme implementers and as intermediary grantmakers, and contributing to institutional capacity-building by training, networking, etc. It also means mobilizing local wealth and stimulating local philanthropy. International NGOs often present themselves as possible intermediaries, but BVLF tries to avoid working with them.

Small grants for small local NGOs

Small local NGOs could be described as the ‘darlings’ of the international development community. But making disproportionately large grants to these so-called darlings can be disastrous. The NGO may totally lack the capacity to make good use of and account properly for a large grant; in some cases fragile organizations have been quite literally destroyed by receiving too much money. Overfunding also shifts funders that want to test out innovative approaches right away from this strategy.

The problem with making small grants to local NGOs is twofold. First, making small grants is labour-intensive. Making a small grant requires as much time as making a large one. Second, finding the right local NGOs to work with can be difficult, and they may well need a lot of support from the funder.

Historically, none of this has been a great issue for BVLF. The Foundation likes to provide seed money to small local NGOs, which can often lead to a much larger grant in the future. With its commitment to civil society development, and therefore to working with local grantees to develop capacity, the Foundation has always accepted that making grants of this nature takes a lot of staff time.

But the recent unprecedented growth in foundation assets and income is creating a new situation. As BVLF grows – its resources have almost doubled in recent years – the question for us is ‘how to retail wholesale money’ without a corresponding increase in the number of staff. In the US many foundations are responding to this situation by making much larger grants. If you want to go on making small seed grants to local partners, working through a grantmaking intermediary may sometimes be the only way. The size and scale of international foundations is certainly driving many of them in this direction.

International NGOs as intermediaries

If a decision is taken to use an intermediary, the question is then: does the intermediary have to be an international NGO or can the role be taken by an indigenous community development trust or other local organization?

The disadvantages of using international NGOs are well rehearsed. Despite all the rhetoric about accountability, they tend to be more accountable to their donors than to their local partners, with programmes skewed to the financial demands from abroad rather than to local needs.

There is also the risk of a ‘cookie cutter’ approach: instead of building on what exists locally and respecting cultural diversity, international NGOs have a tendency to adapt existing programmes, to use Western models of philanthropy instead of investigating how solidarity is organized in a particular society.

Multilateral agencies like the European Commission usually work through international NGOs in emergency situations instead of using local NGOs as intermediaries. This happened recently in Turkey after the earthquake, when financial resources were allocated by the EC through foreign NGOs, which then selected local partners to work with.

This approach is not consistent with commitments made by the EC in terms of partnership and it does nothing to stimulate local capacity-building, participation and sustainability. In addition, foreign NGOs are likely to be much less competent than local ones to carry out a needs assessment, determine strategies and mobilize local resources. In this situation local NGOs face the dilemma of either forgetting about EC funding or agreeing to partner with a foreign NGO imposed by the EC and totally unknown to local NGOs – if they are lucky enough to be selected by a foreign NGO.
 
Local organizations as intermediaries

For all these reasons, BVLF favours using local organizations as intermediaries wherever possible. In Malaysia, for example, we chose to use PACOS, an existing grassroots NGO, to play this role, and in the process helped the organization to develop capacity as a grantmaker (see p20). If we wanted to do something in the Balkans, we would contact established local organizations such as the Open Society Institutes and use them for re-granting. Such organizations might lack the necessary expertise in early childhood development, but this is likely to be the case with international NGOs as well. Whatever intermediary we choose, this expertise will probably need to be built up.

If we do decide to work with an international NGO, it will be because suitable local NGOs are lacking, so there are no alternatives. But even then this will always be a temporary arrangement. The aim will always be to help develop the local sector infrastructure, and to this end we like to ensure that this cooperation with international NGOs triggers a process resulting in the creation of indigenous local NGOs.
 
There are different options here: an activity that started in an international NGO can be continued under a different regime by a newly formed local NGO, or the international NGO can transform itself into a local NGO.  In Mozambique, for example, US Save the Children became the indigenous Child, Family and Development Association (see p21), while Ecole Sans Frontieres in Thailand became the Thai Wisdom Association. In this way we can support the creation of new indigenous grantmakers.

From international to local

Transforming international into local NGOs is in fact a trend that is evident in other organizations. CARE, for example, is gradually turning its national offices into indigenous legal entities. Doing this can be advantageous in terms of funding. Being an indigenous NGO may make it easier to access other foreign funding – most international funders are not keen to fund international NGOs. It also makes it easier to access local public funding.

So how do we approach the transfer of responsibility from an intermediary to a local NGO?  What we tend to see is a gradual weaning process: local people become involved; local people take over the management; local people take over the governance. The final, key stage is registration as a national legal entity.

People often underestimate the time it takes for organizations to develop into strong national NGOs. The process of evolution is slow because local NGOs are sometimes new constructs in a particular setting. Foundations are used to looking at the implementation of substantive programmes rather than organizational development.
If the transformation happens too quickly, the new NGO may subsequently collapse because sufficient organizational capacity has not been established. Nor should the time needed to achieve financial sustainability be underestimated. If foreign funding is withdrawn too soon, the organization may not survive.

Persuading international NGOs to undergo this process of transformation into a local entity can be a difficult task. They sometimes argue that they employ local staff and are therefore a local organization already.  But it’s not just a matter of who you employ but a much more fundamental matter of ownership.

Rien van Gendt is Executive Director of the Bernard van Leer Foundation. He can be contacted by email at rien.vangendt@bvleerf.nl

This article is based on a presentation during the Council on Foundations Conference in Los Angeles in May 2000 at a workshop entitled ‘To Fund or not to Fund International NGOs’.


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