Institutional philanthropy in low- and middle-income countries is young, vibrant, and growing. Yet the nature of these philanthropic organisations differs from those in high-income countries, where operating environments benefit from an established philanthropic ecosystem.
But what does effective philanthropy look like in the context of weaker state capacity and developing institutions? Responses have relied on best practices in high-income regions. Yet as many globalised organisations have learned, applying developed market models to low- and middle-income settings does not always work.
We explored these challenges amid the emerging Latin American philanthropic ecosystem and in collaboration with colleagues from Argentina, Chile, Colombia, Mexico, and Peru, collected data on over 350 philanthropic entities to understand what organisational capacity was needed to strengthen institutional philanthropy in developing markets such as those in Latin America.
Organisational capacity of institutional philanthropy
Developing economies would benefit from a framework to measure the organisational capacity of their philanthropic organizations, where a majority of these organisations both finance and implement their own programs, unlike in North America or Europe where a sharper division exists between funders and operators.
Our goal was to create such a framework via the development of an organisational capacity index. Such a tool would allow organisations to diagnose and measure best practices in the sector and would establish benchmarks for philanthropic organisations, enabling leaders to compare themselves to peers. An index would also facilitate decision making by helping philanthropists identify higher-quality organisations in areas with the best opportunities for impact.
However, the critical challenge we faced developing such a signal was that most of our knowledge of organisational capacity rests on studies of traditional nonprofit organisations in developed countries. To overcome this, we took a top-down and bottom-up approach. We reviewed the literature to identify best practices related to organisational capacity and took these indicators to the field, where we interviewed 25 pacesetting organisations in five Latin American countries to understand their perceptions about what the region’s organisations need to achieve their mission. Based on these inputs, we created an index built from surveys with over 350 philanthropic organisations across the five countries.
Key ingredients for institutional philanthropy in Latin America
The organisational capacity needed to operate in developing countries is distinct from that in North America and Europe, where foundations develop specialised operational and funding strategies that benefit from stable institutions and consolidated pathways to scale.
Most of Latin America’s philanthropic organisations employ mixed social investment strategies through self-financing, fundraising, or co-financing their own programs. Many entities integrate vertically since it allows them to better control their social investments.
The existence of weak government institutions also factors into how these organisations scale for impact. Given the challenges related to inconsistent public policies, the private-public government pathway is not as well delineated as in high-income countries.
The creation of an Organisational Capacity Index considered this context when identifying its four pillars and associated indicators: Governance, Internal Management, Transparency & Accountability, and External Management.
Effective Governance implies having a Board with well-defined functions and selection mechanisms. Compared to Boards in high-income countries, these Boards also need to include members with the ability to impact the professionalisation of the organisation’s management and to leverage their own networks.
Given economic and institutional uncertainty in emerging markets, effective Internal Management requires a sustainable source of income that allows a consistent operational strategy, which includes the implementation of their own programs driven by information management systems.
Transparency & Accountability is a function of media presence and disclosure, and in low- and middle-income countries requires calibration between being more open and the risks inherent in unstable political environments.
External Management is critical for the legitimacy and impact of the organisation, which are built via collaboration with peers and government and the validation provided by various types of evaluations. However, collaboration can also generate risks in these environments, while high costs and logistics may limit evaluation use.
Latin America and beyond
We expect that this Organisational Capacity Index will be relevant to organisations in environments where rapidly evolving philanthropic ecosystems wrestle with inconsistent government policies, uncertain funding, and fragile legal frameworks.
Philanthropic organisations, their board members and philanthropists will be able to evaluate their organisations’ strengths, weaknesses and opportunities with this self-diagnostic tool, and its application will accelerate the sector’s progress in the region by generating debate as to what constitutes an ideal philanthropic organisation in Latin America, and beyond.
Matthew D. Bird and Vicente M. León are both professors at the Universidad del Pacífico in Perú.