LOCAL TRUST FUNDS HELP POOR COMMUNITIES IN ECUADOR
Although rich in natural resources, Ecuador, a small country in the Andes, is a poor country. Fundación Esquel was established in 1990 in response to the increasing needs of the poorest sectors of society. To date it has carried out over 300 community development projects benefiting some 500,000 people, and pioneered the strategy of placing local trust funds in the hands of communities to manage themselves.
An outstanding example of local management is provided by FOCLA (Federation of Peasant Organizations of Lago Agrio) in Ecuador’s northern Amazon region. A local NGO (FEPP – Fondo Ecuatoriano Populorum Progressio) had been making small loans to FOCLA member organizations since the late 1980s, but in January 1998 the Federation established a small savings and loans fund in order to channel credit directly to peasant families. FOCLA members provided US$2,000 for the fund, Esquel provided an additional $9,000, and FEPP contributed a further $2,000.
The fund’s success has been extraordinary: by July 1999 the loan portfolio had reached $40,000. This phenomenal growth comes partly from interest received, the savings of the 128 members and membership fees. In addition, there is a small guarantee fund that beneficiaries have to pay into in order to obtain credit (how much depends on the paying capacity of each member; 12 per cent of the requested credit is the maximum).
The fund is managed by Graciela Romero, a 23-year-old peasant woman, who presides over a credit default rate as low as 2.7 per cent – impressive in a country facing a deep financial crisis. In all 31 men and 73 women are currently benefiting from credit.
Among the many encouraging stories are those of Santos López, a 35-year-old peasant who is raising native fish in his seven new fishponds; Simon Rogel, who now has his own own pig farm, and Marcela Cueva and her husband, who have set up a small broomstick factory that currently exports to Colombia and Venezuela. Experiences such as these show just how effective local trust funds can be in bringing dynamic growth into small rural economies.
Fundación Esquel obtains its funds from a number of international donors – governments, multilateral institutions and private foundations – as well as from local private donors and its own venture capital investments in Ecuador.
Ecuador: the facts
Two-thirds of the population of over 12 million live below the poverty line.
The wealthiest 5 per cent have an income 200 times larger than that of the poorest 5 per cent.
Exit strategies – the difficulties of leaving gracefully
In 1988 USAID Bangladesh contracted Pact, a US NGO specializing in capacity-building of civil society organizations, to implement a five-year $5 million project to build capacity in Bangladeshi NGOs. In 1992 USAID agreed to extend the project for a further five years and built the grant to $11 million, with the aim of evolving it into an indigenous sustainable Bangladeshi NGO — but this proved more difficult than anticipated.
By 1995, as planned, Pact had established a new Bangladeshi NGO, the PRIP Trust, with Bangladeshi trustees and management. As USAID generally puts a ten-year time limit on support of any one project, the nascent organization faced a major fundraising challenge just as it was learning to manage itself independently.
One option would have been for USAID to provide the new PRIP Trust with an endowment. This would have ensured its sustainability and given it independence from funders. However, USAID was unwilling to pursue this option, probably feeling that the organization was too new and too untried to manage an endowment.
This left the PRIP Trust with the task of persuading new donors to support its future work or charging NGOs for its services. Both USAID and the PRIP Trust were to be surprised by the attitudes the Trust encountered.
Finding other donors?
European and Canadian donors were not unnaturally suspicious of USAID’s refusal to fund beyond the end of 1997. ‘If the project was so good,’ they asked, ‘why do you not continue to fund it?’ The fact that USAID had been the sole funder of the project meant that other donors knew little about it.
Other donors were in any case temperamentally unwilling to respond to the plans of an organization which already had its mission and its plans in place. They were more interested in retooling the PRIP Trust to fit their own agendas in Bangladesh. Even where donors were interested in the work of the PRIP Trust, it seemed that they were more likely to offer medium-term project support (3–5 years).
A donor consortium?
Attempts to pull together a donor consortium were bedevilled by the different agendas of different donors, their lack of transparency in revealing these agendas, and extremely long drawn out negotiations as they jockeyed to protect their interests, requested clearances from their head offices, or insisted on their own (and separate) appraisals of the organization and the proposal. Some donors seemed unable to respond to a funding request from as unique an organization as the PRIP Trust without an ordinately long lead time.
The PRIP Trust finally received three-year core funding from SDC (Swiss Development Corporation) and CIDA (Canadian International Development Agency). This gives the organization a breathing space but does not deal with the issues of organizational and financial independence. The PRIP Trust, like many southern NGOs, is now dependent on serial grants from a variety of donors. It hopes that funding will be renewed, but has no such assurance.
If you are the sole funder of an NGO and foresee a situation in which the NGO will need other funders, it is wise to make sure that information materials on the work of the NGO get out to other donors from Day 1. It is vital to build interest in the NGO’s work, and to make sure other potential funders understand why you can’t continue funding despite the fact that you think the NGO is worth supporting.
The endowment route should be seriously considered. Many donors are frightened that they will lose control of the organization, but this bullet has to be bitten. It is possible to set up a deliberate and considered process leading to an endowment so that the donor achieves the necessary ‘comfort level’.
Serial three-year grants on the basis of proposals submitted does not build institutional self-reliance. The organization remains as dependent on foreign donors at the end of every three years as it was at the beginning.
A final thought: donors could consider using bridging funds while negotiations are continuing. The danger is that the NGO will go out of business while donors are working out which way they would like to fund them.
1 The story of the PRIP Trust is well documented. See Richard Holloway, Exit Strategies: Transitioning from international to local NGO leadership (1996) Pact Publications, and Babar Sobhan, The PRIP Trust: Becoming an organization (1998), available from Pact, 1901 Pennsylvania Avenue NW, 5th Floor, Washington DC, USA or at email@example.com
Richard Holloway is based in Zambia. He is a Senior Associate at Pact, a US NGO which specializes in building the capacity of civil society organizations. He can be contacted at firstname.lastname@example.org
IDSI to promote social investment in Latin America and the Caribbean
On 1 October, the Institute for Development of Social Investment (IDSI) was launched in São Paulo, Brazil. The aim: to foster indigenous philanthropy. The first basic premise: wealthy individuals and businesses in Latin America and the Caribbean (LAC) want to invest some of their private resources in social development. The second premise: technical assistance will be needed to make this happen.
IDSI, with a grant from the W K Kellogg Foundation for institution-building, will supply information and know-how for individuals, families and corporations interested in developing philanthropic activities. In so doing it will draw on best practices in LAC, USA, Europe and elsewhere, focusing particularly on identifying and disseminating best practices to be found in the indigenous philanthropy in LAC.
IDSI will also offer services to existing philanthropic organizations. It will facilitate networking among those that want to increase the effectiveness of their grant-making, offer training for their staff, and deliver technical support to those that want to re-orientate their philanthropic programmes. Marcos Kisil, former Regional Director of the Kellogg Foundation, will lead the new organization.
Helping farmers to protect cranes in south-west China
As its name suggests, the primary mission of the International Crane Foundation (ICF) is to protect cranes and the wetland and grassland ecosystems they inhabit. But at Cao Hai, a lake in mountainous southwest China, protecting the birds’ habitat has led to helping local farmers develop alternative livelihoods and even to setting up a long-term community trust fund.
Since 1982, when the Cao Hai Nature Reserve was created, poor farmers with no other means of livelihood had been encroaching on the protected wetlands to reclaim land for agriculture. The area is an important winter home for tens of thousands of waterbirds, including over 400 rare black-necked cranes Grus nigricollis. The ICF project, started in 1994, sought both to offer business alternatives that were compatible with nature protection and to encourage farmer participation and leadership in development decisions and resource protection.
Cooperating with the Trickle Up Program (TUP) of New York, ICF provided small grants to farmers in two $50 instalments to help them start or expand businesses. Villagers themselves chose the poorest families to receive the grants. Grant conditions specified that group members (grants assisted groups of 3–5 people, usually families) complete business plans and reports, work for 1,000 hours during three months, and reinvest or save 20 per cent of business profits. Typical businesses have been buying goods and reselling them at a different market, bean curd production, and making stoves from recycled oil drums.
Community trust funds
The project also specified that each group donate half the second payment ($25) to help start up a community trust fund (CTF). The provincial government would provide a $33 matching grant and ICF would give $100. The CTF has been used to establish revolving loan funds. Nature reserve staff facilitated village discussions about how best to use the CTF. Decisions have varied among villages, with later villages learning from the experiences of early ones. In most cases, user groups of 10 families have received a portion of funds to manage separately; elsewhere entire villages operate a single fund, involving 50, 75 or more families and a small committee to manage fund activities. Money is mostly used for business activities, but also to purchase fertilizer or even pay school tuition fees.
Generally the loan period is 2–4 months, with 2–3 per cent interest charged per month. CTF resources are thus growing, as user groups have minimal operating expenses. Interest rates are higher than for loans from local banks, but banks will not give loans to the poorest farmers. ICF continues to support the nature reserve, and five village coordinators to monitor and assist CTF activities. Forty-nine user groups now operate, involving 861 families. Several groups have needed adjustment to their management, but only one group has ceased operations.
Linking community development and conservation
An important goal has been to link community development work with conservation. Early on, we realized the linkage would not occur by itself. We negotiated another requirement for TUP and CTF participants: that each family takes some specific action for conservation each year. Each CTF user group has incorporated this requirement into the rules devised for its operation. Many families would plant five trees a year, or plant iris to reduce soil erosion.
After gaining experience of joint decision-making through CTF, farmers in some villages started to devise their own solutions to community problems. Farmers pooled labour and funding to bring electricity to their village; others jointly devised steps to stop rock quarrying that threatened the lake’s outlet dam. Farmers also worked together at village level to enforce the spring fishing ban. Currently, Bojiwan Village, with technical help from nature reserve staff, has developed a village resource plan that deals with land use, soil erosion and water. The plan includes enhancement of the village road, water supply and forest areas, and protection of wetlands together with efforts to develop ecotourism.
The project has changed the antagonistic relationship between nature reserve and villages. Villagers are taking increasing initiative in protecting their resource base, to the benefit of protected wildlife and ecosystems of the nature reserve.
Jim Harris is Deputy Director of the International Crane Foundation.
Building long-lasting supports for children and youth
In setting out to create a global network of national ‘foundation-like’ organizations, the International Youth Foundation (IYF) has taken an infrastructure-level approach to the problem of how to make a lasting difference.
When the decision to build a global network of ‘foundation-like’ organizations was taken in 1990, IYF was guided by one overarching principle: that decisions about local programmes are best made by people who understand local needs, obstacles and opportunities. Ten years and 23 country partnerships later, this principle remains intact. By 2003 IYF hopes to have 60 country partners.
In some cases, IYF was instrumental in mobilizing the resources and expertise necessary to launch these locally run institutions, but in the vast majority of cases it has entered into partnership with existing organizations. To further the sustainability of its partners, IYF has provided endowment funds to some and issued challenge grants for programming and endowment-building to others. Beyond grantmaking, IYF provides training and technical assistance to partners to strengthen their capacity and helps them diversify funding sources. In IYF partner countries where there is little tradition of philanthropy or little encouragement of it by legislative, tax or government policy, IYF and its partners are actively engaged in encouraging policies that promote local philanthropy and the development of civil society.
Each of IYF’s country partners is committed to promoting programmes and policies that allow young people to develop their full potential. The network enables them to share information – strengthening each other’s work and contributing to the development of a substantial knowledge base around ‘what works’ for children and youth within diverse national and cultural contexts.
IYF’s role is to serve as the network’s catalyst, convener and manager. It is IYF that facilitates regional and international meetings and provides the overall strategic direction for the network, plus financial and technical assistance in such areas as sustainability, effective programming and evaluation. Crucially, it can also provide access to fundraising opportunities.
Increasingly, this global network is attracting the attention of multinational corporations. One of IYF’s newest corporate partners, the Lucent Technologies Foundation, recently provided $1.9 million for the first year of a global, multi-year partnership to promote positive children and youth development through education and learning. Lucent support will be directed to areas such as educational reform, developing and supporting teachers, and inspiring excellence in science/maths. In year one these activities will be focused in countries where Lucent operates and IYF has a local partner: Brazil, Mexico, Venezuela, Poland, Russia, the UK, Philippines, Japan, Australia and China.
From Lucent’s point of view, one of the key things that IYF brings to the table is monitoring of programme impact. ‘We’re a scientifically based company,’ said President David Ford. ‘We need to measure the impact of the programmes we fund.’
Microsoft, Coca-Cola, Shell International, Nike, Mattel and Visteon are just some of the other companies that have formed partnerships with IYF. It seems that the in-depth knowledge of local needs and on-the-ground expertise of IYF’s partners is attractive to companies that want to develop effective corporate philanthropy strategies in the countries where they operate.
Supporting fundraising – an investment for the long term
Jaime Faustino and Marianne Quebral
For some time now, NGOs in developing countries have recognized the need to move away from a heavy reliance on grants from international sources. With international donors under increasing pressure to reduce grant dependence, it makes sense for them to actively support their grantees’ efforts to diversify their funding.
In 1998 USAID and the Asia Foundation created the ‘Program for Financial Sustainability’ to help their grantees in the Philippines. Funded by USAID and administered by the Asia Foundation, the programme is being implemented by Venture for Fund Raising. (The Swiss donor agency Helvetas is using the same programme with its grantees as part of their exit strategy: they have announced the termination of their assistance to the Philippines by 2001.)
For the last ten years, USAID and the Asia Foundation have supported a range of NGOs engaged in empowering the most disadvantaged groups in the country, including women, fisherfolk and the urban poor. They will continue to support these programmes but a percentage of the grant funds is explicitly set aside to enable NGOs to begin the long-term investment in financial sustainability if they choose to divert grant funds away from programmes to fundraising.
The programme has four components:
Financial sustainability training workshop Intensive four-day workshops introduce NGO staff to the three mains sources of NGO funding: earned income, grants, individual gifts and contributions. There is a particular focus on developing individual giving, potentially the most untapped gift market in many developing countries.
Board and volunteer development NGO boards must be converted to the idea of investing in fundraising. Donors are supporting board retreats and other efforts to help board members define their roles and responsibilities in the fundraising strategy.
Developing a fundraising plan Staff and board members receive help in developing a plan that involves key constituencies.
Implementation of the plan Staff, board and volunteers are given support in implementation of the plan. Grant support may cover computer software, production of marketing materials, list rental and direct mail costs, among other things.
Started late in 1998, the programme is in its infancy. Staff of all grantees have undergone a fundraising training course, and in several cases board development programmes have been started. By late 1999 plans for fundraising campaigns will have been drawn up and implementation will have started.
One thing that is already clear is that the training offered is insufficient. While participants learned a great deal and were eager to test new strategies, some have since encountered many difficulties. In some cases the board and other staff have been unwilling to make the institutional and financial commitment to fundraising. Without internal support, few resources are given to these new strategies. Successful fundraising requires close cooperation between staff, board members and other friends of the organizations. In addition, there is widespread scepticism about whether the new strategies can work.
Another clear lesson is that local experts are a must. Initially, the course was conducted by international consultants, and the general response was ‘That can’t happen here’. Local experts with actual experience may give the same message but carry far greater legitimacy. It is hard to argue against someone who actually did it.
Even if donors and NGOs are convinced of the need for fundraising, they still need help to actually move beyond the broad principles. Assuming that each country has a unique culture of giving, it is critical to gain an understanding of ‘how it works on the ground’. Squandering NGO legitimacy through poor and inappropriate fundraising (and scandals) can be fatal to the NGO and the entire NGO community.
So donors must invest. Many NGOs are grant-dependent because grants represent a low-risk endeavour with a potentially high return on investment. Investing two weeks in drawing up a grant proposal can lead to a very high return on investment. If they are to diversify their funding, NGOs must raise money from individuals. In developing countries, this is a risky and expensive proposition. An individual giving programme may bring a low return in the short term but can potentially build relationships that result in the transfer of assets or part of an estate, the source of endowments. Without donor support, NGOs cannot invest in developing such a programme.
Jaime Faustino is President and Marianne Quebral is Executive Director of Venture for Fund Raising.
Too many cooks can make a lasting difference
When a group of women who live in a slum in Delhi, an NGO called Katha Khazana that works in the slum promoting income generation activities for women, and a group of bakery chefs from one of Delhi’s largest luxury hotels, the Taj Mahal, came together, all parties were delighted with the partnership that emerged.
The women, largely illiterate, supplemented their husbands’ meagre and irregular incomes by working in Katha’s bakery unit, where they made biscuits and little cakes. They earned about Rs 600 a month (about US$15), so the bakery was not making enough money to be viable. The highly paid Taj Mahal chefs had probably never seen a slum in their lives, let alone met any of its inhabitants.
The project …
It was Partners in Change, an NGO that assists companies in their social responsibility programmes, that suggested to the hotel the idea of upgrading the skills of the women at the Katha bakery, and they jumped at it. What seems to have attracted them is the fact that they could really get involved rather than just writing a cheque – and it was a great professional challenge for the chefs to teach a highly skilled craft to women who could barely read or write.
Twenty women between the ages of 17 and 35 attended the six-week training programme. Training was held at the bakery unit and at the Taj kitchens, but using only the basic equipment that was available in the Katha bakery. All aspects of baking were covered, from procuring the raw material to the technicalities of baking.
… and the outcomes
As a direct outcome of the training, the women now earn 3-4 times as much as before, ie US$50–60 per month. All the families can send their children to school, and the viability of the bakery has increased dramatically. This is mainly due to the increased range of products the women make (including soufflés), and the improved and consistent quality. In addition, the confidence level of the women is now sky high; their customers now include larger shops and embassies as well as nearby tea-stalls and friends, and the women have become aggressive marketers.
The Taj Mahal too is delighted with the partnership, which is extending in many different directions. A fresh batch of women will be trained, and the hotel has also taken on a young student from the slum as an apprentice steward; he will be employed by the hotel on completion of the training. In partnership with a Delhi hospital, the hotel runs a regular health clinic in the slum. And this is only a beginning!
Where companies work with local partners, a whole range of resources can be deployed for a cause and ‘donors’ can get fully involved with the work they support. And in this case the company has the satisfaction of seeing that its contribution has real potential to make a long-term difference to the lives of these women.
Shankar Venkateswaran is Chief Executive of Partners in Change.