Chronic underfunding of nonprofits’ ‘true costs’– programme expenses, core administrative expenditures, organisational development investments, plus reserve funding – blunts the impact funders and nonprofits strive for. As a result, neither party lives up to its aspirations for beneficial change, while those served miss out on opportunities.

The Pay-What-It-Takes (PWIT) India Initiative, launched in 2020, is a collaborative effort to seek sector-level solutions for this problem and has identified five principles that funders can adopt to build stronger, more effective nonprofits.[1] Our latest report for the PWIT Initiative describes how 14 funders, including corporate social responsibility (CSR) organisations, have pursued one or more of the principles. We cite representative examples below.

Multiyear partnerships nurture trust as relationships deepen over time and as mutual understanding of a nonprofit’s needs and goals grows. Such partnerships allow nonprofits to plan and implement programmes and pursue new or more effective approaches that require sustained effort and a long-term funding commitment.

Our research revealed several ways in which funders form such partnerships. They varied from starting the relationship with a pilot or learning grants (e.g., LGT Venture Philanthropy), to committing to long-term support after a thorough due diligence, to assessing values alignment (e.g., Rainmatter Foundation).

Core costs – often referred to as indirect costs – are a nonprofit’s shared administrative expenses essential for running operations effectively to deliver impact (e.g., rent and utilities, technology, and fundraising). Our analysis of 40 leading, relatively well-funded nonprofits revealed the extent of underfunding of these critical costs. While the actual core costs of nonprofits averaged 19 percent (and ranged from 5 percent to 51 percent depending on variety of factors), funders typically provided only an average of 9 percent. Several of the funders we profiled recognize this issue and have adopted approaches for providing fuller cost coverage.

Axis Bank Foundation provides need-based core cost funding by not defining any upper limit. Funders like ASK Foundation may have a predetermined upper threshold but are flexible in meeting actual need.  Another approach, adopted by Mahindra Group CSR and Thermax Foundation, provides nonprofits with the flexibility to use funds across budget line items, including core costs, as needed.

Read the full article about building nonprofit resilience by Pritha Venkatachalam, Shashank Rastogi and Aditi Sharma at Alliance Magazine.