What do you do when you’ve screamed about something for 10 years but you still don’t think anyone (or hardly anyone) hears you? That’s how I feel about restricted funding. Restricted funding is the most debilitating practice in the philanthropic world. More than anything else, it holds back nonprofits from succeeding at their missions.
That’s what I’ve been screaming about. There is finally some progress, but my throat is getting a little hoarse.
Let’s be clear what we’re talking about. Restricted funding is “philanthropic funds that are subject to limits based on purpose, time or specified means for achieving an end.” It’s the practice of only funding programs, not “overhead.” For example, it’s when funders tell a nonprofit that it’s okay to spend grant funds on a summer camp, but not on the finance and accounting people it takes to run the camp successfully. I could go on and on.
For many donors, especially newer ones, it can be the most important criteria in making a grant. And it’s the wrong criteria. Nonprofits have learned to tell donors “100% of your contribution will go to programs.” It works with donors, but it’s wrong. In 2015, I wrote a blog post for the Stanford Social Innovation Review and it got the most responses of any post in the Review’s history.
There are funders leading the way to change this practice, including the Weingart Foundation, Medina Foundation, and E.M. Clark Foundation. And many individual philanthropists, who can pivot more quickly, are doing so, but it’s still a (helpful) drop in the bucket.
There are more and more resources out there to explain the value of unrestricted funding and debunk the myths of restricted funding, like www.overheadmyth.org and Pay-What-It-Takes. And just to be clear, “unrestricted” does not equal “unaccountable”; accountability should be tied to social outcomes, not “overhead and administration.”
There are a lot of grey areas in the philanthropic/nonprofit world that can be hard to measure — that’s just the nature of the work. But this issue is black and white: restricted funding is wrong and debilitating. Giving unrestricted, flexible, outcome-focused funding is right, and is a huge lever in helping nonprofits use our investments to meet critical social needs.
Sir Paul Shoemaker is the Founding President of Social Venture Partners and Strategic Advisor to Giving Compass and Giving Tech Labs
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