The chronic underfunding of nonprofits’ administrative and operational costs acts as a brake on their ability to grow and reach more communities and individuals in need. “There is almost systematic deprivation of nonprofits in terms of funding management costs,” said Anant Bhagwati, director of capacity building at Dasra, a strategic philanthropy organisation.

In some of our stakeholder consultations, we heard that many funders fear that money not restricted to covering programme costs may not contribute to impact. Yet, a number of nonprofits demonstrate the contrary. They have shown how adequate funding for essential non-programme costs—such as strategy, leadership development, and financial management—actually builds stronger, more resilient organisations with greater capacity to deliver impact to their constituents.

Quality Education Support Trust (QUEST)—a nonprofit focussing on early childhood education—serves as an example. In 13 years, the organisation has evolved from a small, grassroots start-up to successful purveyor of educational enrichment experiences for more than 260,000 underserved children across 24 districts in Maharashtra. It could not have achieved this level of success without funders willing to invest in building its organisational capacity to manage a greatly expanded operation.

While the social sector continues to operate under a restrictive regulatory environment, adoption of good practices by funders as well as nonprofits can help improve the trust and transparency needed to achieve greater impact. Chronic underfunding undermines the very social and environmental impact that funders and nonprofits strive for. Pursuing a path toward true cost funding will require patience and perseverance to overcome ingrained attitudes and practices. This is a complex, systemic issue, and all stakeholders need to work together to solve it. But funders hold the purse strings and should take a lead in initiating action.

Read the full article about underfunding nonprofits by Donald Yeh, Shashank Rastogi, and Pritha Venkatachalam at India Development Review.