Funding has emerged as one of the main challenges confronting the not-for-profit sector over the past few years. Issues such as non-compliance, inefficiency and corruption, among others, have cast a cloud of suspicion over the sector, according to a study conducted by consulting firm Global Finance Strategies (GFS) last year. GFS provides financial, strategic and operational counselling, capacity building and outsourcing services for non-governmental organizations (NGOs), donors, governments and private sector companies.
The report, Going Local: The Promise and Challenge of Aid Localization, suggests that large funding organizations are looking to give money directly to grassroots organisations and these organisations must innovate in order to benefit from this shift in the funding pattern.
Linn Dorin, the author of this report and founder-principal of GFS, was in India in April. She spoke about the challenges emerging from aid becoming localized and what NGOs should focus on. Edited excerpts from an interview:
Why is aid being localized?
Aid localization is a trend that has become increasingly prominent in recent years, but the forces shaping this trend date back to the launch of the Millennium Development Goals (MDGs) in 2000. The MDGs, and international meetings on aid effectiveness in the following years, brought new voices to the discussion on international aid, advocating for increased country ownership of development priorities.
Since then, other forces have continued to influence this trend—some of the world’s largest international donors, like USAID, have set specific targets for localized aid, while the rise of the BRICS countries (Brazil, Russia, India, China and South Africa) and their increased focus on South-South development cooperation has also driven funds locally.
Public and private sector actors also now play an important role, especially in India, where the Companies Act 2013 mandates that private companies must spend a certain amount of profits on corporate social responsibility initiatives per year. All of these factors have contributed to a range of donors seeking to fund development at the local level.
Why is it necessary?
Localization of aid has the potential to empower local stakeholders and organizations to take ownership of their own development priorities and to create local and sustainable entities for their own strategies.
International organizations (and sometimes even governments) simply don’t have the same level of involvement in local communities or such an extensive on-the-ground network, and shift priorities depending on their own country agendas.
What are the challenges emerging from this shift?
There are many particularly operational and financial challenges. One key challenge facing many local NGOs is the difficulty in accessing funds directly from major donors. Currently, many local organizations access their funding through international NGOs, and consequently, have no direct relationship with donors. On the other hand, many donors are concerned about the operational and systems capacity of local grantees, particularly in terms of issues like compliance, procurement and financial management systems.
How can various stakeholders address these challenges?
For example, some recipients are outsourcing operations, tasks and partnering with private firms or local fiscal agents to manage their operational capacity. Donors are also increasingly investing in the operations and systems capacity of their local grantees. In addition, some are creating regional technical support hubs which employ specialists to assist regional grantees with operations tasks such as hiring, reporting, budgeting and general operations management.
What type of capacity building is needed with localization of aid?
When it comes to addressing the impact of aid localization, we are talking about building the operational and financial capacity of local organizations. This means overall organizational management including fund-raising, human resources, IT, procurement, governance, compliance, reporting, M&E (monitoring and evaluation), financial systems like budgeting and accounting, etc. These ‘behind-the-scenes’ departments are essential for local organizations to function, but often receive less attention—and substantially less funding—than programme departments. But operational and financial capacity is critical in order for local organizations to absorb grants and meet the due diligence requirements of donors.
What should one be cautious of while trying to resolve the challenges of localization of aid?
Localization should not be viewed as an end unto itself, but rather as an important step to ensuring local ownership and sustainable development.