This is an extract from an excellent interview with Donald Lobo on Deval Sanghavi‘s No Cost Extension podcast at Dasra. Recommended.
Deval Sanghavi: I think from at least the first time that we [Dasra] met with you, you were very keen that organisations should use the funds as they see fit. Because you realised that I mean, electricity… is required. We all need electricity. It’s not an adjunct. We do need to use emails, we do need to have an office.
But many funders, again, do not see that as valuable, or as something that they want to support. What convinced you and Mari early on that this is an area that also requires support, and differentiating between this line item and that line item may not have been the best use of your time or of the organisation’s time?
Donald Lobo: I think the minute that you work with a non-profit, the minute you actually volunteer with a non-profit in a significant manner, you immediately run into the world’s restricted verses unrestricted funding problem.
Again, if you look at it from a business perspective, right, when you invest in a company, whether you’re investing in shares or whether you’re investing in a VC fund and everything, when you give a company money and you’re investing in a company, you don’t specify how the companies are going to spend that money. That topic does not even come to – like, maybe the board might kind of talk about it, but from a funder, an investor perspective, none of that appears in any of the contracts you sign or any of the various financial documents you sign.
So it’s really strange that with non-profits, that we are willing to make such statements, like “Oh you can use it only for A, B and C.” And then you build this whole ecosystem of, “How do we circumvent getting around A, B and C because we have this funding?” It’s this stupid game that everyone plays. But I think that game, for lack of a better word, I always thought a rather stupid thing to do.
There are a couple of cases where it does make sense, like where you want to give to one specific program, like if an organisation has got lots of programs and everything, and we would do this also. When we are funding inner-city outings, the Sierra Club is this massive, massive non-profit, it’s got a gazillion programs, and we just wanted to make sure that the money we give to the Sierra Club goes to inner city outings, because that was where we are giving the money to. So I think there are some cases where restricted funding versus unrestricted funding makes sense, but far and away, it does not make sense.
No Cost Extension, Episode 2
Hat tip: Sameer S.
Stu, I was involved with non-profits for many years as consultant, CFO, and so forth. I also was the ED of a granting organization for over 20 years. We almost always gave unrestricted grants.
We felt that the organization had been vetted, had passed, we trusted them. The issue with restricted grants, at least in the US is that they tie the organization’s hands, and require greater reporting both for audit, for tax (yes, NPs pay taxes!) and for internal use. It’s almost as if it’s a government contract (and many of my clients, both P and NP, had gov’t contrats, the reporting requirements of which were not trivial). Why have to go through such pain?
Only in a very few circumstances did I recommend a restricted grant.