A funder’s journey

Imagine being in a position where you have the potential to change thousands of lives through philanthropy. Perhaps you’ve sold a successful business, or been left a large sum of money, which you want to use to do the most good possible. But if you don’t have a strong preference about what issue you tackle or where you give—as long as your giving is high-impact—where do you start?

For many people, identifying a charity to run the marathon for can be hard enough; but when you’re looking to set up a new foundation spending £5m per year it is even more difficult, and even more important that you make the right decisions. The Stone Family Foundation came to NPC in 2005 with exactly this challenge. Set up by a British entrepreneur, John Stone, the foundation wanted to tackle disadvantage, but needed help to identify where its resources, skills and interests could be used most effectively.

Sometimes you have to learn by doing in order to identify what you’re passionate about and work out the best way to fund. Our first step with the Stones was to identify a broad portfolio of NGOs across the world, spanning microfinance in Malawi, education in Laos, water provision in Bangladesh and mental health in the UK. The trustees then spent the next three years building up their knowledge, visiting the charities, and meeting with experts and other donors, becoming aware of the challenges of being an effective funder.

Giving is most successful where there is a clear focus, so the next step was to narrow down the areas the foundation had explored to concentrate on the issues they were most passionate about and set out a strategy for the future. Focusing on a limited number of topics allows a funder to build expertise, establish strong networks, and target areas where the foundation could have a high impact.

In the end, the Stone Foundation trustees decided to put the majority of their funding into water, sanitation and hygiene (WSH). Again and again, issues around water and sanitation kept coming up in the projects the foundation funded. One in eight people worldwide cannot access safe water, while almost two fifths (2.6 billion) do not have adequate sanitation. Problems with water and sanitation have far-reaching consequences; millions of young people miss out on an education because they cannot attend school due to illnesses caused by dirty water or poor sanitation. As a direct consequence of problems with water and sanitation, 1.4 million children die every year from diarrhoea.

As well as defining a focus, it is also important to fund the most effective ways of tackling a problem. The Stone Foundation are supporting innovative and entrepreneurial work that harnesses the power of the private sector. A lot of exciting developments are emerging in water, sanitation and hygiene, where social enterprises and NGOs are helping provide low-cost, sustainable services to poor households. The potential for impact is high. Yet these projects struggle to find funders who are willing to take on the risk and help them grow and scale. The Stone Foundation’s trustees, with their business background, did not shy away from investing in riskier projects which they thought had the potential for high impact. Like many successful funders, they found a way to draw on their own skills and experience to maximise the impact of their funding.

The projects the foundation supports are varied, but all are put through a due diligence process by NPC to test the potential impact and ensure that they are well-run—particularly important when giving grants of roughly £1m each. In Cambodia the foundation supports a project that has developed a low-cost latrine that people actually want and trains local entrepreneurs to market and sell it. In urban slums in Lusaka it is funding work setting up an integrated system to empty people’s over-flowing toilets, transport and process the waste, and then sell it as fertilizer.

We’ve learnt a lot from working with the foundation, about water, sanitation and hygiene, but also about high-impact philanthropy more generally. The foundation is now taking its funding even further, and looking at ways to give smaller grants to promising early stage ideas. .One way it is doing this is through the launch of a new prize scheme: the Stone Prize for innovation and entrepreneurship in water, which NPC helped to develop. This will award up to five prizes worth £100,000 each to initiatives which have developed a sustainable and scalable way to provide clean water to those who need it.

In the past couple of years, the foundation has come far, from a relatively blank sheet of paper to an established organisation with clear funding streams and a strong portfolio of NGOs to support. We’re excited to see how it will develop, to follow the success of the foundation’s current portfolio and see the ideas that emerge through the prize.

The development of the Stone Family Foundation’s giving is the subject of a new report published by NPC today, A funder journey. For more information about the Stone Prize for innovation and entrepreneurship in water see www.thesff.com.

A rehabilitation revolution

Two weeks back, the new UK Justice Secretary, Kenneth Clarke, made a bit of a stir by pointing out the fact that prison doesn’t always work. That in fact, ‘too often prison has proved a costly and ineffectual approach that fails to turn criminals into law-abiding citizens.’

This doesn’t seem that controversial. The shortcomings of the prison system are pretty well-documented: the massive overcrowding; the fact that just under half of all prisoners reoffend within a year of release; the disproportionately negative impact of short sentences; and the cost—more than sending a child to Eton. The key question is what you actually do about it, particularly in a time of massive public sector cuts.

Mr. Clarke’s vision for criminal justice reform references a lot of the mood music I’ve come to expect from the new coalition government—effectiveness, voluntary sector involvement, cost efficiency, the Big Society. All of which I find vaguely reassuring, particularly given the wealth of useful expertise and experience that exists in the charity sector—and which are explored in NPC reports on prison and on youth offending.

Where I tend to feel a bit more apprehensive is on the question of exactly how it is going to work in practice—particularly the question of ‘payment by results’, where charities are to be given clear financial incentives to keep offenders away from crime. Working out an individual organization’s impact on reoffending rates is massively complicated, time-consuming, and imprecise. Attribution is a nightmare, with ex-offenders often receiving help from multiple different organizations, both in prison and on release. Did someone stop offending because of a literacy course, housing advice, drugs treatment or simply because they get a bit too old?

Cash flow is another issue. How are organizations supposed to operate if they have to wait two years—to see whether their clients reoffend—before they get paid? Where do they access the capital and how do they manage the risk involved? And also who is going to capture these results? One of the reasons that charities struggle to demonstrate their impact in this sector is because they can’t get access to government data on reoffending and track their former clients as they move through the prison estate and on into the community. Will this information now become available?

It’s tempting to judge success by proxy measures—such as jobs or housing—that are easy to measure. But what about the areas like family relationships and social skills that aren’t so easy to pin down, but which are also massively implicated with reduced reoffending? And where’s the incentive to help the most prolific and persistent offenders, who are least likely to produce a pay-out?

As you can probably tell, I have a few questions about how this ‘rehabilitation revolution’ will translate into practical, clear policy. Not just because I’m naturally a bit critical, but also because of its importance. The potential pay-off could be so high—making our communities safer, preventing people from falling into a downward cycle of crime and deprivation, and cutting prison costs. Mr. Clarke has taken a brave step in recognizing the criminal justice system’s current limitations, but the tricky bit is converting this talk of effectiveness and voluntary sector involvement into reality and doing it well.

Luckily there are a whole host of charities that are grappling with the issues of effectiveness and impact in the criminal justice sector—I just hope that Mr. Clarke has the time and the inclination to listen to them.

The global ‘Big Society’

Yesterday, Andrew Mitchell, the new UK Secretary of State for International Development, made a speech. I thought it was rather a good one—lots of talk about effectiveness, ‘evidence-based’ decision making, and value for money. It also actually included some concrete initiatives—the creation of a new independent watchdog “to gather evidence about the effectiveness of DFID programmes’; and a guarantee to be fully transparent on all of the government’s overseas aid spending.

Both ideas sound pretty interesting. After all who can argue too much with effectiveness and transparency? And though there is the question of how this all works in practice—evaluation can be quite expensive after all—it all seems a step in the right direction. Apparently Sweden does something similar, so it must be a good thing. And maybe if it works for DFID, why not do something similar with other government spending departments?

Crisis talks: homeless charities set to merge

When googling the words crisis and merger, you tend to get rather a lot of hits at the moment, but one story in particular stands out; two UK homeless charities—Crisis and OSW (Off the Streets andInto Work)—are in talks to merge. This brings together two of my favourite topics, homelessness and the structure of the voluntary sector.

Apparently, OSW has been having some financial woes and is struggling to find funding for its projects and core costs. This is not unique in the sector—the economic downturn has hit hard. In November 2009, a survey by Homeless Link (the English umbrella organisation), found that half of homelessness organisations had seen a drop in personal donations, and a over a third said that charitable grants and government funding had gone down.

Some might argue that these pressures are not a bad thing—that there are already too many charities working in homelessness. And to a certain extent they may be right; when I did some research into UK homelessness charities back in 2007 I was struck by the large number of organisation’s working in the sector—many of them doing very similar things, and probably duplicating a lot of each other’s work.

But before people get too angry—that’s very different from saying that there were too many services available. In fact in some key areas it was completely the opposite. With employment—the area where OSW operates—there was very little work being done, despite the key role it plays in moving people out of homelessness. So making sure that OSW’s work is sustained and this expertise is not lost is important.

And on paper the match-up with Crisis makes a lot of sense. Crisis’ income actually went up over 2008/2009 and its emphasis on soft-skills and its burgeoning network of activity centres ties in well with OSW’s work. In fact, it gets you thinking about whether they’d thought of merging before the financial situation got so fraught.

But according to research by the UK charity commission, published in September 2009, only 5% of charities had considered merging. Obviously, merging isn’t for everyone—it can be risky, affect income and brand, and reduce competition—but the fact that 95% of organisation hadn’t even considered it at all seems a bit shocking. In NPC’s report on mergers, one of the suggestions is for trustee boards to regularly consider whether a merger could help them to fulfil their charitable purposes.

That isn’t much to ask. Maybe it could help to reduce the number of ‘crisis talks’ in the future.

Haiti

The earthquake in Haiti has sparked a massive wave of giving from around the world. People are sending money in via the internet, donating through mobile phone texts and social networks, like Facebook and Twitter, and using a huge range of innovative methods (see here for more examples) to raise money and get the message out there. This is great. And just like in the aftermath of the 2004 tsunami, it is amazing to see people inspired by a desire to help people they’ve never met, in a country they probably couldn’t even locate on a map a week ago.

But I get a sense that people are a bit more cynical after 2004. Since the tsunami relief work, there have been a succession of stories about wasted aid money, poor coordination, and duplicated services. This has carried over into a lot of the media reports in the Haiti disaster—whether it’s the work of the UN or the time it takes to land aircrafts carrying aid. And in the conversations I’m having with people there is a degree of scepticism about what actually their money will achieve.

In a way this scepticism is good. NPC is all about people thinking about the end impact of their money and what it is actually achieving. But there is a danger when talking about the fact that not all charities are equally good, that people will start believing that all charities are equally bad. NPC has always been wary about publishing negative reports on organisations in case it fuels any anti-charity feeling and reduces the amount of money given. The tendency for people to label charities as automatically inefficient, badly-run, and administratively bloated may play well at dinner parties, but is equally lazy as the person that says all charities are great.

But with the disaster in Haiti, as with all other areas of giving, it is key to look at the information out there about what is most effective. And while there may not be much robust data on either Haiti or disaster relief efforts (and NPC has no expertise in these areas), there are people out there grappling with the question of where people’s money can have most impact, such as here, here, here and here.

Many of these blogs highlight the same lessons that NPC tries to promote in its work in the UK: the importance of giving to strong organisations; not tying the donation down; and not judging an organisation based on administrative costs. They also recommend a few organisations to fund, such as Partners in Health; while this Guardian article has a longer list of different organisations working in Haiti. Spending a bit of time on this, as well as a bit of money, can help make all the difference.

But what factors are people actually using when deciding where to give?

New fundraising approach from Crisis

Last Wednesday, a colleague and I went to an event by UK homelessness charity Crisis, to launch its Urban Investor programme. This is a fundraising initiative based on an analysis of the social returns of investing in Crisis’ Skylight Activity Centres. These returns were calculated using the Social Return on Investment (SROI) approach—which puts a financial value on some of the benefits of these centres, such as increased wage earning potential and a reduced burden on the National Health Service, and then comparing it with the costs of the centres.

The analysis found that every pound invested in its activity centres provides an average social return of £3.92. Crisis are offering investors to fund in units of £1,200, and hopes to reach a total amount of just under £1.5m. In return, funders would be able to track whether Crisis was actually achieving these expected results.

Although we haven’t had a chance to look at the calculations behind all this (my colleague Sarah, the SROI specialist, will do that later this week) this is really interesting on a number of levels—at least for me!

• It draws out the explicit link between funding a charity and its impact: The whole initiative is based on establishing that connection between giving money and the impact it will have. While this might seem quite straightforward, many charities still fundraise by just focusing on the need they’re addressing or describing all their different activities. They don’t talk much about what they are actually able to do to improve people’s lives—often because they don’t know. In this case, Crisis is able to draw on its data to make concrete promises of what funders’ money will be able to achieve.

• It makes Crisis more transparent and accountable: By being public about what outcomes it hopes to achieve in the future and fundraising off the back of this, Crisis is opening itself up to greater scrutiny. It will have to report back to donors on whether its meeting its targets—and presumably provide reasons if it doesn’t. And this isn’t just to larger donors—it is also sharing its data to a much wider audience of other charities and public funders, showing what it achieves and does with its money. Only by doing this can charities learn from each other, and donors compare organisations to support.

• It focuses attention on homelessness day centres and what they can achieve: Too often in the UK homelessness sector, the emphasis has been putting on a roof over people’s head, rather than providing them with the skills they need to maintain a home—like education, a job, self-confidence and friends (see NPC’s report, Lost Property for more details on this). Day centres can do this, but frequently their contribution is overlooked as it is can be hard to measure exactly what they achieve, and even harder to identify the good ones. There has been a recent move to try and tackle this problem—and Crisis’ initiative is a valuable contribution to these efforts. If other day centres carried out the same analysis and made it available it would be increasingly possible to make direct comparisons between different centres.

Of course, there are some dangers of SROI—which are acknowledged by Crisis—that it doesn’t include outcomes that are difficult to monetize (such as self-esteem) and that it partly relies on a set of assumptions that might turn out to be miscalculated. But the whole initiative seems promising—not because it uses financial analogies and terminology—but because it builds on the notions of impact, transparency and measurement. All of which are vital in making the homelessness sector work even better to help the hundreds and thousands of people that need their support.

Giving in India

This week NPC has launched two reports, one on giving in India, and the other on early childhood development, which we produced in partnership with Copal Partners in Delhi. They’re the result of over a year’s research looking at non-governmental organisations (NGOs) across India and getting to grips with what is happening with philanthropy in India.

We’ve spoken a bit on this blog already about some of their findings—the way that few donors and NGOs focus on results, and that philanthropy seems to be diverted into a restricted range of topics and geographies. In the reports we set out some of the things that need to be done to make philanthropy in India more efficient and effective.

None of this is straightforward. Giving may be easy, but giving well is really hard. Working out which issues and NGOs to support in India is a complicated business, and there’s no easy way to get round this. Too often people try to deal with this by clinging to a simple blanket set of assumptions—such as ‘charities spend too much on administration’, or ‘paying for concrete stuff, like a school or a well, is the only way to have lasting impact’.

Often these beliefs are just wrong. In our research we have found hundreds of NGOs that are damaged and hobbled by bad funding practices. Organisations which lack the money to pay senior staff or even chief executives, as all their funding is restricted to their projects. Or NGOs that can find loads of money to build wells, but no help establishing projects to actually keep these wells working.

Simple lessons do not work—at least not those based on anecdotes and little evidence. But this is not to say that we should all just give up. The reports set out just how vital philanthropy is in India and what impact it can have. It just requires some thought and effort.

We hope that these reports can help donors along this road, giving them concrete tools and approaches to thinking about their giving and choosing effective NGOs. For donors particularly interested in early childhood development or water and sanitation, these reports set out priorities for funding, as well as highlighting effective NGOs.

While we can’t claim to have all the answers, we believe that these reports are a start on the right direction. A journey that starts by saying ‘How can my money have the most impact for the people I am trying to help?’