#Social partnerships  #Social impact  #SDGs  #Business strategy

Why NGO's are commercialising

posted 10-02-2020

A shifting landscape
Mission driven, B Corp, socially responsible. All terms used to describe companies addressing a social or environmental challenge. A sign of the times that profit creation and social problem solving are shifting towards each other. What’s more, this emerging trend of social entrepreneurship goes beyond transforming the for-profit sector; it’s actually changing the traditional social sector too. We see NGO’s increasingly applying business principles to solve social challenges, often changing their own legal structure in the process. 

Whilst many companies are defining their social purpose, an increasing number of local and international NGO’s are ‘commercialising’. Turning traditional donor funded activities into self-sustaining, revenue generating enterprises. An interesting phenomenon that evokes both praise and anger. Some view this as a positive development that supports local entrepreneurship and talent development; the ‘Global South’ finally taking responsibility for its economic development. Others see it as capitalism infiltrating the last area where value hasn’t yet been commodified.

Why is this happening?
Whether in culture, education and healthcare, or human rights and civic advocacy, little is known about the implications of commercialising NGO’s. A topic that will be covered in the next article. There are, however, clear signs as to why it’s happening. Here’s an outline of the five core reasons that have been observed and researched for this article. Take note that they are generalisations, and in practise often overlap.

But first a few clarifications and demarcations. The definition of an NGO used here is based on its financial model, namely an organisation that predominantly relies on external funding to sustain itself. Secondly, a common understanding is that NGO commercialisation usually concerns the Microfinance sector because most research has been conducted there. This article focusses on the non-financial sector. Placing more emphasis on NGO’s in emerging markets, although many elements described are applicable to Dutch or European NGO’s.

1. The need for stability and continuity - wanting independence from donor funding
Many NGO’s in emerging markets prefer not to solely depend on donor funding from Western donors or governments. This can have an ideological component - Western hegemony or perpetuated colonialism - but usually it’s a practical one. The funding requirements simply don’t match the goals and ambitions of the organisation. This goes hand-in-hand with the recognition that basic services (such as water, energy and healthcare) can’t rely on unsustainable donor models that may be subject to change or ‘phasing-out’. When visiting rural Kenya or Tanzania, you may find several broken wells and deserted pipelines lying next to each other. This is the result of countless abandoned donor projects that in the end haven’t improved the access to water.

Sustainable relationships are also key to ensure internal stability. At the moment most donors don’t fund structural overhead, meaning leadership contracts beyond a year are rarely given. This makes it difficult to attract and retain talent. In a vulnerable sector where there’s a lot of volatility, providing security and stability is lifesaving. But without a sustainable financial model or guarantees of consistent cash flow, it’s simply impossible. Donor agencies often change focus. One year human rights is a trending topic, and two years later ‘creating an enabling environment’ or ‘youth employment’ has caught their attention. A revolution can also give a country the allure of a sexy donor child; then a few years later the media attention wanes, and so does the donor’s attention. Therefore, it’s understandable that NGO’s are looking for security and stability. For their own staff and the people they help.

2. Put your money where your mouth is - beneficiary & benefactor
The aid to trade movement has affected NGO’s scope of work and is subtly shaping their financial viability too. Aid is only given to those that need it. But how do you learn to take care of yourself when you are constantly being provided for? It’s difficult to turn ‘beneficiaries’ into self-sufficient, independent, entrepreneurial citizens that can contribute to a flourishing country, when an institution’s own financial model depends on constant donor input. The example they are setting isn’t very convincing. It’s an issue that many NGOs face. Especially when their own financial incentives, like ‘finishing the budget’, are directly opposed to the ones they propagate, ‘bootstrapping or intelligent spending’ for instance. So how do you support entrepreneurship, a creative economy and local ownership when you’re attached to a restrictive, foreign donor drip? This may sound like a trivial question, but when talking about supporting entrepreneurship and trade, it’s actually a huge issue. Especially amongst countries that go through waves of economic emancipation, the discrepancy between the beneficiary and the benefactor becomes more visible yet harder to explain.

3. New financial models and technological opportunities 
Considering the explosion of technology start-ups in East Africa, especially around Nairobi, you would almost believe that tech is the solution to everything. But technology as the solution to development is a hype with little meat to its bone.

However, technology and new finance options, also known as fin techs, are opening up new avenues for business models. Due to their growing reach. People that were completely off the grid are suddenly interesting target audiences. The massive increase in mobile phone penetration of simple and also smart phones, are opening a grand variety of business opportunities. For instance, in Kenya the M Pesa [1] system has not only revolutionised financial spending but has made Maasai tribes bankable [2]. When in the past it was unthinkable to make money off a goat herding nomad, it has now become reality. From food to feed and water to health. Even legal services can be offered to off-the-grid tribes. If flexible and season bound payment terms can be accepted, like making transactions in cattle, then nothing is unthinkable. Especially in services that governments don’t offer; think access to water and sanitation. In fact, traditional diesel well and pipelines are being replaced by solar-driven, modularly built social ventures. Ideally co-invested by communities who become co-responsible for maintenance and the sustainability of these services.

As hard to set up and get right, as these initiatives might be, they are growing. Mobile phone penetration, education, fin tech and more flexible bank loans have given rise to a new target audience, and services that used to fall solely within the domain of classic NGO’s.

4. Government policy and legislative restrictions 
In authoritarian states non-profits are often conflated with civil society and rights-based groups. In the case of some of the largest authoritarian states like China and Egypt, NGO’s have been forced to close or change legal status. This means limiting access to funding or even state prosecution by using faulty legalistic arguments like disturbing public peace, causing civil unrest, or plotting against the interest of the state.

Just to clarify, international aid is only a fraction of the aid that NGO’s receive. Government aid still covers the largest percentage of their funding. In fact, to be able to do their work and donate money, foreign agencies often need a ‘representative’ in that country and must participate in governmental restructuring programmes. Anything from public sector capacity building on good governance, to financial aid or even military support.

Good governance measures heavily affect the non-profit sphere. Contemporary audits, contracts, and performance monitoring result in an increased financial load and paperwork, making it nearly impossible for the average independent NGO to function. Although paperwork can be discouraging, restrictive legislation is what really shuts down the civil space. In Egypt, between 2015 and 2018, the vast majority of independent NGO’s closed down or changed legal status. Either disappearing or turning into private companies under a new name, since funding agreements are heavily regulated by state security and therefore unobtainable.

Unless protection from within the regime is guaranteed and their domain of work doesn’t touch upon any politicised topics, independent civil NGO’s in Egypt, and increasingly in China, can no longer operate. In a world where authoritarianism is on the rise, operating not-for-profit can simply be too dangerous. In a way, capitalism is the only model that’s accepted and legitimate in those regimes. Limited civic space means limited space for people to organise themselves and form critical opinions.

5. Shifting donor interests and the economisation of non-profit
In East Asia a common complaint is that ‘their’ developmental funding is donated to Africa. After a revolution, a country usually remains interesting for a short period of time. When military, immigration related or geo-strategic interests change, donors tend to follow suit. The same goes for sectoral interests or the types of interventions that are eligible for funding calls. Human rights, civic advocacy and cultural organisations complain that their money tends to now go to entrepreneurship, and creative industries. The term creative industries itself hints at the economisation of culture and the economisation of non-profits in general.

The herald of the aid for trade movement has been the slow economisation of the non-profit sector, more specifically culture, rights and advocacy. Donors and cultural policy makers suddenly started referring to the sector using labour terminology, with words like industry, strengthening capacities, sustainable and integrative growth, efficiency and productivity, audience development, cultural tourism, etc [3]. Changing the language was a powerful and deliberate effort to change the legitimacy, desirability and thereby viability of non-profit activities.

Now what?
NGO’s are crucial for a healthy world, humanity and economy. An international landscape without (international) NGO’s is almost unthinkable. They have a powerful seat at many policy making tables, international development aid depends on them to execute services on the ground, and millions of people rely on NGO support for basic survival. This shift towards commercialisation, in combination with governments decreasing in size, has already swept large parts of the world. Leaving behind a changing space with on the one hand an increasing demand for services and on the other a cry for financial sustainability. Which gives rise to the social enterprise.

The next article will focus on the risks and opportunities that this shift. What are the consequences, and who benefits? A final article will look at what the prerequisites are for a successful NGO transition towards business-driven models, based on our experience of guiding these organisations through this process. What are the strategic benefits and implications of an NGO turned social enterprise?

Words by Daria Ofman 

We connected AMREF Health Africa and MegaGroup to collectively develop solutions to improve access to water and sanitation in rural areas of Kenya. Better Future guided this process and helped the organisations set-up a social enterprise together. Read more about this process here or watch our mini documentary

[1] M Pesa is a mobile phone based money transfer, finance and microfinance service launched in 2007 by Vodafone and Safaricom, the largest mobile network operators in Kenya and Tanzania. [2] Bankability refers to the possibility and willingness of established financial institutions to finance a project or proposal at a reasonable interest rate. [3] I. Eickhof (2017) Producing inequality: Creative economies in Cairo, Mada Masr

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