Finance shake-up key to aiding nonprofits

New financial tools are needed urgently to tackle the needs of nonprofits and social enterprises 

Traditional grant-giving has its benefits, but coming up with new financial tools to tackle the needs of nonprofits and social enterprises is crucial, experts say.

“The idea of just giving grants is not as impressive anymore,” said Tamer Makary, executive director of the Magrabi Foundation. “What’s impressive is using your money efficiently to back something that becomes sustainable and continues to make an impact.”

According to Tracey Austin, chief of impact investing at the Palladium Group, the key word is “blended capital” – while there is no one perfect solution for organisations, a mixture of different financial tools should do the trick.

“It’s about using different instruments, a mix of capital, debt, convertible debt… and understanding what the common problem is and how to collaboratively work on that,” she said.

The comments came during the Youth Philanthropy Summit in Abu Dhabi, hosted by the Emirates Foundation. Delegates heard that the lines are beginning to blur between businesses and nonprofit enterprises. While companies are increasingly seeking to be profitable and also have a positive social impact and change the world, nonprofits are learning to treat donors as customers.

“Donors become customers. It’s a journey. If you don’t continue to innovate for your customers they become someone else’s customers,” said Makary. “An easy way to innovate from a traditional philanthropic sense is to demonstrate how you can do more with less money. There is no shortage of capital for good ideas – the issue is in the execution.”

Kurt Hoffman, Director at RECIPCO, and former director at Shell Foundation, said while grant-based funding had an important role to play in emerging economies, there is a need for much more support, such as finding a local partner who is financially and intellectually committed to the issue.

“Then you bring in the capital, the social risk capital. Grants have a role but you need to mix different kind of capital – a mix of business-savvy capital and social issues-savvy capital that can be combined in different ways as the social enterprise grows.”

The key to bringing financial institutions onboard and outside the “boundaries of traditional philanthropy into greater involvement” is the same as with other types of companies, Hoffman said.

“The key is to find a business case as close to their circle of competence as you can and, say the case rests on the two forms of capital, by bringing the two together you are enlarging the social and financial cake as well,” he explained.

Another panelist, Chris West, partner at Sumerian Partners, said grants are typically provided in an unpredictable, short-term manner. Often, their use is restricted to the purpose they were given for, which doesn’t allow recipients to build capacity.

"Organisations receiving grants live in a very hand-to-mouth way”, said West. “That doesn’t allow them to develop competent talent that can face the challenge they set out to address.”

Instead, he suggested there was a need for talent development, geared towards addressing the issues at hand; creating a mindset that can use money effectively to tackle those problems; promoting a performance-based approach; and enabling organisations to raise capital using other financial instruments.

“Short-term grant giving is fine for short-term projects, but it doesn’t help organisations have more secure forms of finance,” he said.