Is project-based funding advisable?

Hands of NGOs tied

Many donors are keen to make contributions as specific as possible and decide therefore upon so-called “project-based donations”. The reason behind this is the desire for the donated amount to be 100 percent utilized for a clearly specific project. These wishes are understandable but can lead to unintentional drawbacks.

The disadvantages consist of donors severely restricting the scope of action of a charity organization with donations earmarked for specific projects. Let’s take for example the earthquake disaster that happened in Nepal in 2015. When donors contribute money out of goodwill towards a very specific hospital, this could possibly lead to no funds been available to pay for critical infrastructure works, such as the removal of rubble from damaged roads to reach in the first place roads cut off from the outside world. It would be better in this case when the donors did not state under intended purpose ” Hospital Project in Nepal” but simply “Nepal”. But this would ultimately also be a project-based donation, in this case restricted to a specific country.

What if money is suddenly urgently needed at the same time to be allocated to other parts of the world? Then donations intended for “Nepal” cannot be utilized. This would result in the creation of unpleasant competitive situations between needy recipients when donors make project-based donations.

The German Central Institute for Social Issues (DZI), who also awards the DZI-Seal, strongly advice against project-based donations. The DZI website states that project-based donations should remain the exception and is advisable only to supplement not substitute untied aid as this would severely restrict the decision-making scope of NGOs.

Even aid organizations have costs

There is still further reason why donors make project-based donations. People want to ensure the possibility that 100 % of their donations flow into a project. This wish is unrealistic. Every reputably engaged NGO incurs costs for administration and public relations. Premises need to be rented, qualified employees and a lot more need to be paid for. Likewise, the aid organization is not inevitable without presenting their work on a website, through flyers and other advertising measures. Otherwise, no donor will know about these projects needing assistance.

Many donors have unrealistic expectations of how a NGO functions. They often have the image that such organizations function purely with voluntary workers who work without pay and manage to do everything correctly. These aspirations are too high. To accomplish aid projects in the so-called third world countries, requires vast experience and qualified workers who in addition must maintain good contacts on the ground to correctly assess situations and thereby make correct project decisions. For example, if in a certain village in a third world country a school is needed and if the local government is prepared to provide teachers for this school on a long-term basis. The devil as always is in the details, even in development work.

It is important to understand that from one donated euro not 100 cents is able to flow into an aid project. 85 cents is also an outstanding figure. The rest will be needed towards administration and advertising measures – unless, this deals with a project-based donation. Then naturally 100 cents will flow into the project. But then how will a NGO cover their necessary operational costs when everyone only wants to make project-based donations? Eventually the organization will become paralyzed. No donor would want this to happen.

Donors who like to donate to specific projects should bear in mind that 85 cents has a greater value in the third world than it would in Germany. This is how for example our Kinderhilfswerk Dritte Welt in a country like Mali, managed to build a complete school for around € 50.000 which consists of 3 classes for 180 students including staff rooms and toilets. In Germany, this would be impossible for such a manageable sum.

Avoiding excessive demands

Donors should trust the organizations that they know best where donations are most urgently needed. And likewise, it is important to understand that no NGO can exist without expenses for administration and advertising. In many cases one can tell if an organization is reputable by how transparent their financial statements on their websites are presented. A crucial indicator for respectability is whether they are authorized to carry the DZI Donor Seal. Only around 230 NGOs are currently allowed to in Germany. The Kinderhilfswerk Dritte Welt is included.

Please take also a look at «How one can support aid organizations by simple means» and see how we are doing it.

More information

Official Website Kinderhilfswerk Dritte Welt e.V.: www.khw-dritte-welt.de