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NPO's and sustainability amidst a global crisis
Paul Kariuki
​​​​​In this article Paul Kariuki, programme manager at the Durban YMCA and a participant on the Management Programme for Non-profit Organisations which is presented and sponsored by USB alumni and USB-ED, writes that NPOs need to generate their own wealth during the global financial crisis. The article was published recently in The Mercury newspaper in KwaZulu-Natal.
Sustainability is an ongoing challenge for non-profit organisations around the globe in the light of the changing funding world and turbulent economic environment. As most development practitioners assert, the problem is more acute for NPOs in the developing world. The key challenge for the sector therefore is to devise sustainable mechanisms that allow them to diversify their funding bases suitable to their organisational mission, vision and needs. 

The majority of these organisations are established on the basis of certain specific needs in society in an effort to complement government initiatives. The role that NPOs play is therefore intricately interwoven with the political, economic and social dimensions of the governments of most developing countries. However, the current global financial crisis continues to threaten their sustainability. As a consequence, the prospects for both local and international fundraising are adversely affected by these difficult economic conditions which exist also in South Africa. 

While there has been speculation that South Africa is out of the recession and economists have suggested that there are indications of a recovering economy, the country is still grappling with the recessionary effects. Many people have lost their jobs owing to companies closing down, restructuring or merging, thus losing significant livelihoods for their families. 

This situation further exacerbates the existing conditions in which NPOs operate, with many more challenges arising out of the economic adjustments made by organisations themselves. On the other hand, NPOs have to continue to wrestle with the complicated issue of their relationship with the government and political parties as major stakeholders in social development, since they have to hold them accountable without compromising on their mission. 

This is indeed a complex environment that NPOs are operating in. In this regard, financial sustainability is a critical factor in NPO development. To appreciate the challenge of financial sustainability of NPOs, it is imperative to understand their potential sources of revenue for the sector. While there are multiple sources of NPO revenue in South Africa and within the NPO sector itself, there are identifiable trends. They include government funding, philanthropy and self-generated income. While government or public sector funding has been a major source of revenue, the down-sizing of its budget over the last five years has significantly affected the ability of NPOs to operate. Consequently, private giving has also shown a diminishing trend with most donors preferring to support specific programmes or segments of a programme. 

Self-generated income is now an emerging trend, being an innovative mechanism to curb the effects of dwindling donor support. While all these streams of income for NPOs are relevant and should be promoted, empirical evidence in the literature suggests that donors including corporate companies remain willing to make a difference wherever there is a humanitarian need. 

This optimism is also shared by the United Nations, urging developed countries, multilateral and bilateral donor organisations to reconsider and reaffirm their pledges to support initiatives for international development globally. While there are pessimists who believe such optimism is not realistic in the face of prolonged recession in major parts of the globe, both proponents (the optimists and pessimists) seem to agree that there is a critical need for NPOs to strategise innovative measures both to survive and to seize the opportunities the current times provide. However, the solutions proposed must assume a holistic approach, recognising the importance of all categories of NPO income. 

At present, what NPOs need is a conscious plan to create a sustainable future for themselves in these turbulent economic times. This will include designing sets of strategies that they will follow and implement in full cognisance of the fact that they generally provide services to people who cannot pay for them.

The strategies can include: 

  • Cost-recovery: This is paramount as part of sustainability strategy, although this business sector concept challenges what the non-profit universe dictates. By their very nature, non-profits are not supposed to make profits, so they generally accept lack of profits as normal and continue operating even at a loss because their missions dictate that they stay in business providing services to people with no means to pay. However, it is imperative to note that such a paradigm must change if non-profits are to be sustainable. Overheads and other transactional costs must be recovered while providing these services. Non-profits need to make profits, just like their for-profit counterparts otherwise their organisations will falter and even fold.

  • Diversification of funding sources: This is critically important for their long-term sustainability. Empirical research and literature suggests that those NPOs that rely only on one donor, risk closure if they don't diversify their revenue streams. For instance, NPOs could open strategic bank accounts to set aside funds for development and investment purposes of the organisation, provide strategic consultancy and training services to other organisations in the sector using their own staff, and encourage their staff to contribute a certain agreed percentage of their earnings to the organisation

  • Fiscal management: NPOs should have appropriate and strong fiscal measures within their programme operations. Proper accounting and audit procedures should be maintained. Adequate governance by NPO boards should be provided to their management on a regular basis, with an aim to have an unqualified financial report. This is a necessary fiscal goal given the reality of donor uncertainty at present. This should include also cost-effectiveness measures.

  • Competent human resources: NPOs should consider employing qualified, competent and experienced staff to assist with their fundraising efforts. Literature suggests that the majority of NPOs have no professional staff dedicated to fundraising efforts. NPOs should invest in the professional development of their staff and teach fundraising executives to better position themselves in mobilising resources for their programmes.

  • Programme capacities and adaptability: NPOs should also ensure that they have strong programme capacities. This programme capacity includes having succinct knowledge with respect to understanding and acquiring the necessary programme skills in order to deliver quality services. It also involves recruiting quality programme staff members and establishing performance measurement tools to ensure the highest quality and quantity of services are delivered, which are relevant to community needs and are cost-effective.

  • Leadership development: NPOs should streamline their leadership, especially at the senior management level, owing to its critical decision-making functions. The management should be in a position to communicate the organisation's vision clearly to its employees and to external stakeholders. Further, the management should be accountable in all its matters and aim to engage all their stakeholders in their strategic planning processes. This is imperative for long-term sustainability of NPOs.

  • Proper planning: Often NPOs develop creative ideas or identify needs in a particular community and proceed to implement the ideas in response to the need without conducting any feasibility research or planning. NPOs should perform proper planning procedures for any projects that they intend to implement in a community, and check their financial capabilities to support the project, the availability of personnel and assessment exercises to be conducted in evaluating the project progress.

    Other examples should include communicating and telling success stories to donors in order to attract more funding where possible. It may also generate interest from the would-be funders into programmes or projects that the NPO is involved in. NPOs should also be strategic in their planning, explore possibilities of investing part of their incomes to create their own wealth, be vigilant over their accountability and governance systems, and where possible generate their own incomes through the services they offer. This paradigm shift is necessary for their long-term sustainability in today's economic environment.
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