For a long time, the dominant model within philanthropy (especially when giving bigger amounts) has been to give “restricted” grants or donations – i.e. gifts that come with stipulations about what a recipient organisation can spend the money on and how (often tied to a particular project).
This is in many ways understandable, as donors want to have some sense of where their money is going and reassurance that it is having an impact. However, a growing number of people now argue that philanthropy would be improved if donors and funders moved away from this approach, and instead gave unrestricted donations: i.e. ones that come with no strings attached and which recipient organisations are free to spend however they see fit. (This is often also talked about in terms of “core cost funding”).
This is partly driven by practical concerns, since all civil society organisations have their own core costs (salaries, IT, office space etc), but often it is difficult to find the money to cover these costs – especially when they are seen as unnecessary ‘overheads’ by donors who want their money to go instead to ‘front line services’. As William Beveridge noted back in 1948 “it is particularly difficult to get money for administrative expenditure, yet without some administrative expenditure voluntary agencies cannot be well managed.”
But core cost funding arguably symbolises something much deeper, too. It can also act as a powerful sign of trust, since by offering CSOs a far greater degree of autonomy and flexibility when it comes to pursuing their missions, a donor can demonstrate their own willingness to give away power as well as money.
This is particularly important for grassroots organisations and social movements, as the administrative burden of programmatic funding can often be onerous. There have also long been concerns that whenever philanthropic funders engage with movements, the stipulations that come with funding have the effect of “taming” the movement by limiting the range of activities and tactics it can engage in. (In some case this is inadvertent, but in others it reflects a conscious effort on the part of the funder). That is why for grassroots organisations in particular, as Robert Bothwell argues, “core support can be revolutionary”.
These ideas have come to prominence recently as a result the high-profile philanthropy of Mackenzie Scott, who has attracted attention not merely for the scale of her giving (which is admittedly enormous) but also for the fact she has chosen to give entirely through unrestricted grants. Her rationale for giving in this way very much reflects the concerns outlined above about the need to place trust in recipients and to shift power as well as money, and by doing so she has offered a real challenge to philanthropy’s current paradigm in which power lies firmly in the hands of the donor.
The covid-19 pandemic drew further attention to the idea of core funding, as many funders removed stipulations and turned previously restricted funding into unrestricted funding in recognition of the extraordinary challenges this global crisis posed for civil society organisations and the people and communities they serve. Whether this turns out to be merely a short-term
change made through necessity, or heralds a longer-term shift in philanthropic norms, remains to be seen.
We should be careful, of course, not to fall into the trap of thinking that this is a straightforward binary decision, and that unrestricted funding is “good” whilst restricted funding is somehow “bad”. In reality, as with most things, this is more about matters of degree.
Restricted or project-based funding may well still be the right tool in some circumstances: for instance if you are trying to raise money for specific capital costs (e.g. for a new building), or if you are trying to engage a new funder who might be wary of giving core support straight away (but who may well give significantly in the future if their restricted funding proves to be successful).
However, it is clear from all the available research that core funding is almost always preferable from the point of view of recipient organisations, due to the flexibility it offers and the trust it signifies. So should our aim be to flip the norms, so that unrestricted funding becomes the default approach? It would still be possible for a donor to make restricted gifts if circumstances dictated it; but the difference is that this would now have to be a conscious choice, rather than simply the path of least resistance because “that’s how everyone else does it”. And the onus would be on that donor to explain why the restrictions are necessary and proportionate.
Philanthropy has a long and varied history. We’ve created bite-size chapters that you can jump in and out of to better understand philanthropy.