© GreaterGood SA 2014
GreaterCapital has worked with over 100 companies, organisations and development agencies over the years and we’ve come to recognise the common mistakes made by social investment programmes, usually with the very best of intentions. Unfortunately, good intentions are not enough to address the problems we face as a nation – we must be focused on what works. Taking inspiration from a discussion with GreaterGood’s CEO, Bridgit Evans, we highlight the three biggest investment mistakes in social development.
There is increasing pressure on civil society to deliver services in communities, with fewer and fewer resources to work with. But old attitudes to the funding of non profits persist. These attitudes come from the best of places – wanting to make a difference to those that need it most – but can sometimes be to the detriment of real development in South Africa.
Mistake #1: Ring-fenced funding
We hear it all the time from the organisations in our giving community: funders do not want to pay for running costs and salaries. It is fair enough to want your social investment to go directly to beneficiaries but the problem with ring-fencing or only supporting specific projects is that it forces organisations to ‘package’ their work. Sometimes, they have to create projects in order to attract funding. This distracts them from their core work – and in social welfare in particular, this work needs salaried staff (social workers, nurses, educators) to be effective.
Organisations cannot survive without running costs: children’s homes can’t keep babies warm without electricity; crime-prevention programmes don’t work without youth workers; education initiatives can never hope to reverse the skills and inequality gaps without educators and tutors; children can’t learn on an empty stomach.
Our advice >find an organisation that you know does excellent work and help them do that work the best way they can. This means funding running costs and the salaries of key workers.
Mistake #2: Short-termism
Some CSI programmes run on a one-year budgeting cycle with organisations having to reapply for funding every year. What we’ve learned is that development is rarely a simple, linear process – it takes time and needs real dedication. We have seen projects set up to meet a funder’s requirements, only to close a year later because the funding was only guaranteed for a year. Once-off or single-year funding does not help non profits to plan, develop and deliver lasting solutions in communities.
Our advice > Consider committing to multi-year funding. It doesn’t have to be a free-for-all: a good grant agreement can set milestones and targets and release funding in tranches based on performance. But the organisation is then able to plan properly and so achieve a far greater impact.
Mistake #3: Rejecting reserves
Organisations that have adequate reserves are more sustainable but some CSI programmes refuse to even look at non profits with a reserve fund. A reserve does two things:
1. It demonstrates fiscal responsibility and good management
2. It allows the organization to continue to operate in a crisis – like when a major funder suddenly pulls out.
If you invest R100,000 in a children’s home that has no reserve and the home hits a crisis, where do the children go when the home has to close? Your R100,000 is wasted because it sinks with the organisation. If you’d put that money into an organisation with a reserve, it would have been able to survive the crisis and continue to operate.
Our advice > Don’t reject organisations with reserves simply because you think there are others in greater need. The cause with a reserve is a more sustainable investment and better, in the long term, for the security of its beneficiaries. Rather, make sure the reserve is properly invested and wisely managed – BOE have an excellent product for non profits, for example.
Do you have mistakes to share? We often learn best when we learn from failure – email us or leave your comments below.
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GreaterCapital Financial Report (2009/2010)
Annual Report (2008/2009)
Annual Report (2007/2008)
Annual Report (2006/2007)
Annual Report (2005/2006)
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GreaterCapital Project Prospectus, June 2011
A Guide to Finance for Social Enterprises
SASIX Sector Research