Exploring the holy grail that is unrestricted funding

In January 2024, I read Philea’s blog: Why funders engage with unrestricted funding and cost recovery (and why they don’t). Its content mirrored much of what we hear at the Institute for Voluntary Action Research (IVAR) on the argument for unrestricted funding.

The message about the benefits of unrestricted funding isn’t new, but one that we must continue to stress. Throughout the Covid-19 pandemic, charity leaders told us about the importance and value of unrestricted funding –no-strings funding that funded organisations can use for anything within their charitable objects. Some funders listened carefully, and responded, recognising that ‘those closest to the issue trying to be solved are the best-placed to design and understand what’s needed, and how to adapt and change’.

Building on this momentum, in 2021 we published The Holy Grail of Funding: Why and how foundations give unrestricted funding. Through the words and experiences of foundation Trustees and staff, we heard about the commitment and energy to reframe relationships between funders and charities. Why is this important? Because ultimately, we need to make them fit for the future.

Relationships that are built on trust, openness, and respect for charities’ distinct expertise and know-how are crucial. Funders need to recognise and appreciate their ability to deliver greater social benefit, rather than being overly concerned with control and compliance.

Relationship styles in which foundations let go of the idea that they are best positioned to decide how change should happen, who is best positioned to lead change, and perhaps even which outcomes are most important to prioritise.

Feeling the benefits first-hand

Our preoccupation with unrestricted funding stems from three interrelated experiences:

1. At IVAR we are a beneficiary of unrestricted funding and have witnessed and experienced the six benefits identified by our own review of existing research in the field, that unrestricted funding:

• Improves strategic planning and helps to implement plans, leading to improved performance and delivery against objectives.
• Enables investment in management and administration
• Helps cope with fluctuations in project income, practice
  strategic reserves management and become more financially stable.
• Gives more scope to use staff and volunteers efficiently, to manage them well and invest in their development.
• Reduces the costs of funder compliance and allows a greater focus
  on more meaningful data collection and reporting.

2. Since IVAR was established in 2000, whatever our research question with small organisations and their local communities, the answers often include something about the pressing need for grant-makers’ to give funded organisations greater control over their own spending. 

Some practices have, of course, changed over the years. Many more funders have recognised the importance of supporting the essential overheads, running and development costs of organisations – without which, charities cannot survive.

They help them to become stronger, with the ability to respond to whatever life throws at them. But far fewer have completely shifted their mindset to one that starts from the assumption that charities ‘know their own business and can be trusted to spend wisely’, adding constraints only by mutual agreement or when absolutely essential.

3. When we reviewed the evidence for restricting grants as part of our rolling programme of research about Open and Trusting Grant-making, we found that:

‘Evidence for the assumed benefits of restricted funding offers an inadequate justification for the strong preference still shown by many for this funding model. On the other hand, evidence suggests that funded organisations’ continuing advocacy for more unrestricted funding is not simply a matter of preference but shows promise in delivering a range of benefits that are of importance to funded organisations and funders alike. The case for funders engaging with the arguments for change is a strong one.’

This is not to suggest that restricted funding is never appropriate or useful (nor that foundations can’t contribute to core costs through other means, for example through the adoption of full cost recovery. But it has not earned its place as the dominant funding model on the basis of evidence. Charities have long argued that it inhibits their work, distorts their accountability to communities and causes, and weakens them as organisations.

Banging the drum for unrestricted

Through our research, and dialogue with and between funders and charities, we have continued, and will continue to, engage carefully with opposition, resistance and anxiety. Always trying to support shifts in thinking by telling the story of what funded organisations tell us makes most difference to their work, and through the examples of funders who have been able to make the transition.

Worried about giving funded organisations more control?

Listen to Katy Beechey of Texel Foundation: ‘As funders, our role is to take on some degree of risk, which is why we do compliance and financial checks. This doesn’t have to change when offering unrestricted funding. If you trust a charity enough to give them money for a project, why wouldn’t you trust them with unrestricted funding? Either you believe in them, and you trust them as an organisation, or you don’t.’

Look at impact in a different light

Follow the example of Hannah Hoare of Blue Thread: ‘There’s danger of making everything more complex and precise than it needs to be. It’s fine to be interested in stats – but about an organisation overall not in relation to your own grant.

If you want refugees to have a safe and stable life and you’ve found a good, robust organisation that helps them make positive steps towards that, isn’t it enough to say that your money is going to support this work?’

Or to Caroline Mason of Esmée Fairbairn Foundation: ‘Invest in the “what”, and let organisations you fund determine the “how”. Why, as well-resourced charities ourselves, would we imply we know better what resources those organisations need to do that work?’

What works best isn’t a simple answer

From more than two decades of research in this area, it’s clear that the evidence in favour of unrestricted or restricted funding must factor in circumstances and for whom. But it does make it clear that the status quo – of restricted funding as the dominant model – rests on very shaky foundations.

More challenges than ever

Creating social action in the current environment calls for a new mindset, with constraints only added by mutual agreement or where absolutely essential.

For this to happen, funders need to listen to what their funded organisations are saying, look at the evidence and the practical experience of others, and do whatever they can to respond. In the words of Nick Addington of the William Grant Foundation:

‘Funders’ traditional ways of working are not set in stone. We should be prepared to review them, especially when the organisations we aim to support are consistently and clearly telling us they undermine the benefits our funding could achieve.’