Recently, Partos published a booklet that aims to give an overview of the opportunities, challenges and impacts of a number of innovative financing instruments in the development aid sector, such as cash transfers, social entrepreneurship, blended finance and local fundraising. Several of the described models (like social enterprising and impact investing) try to direct commercial funding streams (investments) towards development because it is felt that traditional philanthropic funding streams alone won’t be enough.
Moreover, the so-called “social impact bond” tries to combine the powers of philanthropic funding and commercial funding in a charming yet complicated attempt to push NGOs to focus more on results. The donor disburses a (philanthropic) grant only after certain results are achieved (result based financing) and a (commercial) investor steps in to overcome the pre-financing issue that most NGOs cannot handle by themselves. In case the intended results are met, the NGO gets paid and the investor earns a dividend on its pre-investment.
What is striking about all described financing models is that they are at best a combination between philanthropic and commercial funding, but never a real merger.
What is striking about all described financing models is that they are at best a combination between philanthropic and commercial funding, but never a real merger. It makes you wonder how that would look like. Let’s zoom in on the individual level and try to get a grip. As individuals, we are all used to giving away money (i.e. donations) and investing money (i.e. depositing on our savings accounts). But what about someone approaching you on the street to ask you to donate €10 euro to an NGO, and reaching out to you a year later to give you back 5 euro? Or what about investing €1,000 to your socially responsible bank knowing that after a year you get a return of €900 as this bank’s investments have an average return rate of 90%?
We do need to change our mindsets and start merging our donating behavior with our investment behavior.
Currently this is hard to imagine, but that is what the future of blended financing might look like. We do need to change our mindsets and start merging our donating behavior with our investment behavior. And equally important, our financial and legal structures need to facilitate this change, by facilitating for instance initiatives that provide 20%, 50% or 90% revenue instead of either giving everything away or making profit. That might open up a financial landscape that is able to generate sufficient funds to not only reach the SDGs but also the development challenges that lie beyond those.
Maarten has over a decade of working experience in both the NGO and the public sectors. Amongst others, he worked for the Dutch Ministry of Foreign Affairs. His fundraising skills range from mapping and profiling to proposal writing and grant management. Over the years, he also developed in-depth knowledge on how NGOs can increase their social impact.
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