Success of International Aid Means Grant Makers Can Try New Approaches

World leaders gather in New York this week for the U.N. General Assembly. While the latest tweet or street protest may grab the biggest headlines, let’s take the opportunity to step back and reflect on the long-term trends in international development that deserve just as much attention.

Over the past quarter century, development efforts have achieved major success. More than 1 billion people in the poorest countries in the world have lifted themselves out of poverty.

But that success story has intensified questions about which challenges are the most urgent for grant makers and nonprofits to focus on today — education, governance, health care, human trafficking, climate change, women’s empowerment, and a whole range of other problems are competing for money and attention. Meanwhile, technology and a population boom of young people eager to work for change in their home countries mean it’s easier than ever to rethink how to expand the reach of development aid.

To better understand how the landscape is changing, Brookings Senior Fellow George Ingram and IREX President and CEO Kristin Lord (one of this op-ed’s authors) interviewed 93 grant makers, nonprofit managers, and business leaders in development for a study called “Global Development Disrupted,” published by the Brookings Institution.

One theme came out loud and clear: Most philanthropies want to focus on issues where their support can have an outsized impact compared with the limited resources they have to invest. Meanwhile, nonprofits doing development work around the world are deeply anxious about their financial viability and eager to adapt to changing circumstances. An increasingly complex environment means that old ways of operating are no longer enough, so both philanthropists and nonprofits are rapidly scrambling to adapt.

One factor at play is that many Western governments are considering pulling back aid to developing countries now that many nations that once were big aid recipients have a thriving middle class. Meanwhile, more and more government aid is flowing to humanitarian relief in places devasted by natural disasters and war — at the expense of other, equally important issues.

Business may be able to step in with some of the resources government once provided, but it is less likely to finance work on issues such as human rights, good governance, social inclusion, and the rule of law. And almost all aid leaders say they doubt that business will ever work at the scale of government.

Given the urgent need to augment traditional government support, how can philanthropists best maximize their impact? Here are six key approaches that hold promise.

Help governments and local philanthropists in developing countries to strengthen their own institutions.

For a long time, international nonprofits worked around governments to advance development goals, which in some highly corrupt or unstable environments may still be necessary. But for a growing list of countries, the time has come to bring governments at all levels — national, regional, and local — into the fold, as they increasingly have the capacity and long-term domestic revenue to support development effectively. This transition is essential for long-term sustainability and progress, especially as aid to middle-income countries declines.

Many grant makers need to update their funding mechanisms to require consultation with local actors during the proposal development phase. Too often international organizations that respond to solicitations fail to incorporate input from local government, civil society, and businesses that would make an initiative more effective. One grantee organization recounted a procurement process that never required local consultation. When the project launched it “lacked locally owned design, buy-in, or sign-off from the national and local governments where the project was meant to operate. The government was never consulted until our staff showed up to implement.”

There are also many opportunities to unleash the private wealth that is now growing in countries that were once far more poverty-ridden. Many philanthropists in these countries are newer to giving money and would benefit from additional guidance and support on how to maximize the impact of their investments. But new donors also bring unique insights on how to channel funds effectively or identify highly capable grantees in a given country, so they make great partners for longstanding philanthropists. And eventually, they make it possible to eliminate the need for philanthropy from outside their nations.

Make good use of private capital.

Government donors and corporate, foundation, and nonprofit leaders expressed enthusiasm for new approaches that inject private capital into aid projects. New efforts tied to markets and business interests, such as training work forces for new needs or financing clean energy projects, are growing rapidly.

The recently passed Better Utilization of Investment Leading to Development Act in the United States promises to inject even more capital into development work, and similar development-finance mechanisms are spreading in Europe and Australia. However, private capital is not as plentiful in key areas such as improving education, protecting human rights, and strengthening independent media outlets. Those areas don’t have the direct tie to markets but are also imperative to building economic sustainability around the world.

Social-impact investing, social-impact bonds, and “pay for success” models also have potential to add resources for efforts that businesses don’t want to finance on their own, but donors and other development leaders surveyed said such financing is still too rare. Some governments and businesses have held back on potential investments because they expect market rates of return as well as social impact. Foundations can work with private businesses to reduce the investment risk, paying for aspects of projects that will ultimately aid an investment but not return a profit directly, or invest in smaller enterprises where the social return is large even if the investment return is too small to attract major investors seeking a market rate. They can have as a goal the partial recovery of investment capital, which can then be reinvested, rather than a full recovery or even profit.

One donor, who recently started an investment arm, noted potential organizational friction in adopting these mechanisms. They require “moving away from a grant mind-set to an investment mind-set, using a different vocabulary, and building out new capacities and skill sets. It creates interesting tensions in an organization. A cultural shift is a needed part of the process.”

Gain more power from effective collaboration.

We were surprised how many leaders think it’s vital to collaborate but struggle to do so. Foundations and multinational corporations report that finding the right nonprofits to support is a challenge, in part because many of the ones best positioned to do the work are small or fledgling nonprofits not fully ready to meet ambitious needs at scale.

Donors may want to consider several strategies to find the ideal organizations to support. First, grant makers could collaborate with other philanthropists and nonprofits that have global networks to find local talent that can help put new money to work to expand the reach of the most promising grass-roots groups.

In addition — as one corporate executive who funds international development work underscored to us — in partnerships that involve foundations, nonprofits, companies, and government agencies, it may be worth the relatively small expense to hire a separate coordinator to help keep everyone on track, or provide the “grease in the machine” that makes coalitions actually work. Costs may go up — but the return on investment is also likely to be far greater.

These arrangements can also give funders peace of mind since the coordinating organization can, as one donor put it, ensure “the accountability mechanisms that meet donor requirements, yet at the same time maintain local ownership” through partnerships with local organizations.

Unify to advance the Sustainable Development Goals.

Some grant makers we interviewed cited the Sustainable Development Goals as a useful guide aligning investments across sectors and organizations. As one of them put it: “In the past, foundations could fund a discrete project somewhere and hope a governmental authority would pick it up. The SDGs make it much clearer now what foundations should try to build up, and what the hand-offs [to governments] ought to be.”

Initially developed by the United Nations, the SDGs have gained traction — albeit inconsistently — with corporations, philanthropists, national and local governments, and nonprofits. If more grant makers tied their distribution of aid to specific joint projects related to the goals, it could lead to greater coordination and ultimately more success than fragmented efforts can achieve.

Pool funds.

Given the expanding set of issues that animate philanthropists in development, it’s more important than ever that those committed to the same issue join forces. The experts we interviewed highlighted pooled funds as a promising way to do so. Using pooled funds can have higher administrative costs than grant making from a single foundation because it usually requires a third party to administer the fund, but the benefit of coordinating efforts and collecting additional funds from others can more than make up for the difference.

These structures can also benefit grantees. One grant maker, who recently launched an $80 million pooled fund for international development, said that the arrangement “decreased the burden on grantees by giving them one unified set of terms, reporting requirements, and due-diligence procedures.”

Offer general operating support.

Nonprofits and donors both welcomed the trend toward providing more general operating support rather than project-by-project funding. This helps nonprofits adapt and innovate to tackle complex challenges the way they think smartest rather than according to the whims of each of their philanthropic supporters. While some grant makers may fear a loss of control over how their money is used, general operating support is more efficient for both grant maker and beneficiary.

Such support reduces the need for time-consuming applications, planning, and reporting requirements while increasing agility. Donors can still set expectations for nonprofits, but they can also keep the focus more on long-term objectives than on short-term project deliverables. But, as one foundation president cautioned, it requires tough conversations up front: “Finding a way to be part of a long-term journey versus a short-term engagement . . . starts with being honest about what exit looks like.”

The world of global development is going through a period of upheaval that presents both risk and tremendous transformative potential.

Rising income inequality, more frequent natural disasters because of climate change, and migration crises demand immediate action. Yet technological developments, increased access to data, and burgeoning youth populations eager for change could make development better at tackling these challenges. At this critical time for global development, grant makers, nonprofits, business, and governments all need to embrace new ways to improve the lives of people around the world.

Kristin Lord is president and chief executive of IREX, a global development and education nonprofit. Alex Cole is IREX’s communications director and a former strategic adviser to philanthropists.