On Tuesday, June 18, The Spindle’s Community of Practice on Innovative Finance for Development gathered for the second time to explore two innovative financing methods: cash transfers and social franchising. Aflatoun International, CARE NL, Cash4all4life, PLAN International NL and 100WEEKS contributed to the meeting by bringing in a number of cases and presenting their approach. Han Valk Consultancy participated in the capacity of experts and wrote a blog about the session which you can read below!
Guest blog of Maarten Mulder (Han Valk Consultancy)
Exploring innovative financing models
There seems to be a certain consensus that the hay days of Official Development Assistance (ODA) are over and that we need other financial models to achieve the goal of lifting mankind out of extreme poverty. These so-called “innovative financing models” pop up like daisies, but it might be difficult to tell which models are interesting for you and which you should ignore.
In order to sort this and meet a desire expressed by some members of its community, The Spindle, the innovation platform of Partos has established a Community of Practice on Innovative Finance. As an experienced fundraising consultancy, we have joined this community as experts who have seen diverse models and how they work (or don’t work). Last week, the community organized a meet-up to discuss two models in more detail: cash transfers and social franchising.
Over the past few years, the topic of cash transfers has been getting hotter and hotter. Evidence on the cost-effectiveness of this straightforward intervention piles up and people wonder whether we have finally found the silver bullet in development aid. The basic principle of this concept is simple: give poor people cash instead of anything else. Within humanitarian aid, this method is already mainstreamed, but it also seems to work to achieve more structural development challenges.
Although the idea is simple, there are many varieties in actual implementation. Two main important questions are who should be entitled to receive cash transfers (only the poorest people or everybody within a certain community) and for how long (for a limited period of time or forever). Another point of discussion is whether cash transfers should be conditional (for example related to expenses in health care or education) or unconditional, and whether they should be accompanied by certain trainings or service delivery programs or not. Organizations and researchers alike experiment with different mixtures of cash transfer ingredients in order to find the sweet spot.
The long-term sustainability of these programs is a big concern both in terms of impact and financing. With regards to the latter, it was suggested that governments might take over the cash programs from development NGOs in the long run. This might be hard to envision, but actually the daycare subsidy that many parents in The Netherlands receive is a great example of government-paid conditional cash transfers.
Another topic that was discussed at the meeting was social franchising. This is a strategy meant to diversify income streams by franchising the sale of something valuable that your organization develops to partners; for example training modules or intervention strategies. Most organizations share this for free, so the debate was around how to shift from open source to a network of paying partners coordinated by an international franchiser. The answer seems to be clear and upfront communication along with low fees as well as flexibility with partners that have their own needs or narrower financial possibilities. Partly due to the low fees, organizations might have to be modest on the expected revenues. It should therefore (at least initially) be seen as a cost recovery model rather than as an income stream for funding of other projects.
Curious to know more about the session? In our Dropbox you can find the minutes and the PowerPoint Presentations of the session. And are you willing to join our Community? The next meeting will take place on July 2 (@Bildung.city) and will be on other social franchising models (Dance4Life and RNW Media) as well as performance-based financing (Cordaid and MaxFoundation). Subscribe via this link!
Also, take a look at the recently launched Guide on NGO and Company Partnerships for Inclusive Business. The guide illustrates the how of IB partnerships, which are a promising, innovative way of financing development and scaling up social impact!