What economic rationales are behind the business models of NGO’s and how can the Green Climate Fund supports efforts to mitigate or adapt to climate change? In recent times where the money for international development programmes is becoming scarce, it is important to generate alternative sources of income. In our latest Community of Practice on Innovative Finance for Development of Thursday, September 19th, these were the central questions. Policy advisor and (digital) communication specialist Bram Alkema took us on a philosophical tour on alternative business models and expert on Climate Smart Livelihoods, Angelika Kessler, presented here recent experiences with the international fund for sustainable climate action.
Keep it floating
Bram Alkema dove right in with reflexive questions of “What makes organisations float?” Applied to the development sector this means “What business models do NGO’s have and what are their biggest drawbacks?” One of the major disadvantages is the financial dependency on external parties and therewith the instability and durability of their cash flow.
To tackle this problem NGO’s might consider upgrading their financial model to a circular design. How can we optimise the model to ensure that money is not spent only once but is reinvested and generates a larger social impact. Because dependency on subsidies and on the benevolence of donors is regarded as a threat to be sustainable as organisation, alternative business models must be considered.
A charity dollar lives one life, a social business dollar lives eternally
A first inspiring example of social impact without financial dependency is the Social business Grameen Danone. According to its Bengalese co-founder Muhammad Yunus, it possible to create a thriving company that simultaneously that serves many social purposes. His company is an exception within standard economic theory because 100% of its profits are reinvested into the company. Thus, investors only get back what they invested, but do not earn extra money. Want to know more about this innovative business model? Click here.
The second aspect of financial structures within NGO’s is the exceptionally low share of overhead costs. Briefly, this means that internal business expenses (such as decent salaries, office buildings and important insurances) are not part of the definition of ‘doing good’. Author and ‘activist’ Dan Palotta, explains in his Ted Talk that NGO’s spend a large piece of the pie at their projects but often forget to invest in themselves.
The lessons learned from this first part of the session are:
- NGOs might transform towards Social businesses in order to spend their money in a smarter way.
- This improves their financial resilience and chances of sustainable action.
- The Dutch policy framework for NGO’s (ANBI-Status) limits the potential for social impact and should thus be changed
The Green Climate Fund
Angelika Kessler Climate-Smart Livelihood expert at the Red Cross presented the Green Climate Fund. This fund financially supports NGO’s on low-emission and climate-resilient projects to combat climate change. Angelika Kessler has recent experience with the application process to the fund and presented her most important findings. See here the elaborate PowerPoint presentation.
It turns out that in the current status of the fund its contributions are limited. This is mainly because the application process is time consuming due to regularly changing formats and requirements. Therefore, guidance and close contact with the secretariat of the fund is highly recommended. The best strategy of getting funding for your climate-related projects is to locate gaps in existing climate policies. It is recommended to build your project in collaboration with others and apply together. It will improve your chances significantly!
Do you want to know more about the content of this session? See the elaborate minutes of this meeting here!