The Financing Challenge of the Non-Governmental Organizations for Development (NGOD) in Portugal

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The funding process - the action of obtaining resources from third parties - plays a key role in the activities and performance of Non-Governmental Organizations for Development (NGOD). Devising a successful fundraising strategy enables organizations to maintain and extend their social activities, and increase their social impact.
Most NGODs acting in the Portuguese third sector face funding problems caused by their limited number of volunteers, increasing competition for the funds available, and lack of professionalism when providing services. The Portuguese third sector is necessary and is still underdeveloped.
The present study analyses the result from a survey conducted to Portuguese NGODs, and five interviews conducted to nonprofit organizations operating in the social field. Findings suggest that depending on the organizationse area of intervention and capabilities, there are strategies and funding sources that are more adequate to the support of their actions. These two factors constrain the organizationse approach to the \NGODse Strategic Funding Model., which was developed taking into consideration all the Portuguese third sector trends registered during the present study.

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The Financing Challenge of the Non-Governmental Organizations for Development (NGOD) in Portugal

  1. 1. The Financing Challenge of the Non-Governmental Organizations for Development (NGOD) in Portugal António Gameiro Henriques Advisor Susana Frazão PinheiroDissertation submitted in partial fulfillment of the requirements for the degree of MSc in Business Administration at Universidade Católica Portuguesa. June 2010
  2. 2. Universidade Católica PortuguesaAbstractDissertation Title: The Financing Challenge of the Non-Governmental Organizations for Development (NGOD) in PortugalAuthor: António Gameiro Henriques The funding process - the action of obtaining resources from third parties - plays a key role in theactivities and performance of Non-Governmental Organizations for Development (NGOD). Devising asuccessful fundraising strategy enables organizations to maintain and extend their social activities, andincrease their social impact. Most NGODs acting in the Portuguese third sector face funding problems caused by their limitednumber of volunteers, increasing competition for the funds available, and lack of professionalism whenproviding services. The Portuguese third sector is necessary and is still underdeveloped. The present study analyses the result from a survey conducted to Portuguese NGODs, and fiveinterviews conducted to nonprofit organizations operating in the social field. Findings suggest thatdepending on the organizations‘ area of intervention and capabilities, there are strategies and fundingsources that are more adequate to the support of their actions. These two factors constrain theorganizations‘ approach to the ―NGODs‘ Strategic Funding Model‖, which was developed taking intoconsideration all the Portuguese third sector trends registered during the present study.Key words: Non-Governmental Organizations for Development • Funding • Fundraising • Third SectorAntónio Gameiro Henriques 1
  3. 3. Universidade Católica PortuguesaPortuguese AbstractTítulo da Dissertação: O Desafio do Financiamento das Organizações Não Governamentais para o Desenvolvimento (ONGD) em PortugalAutor: António Gameiro Henriques Angariação de fundos, o processo de obter recursos junto a terceiros, desempenha um papel chave naperformance das Organizações Não Governamentais para o Desenvolvimento (ONGD). Alcançar umaestratégia de angariação de fundos de sucesso permite às organizações manter e estender as suasactividades, e aumentar o seu impacto social. A maioria das ONGDs a actuar no terceiro sector Português enfrenta problemas na angariação defundos que são causados pela número limitado de voluntários, o aumento da competição pelos fundos, e afalta de profissionalismo nos serviços por eles prestados. O terceiro sector português é necessário e estáainda em desenvolvimento. O presente estudo analisa os resultados provenientes de um questionário destinado a ONGDs, e cincoentrevistas de organizações não lucrativas que actuam no sector social. Os resultados sugerem que asestratégias, e fontes de angariação de fundos que são adequadas para suportar cada organização, variamdependendo da área de acção da organização e das suas capacidades. Estes dois factores limitam aabordagem das organizações ao ―Modelo Estratégico de Angariação de Fundos para ONGDs‖, que foidesenvolvido tendo em conta as tendências que afectam actualmente o terceiro sector português.Palavras chave: Organizações Não Governamentais para o Desenvolvimento • Angariação • Terceiro SectorAntónio Gameiro Henriques 2
  4. 4. Universidade Católica PortuguesaAcknowledgmentsThe author would like to thank the following: - The advisor Prof. Susana Frazão Pinheiro, whose never-ending patience supported and enriched this dissertation, and who shared her time, contacts, and knowledge to improve its quality. - To Ms. Vanda Santos for her support in the final stage of the linguistic revision of the dissertation. - To Ms. Helena Gata (Vice-President of TESE), Mr. Alfredo Soares Ferreira (President of E&O), Mr. Manuel Jerónimo (Member of CADIn), and Ms. Susana Damasceno (President of AIDGLOBAL), who granted me interviews, for their time and kindness. - To WACT organization for the availability to support and clarify questions linked with both the organization and the sector. Particularly to Mr. João Loureiro Rodrigues and Mr. João Cotter Salvado, who have always provided data and information with readiness and generosity. - To the family – Francisco, Mother, Father, and Grandparents – for the constant support, strength, and understanding during the elaboration of this work. - To the beloved girlfriend, Mafalda, for the understanding, reassurance and love, in times of worry, stress and sadness, and for all the good moments we spent together. - To the closest friends, for always having a word of motivation and inspiration, and for always giving me moments of fun, entertainment and relax. - To the University for teaching me.António Gameiro Henriques 3
  5. 5. Universidade Católica PortuguesaTable of ContentsAbstract................................................................................................................................................... 1Portuguese Abstract ................................................................................................................................. 2Acknowledgments ................................................................................................................................... 31. Introduction ..................................................................................................................................... 52. Literature Review ............................................................................................................................ 6 2.1. Portuguese Nonprofit Sector History ........................................................................................ 6 2.2. Third Sector Organizations ....................................................................................................... 7 2.3. NGODs’ Funding Sources .......................................................................................................... 9 2.4. NGODs’ Situation and Limitations........................................................................................... 183. Method and Data ........................................................................................................................... 19 3.1. Surveys’ Data ......................................................................................................................... 20 3.2. Interviews’ Data ..................................................................................................................... 234. Findings......................................................................................................................................... 25 4.1. NGODs’ Funding Sources ........................................................................................................ 25 4.2. NGODs’ Funding Situation ...................................................................................................... 26 4.3. NGODs‘ Funding Limitations and Opportunities .................................................................... 295. Discussion ..................................................................................................................................... 316. Final Remarks ............................................................................................................................... 397. Future Research ............................................................................................................................. 40References............................................................................................................................................. 41Appendixes ........................................................................................................................................... 43António Gameiro Henriques 4
  6. 6. Universidade Católica Portuguesa1. Introduction The purpose of the present Work Project is to study how Non-Governmental Organizations forDevelopment (NGOD) collect funds in order to finance their activities and services, to understand whattheir limitations are, and to draw a model that defines the best strategies to create sustainability. There is no doubt that ―nonprofits need a fund-raising strategy carefully crafted‖ (Dolby and GregoryDees, 1996) in order to sustain their activities and existence. In that sense, the research conducted in thisdissertation project is used to create and support a funding model developed to guide NGODs in thefunding process with the aim of reinforcing and ―blurring the boundaries between private, public and thirdsector‖ (Nicholls and Pharoah, 2008), consolidating knowledge about the different funding sources, andimproving NGODs‘ efficiency to attract financing across the different possible funding sources. As Selby (1978) refers, the nonprofit sector is somewhere ―(…) between business and governmentand between people and their communities‖ being seen as an unprofessional and disorganized element ofthe society by those that try to contribute to its development – ―executives increasingly see themselves ina no-win situation‖ (Kramer & Porter, 2002). Adding to this, to become sustainable and to ensure a constant funding source, NGODs usually haveto complement government services, and compete with other for-profit organizations with similarbusiness models. Furthermore, on the one hand there is a tendency for philanthropists and donors to become morestrategic about their donations, and a desire to see the performance and return of their donations. On theother hand, there is increasing competition among NGODs for funding, and therefore increasing demandfor new ways to raise funds. Taken together, this leads to an increasingly greater need for NGODs tofundraise in a more structured manner, and hence to develop fundraising models. ―This is driving social purpose organisations towards more efficient and responsive service deliverymodels‖ (Nicholls and Pharoah ,2008), which means that NGODs have to be credible, professional, andefficient in the way they manage and practice services and funds in order to maximize the potentialamount of funding collected. Therefore, it is the objective of the funding model to boost NGODs capacities to increase theirfunding, focusing on four vital and complementary elements of the organization – governance role,funding process, defined strategy, and support provided (Figure 1) – development and improvement.António Gameiro Henriques 5
  7. 7. Universidade Católica Portuguesa Simplifying, the work project starts by clarifying the Portuguese third sector history and the NGODs‘legal status. This is followed by a description of the most common fundraising methods used by NGODs,and a clarification of what is perceived as the current situation and limitations of NGODs. Then themethodology used to consolidate the information available is explained and the main findings arehighlighted. Finally, the discussion is focused on the development of the funding model, which includeswhat are considered the best fundraising methods, and conclusions are presented.2. Literature Review2.1. Portuguese Nonprofit Sector History The Portuguese Nonprofit Sector has a rich history of civil society activities. ―Three impulses rooteddeeply in the country‘s history, as well as one that has emerged more recently. Included here are first, theRoman Catholic Church; second, the country‘s long tradition of mutuality and self-help; third, its equallylong history of authoritarian political control; and fourth, the development in recent decades of keyelements of a modern welfare state and a growing reliance of state‖ (Campos Franco et al, 2004).As Hudson (1999) mentioned, ―the history of the third sector and the special problems of its managementgo back to the earliest civilizations‖. Thus, the Portuguese nonprofit sector is at least as old as thePortuguese nation-state (foundation date: 1143), since the Roman Catholic Church was in the territoryeven before then. Therefore, in order to understand the Portuguese nonprofit sector it is important tounderstand the social and historical context of the appearance of NGODs. The Roman Catholic Church‘s impact on the development of the civil society sector in Portugal waslinked to initiatives in the social, health and educational areas, having a strand that has tended to bepaternalistic and assistant in character (Campos Franco et al, 2004). It can be said that in Portugal, as inother Southern European countries, the Church assumed a quasi-public status (Archambault, 2001).António Gameiro Henriques 6
  8. 8. Universidade Católica Portuguesa As Portugal slowly entered the industrial era in the first quarter of the 19th century, there was anemergence of workers self-organizations to fight for the defense of their rights. Mutualism was based onthe principles of democracy, freedom, independence, and solidarity (Campos Franco et al, 2004). In 1926 a New Order philosophy (by Oliveira Salazar) was enforced in Portugal, in which thefreedom of associations was seen as contrary to the national interest and, therefore, forbidden andpersecuted. As a consequence, the New Order resulted in a decline of nonprofits in general, and of themutualism movement in particular (Campos Franco et al, 2004). ―Authoritarianism finally gave way to a new political impulse in Portugal in the late 1960s,unleashing a substantial revival and strengthening of civil society organizations‖ (Campos Franco et al,2004) and leading the way to the development of the Portuguese Nonprofit Sector, which is stillunderway.From the 1960s on, the sector has re-emerged with the entrepreneurial skills and social conscience neededto address today‘s social, educational and environmental problems. It is felt that the crucial contributionsof the sector are the ability to represent people‘s view to innovate, and to provide people with a sense ofcitizenship (Hudson, 1999).2.2. Third Sector Organizations The objective of this dissertation project is to develop a fundraising model for NGOD acting in thePortuguese Jurisdiction. In order to understand how the Portuguese third sector is organized, it isimportant to identify the different kinds of entities that are involved with the sector. According to thestudy conducted by Campos Franco, ―Portuguese civil society organizations take a variety of legalforms.‖ These include:o Associations, formed either under private law and specific sections of the Civil Code and in some cases also under the Public Utility Statute.o Foundations, a type of nonprofit organization which is a relatively recent phenomenon in Portugal.o Local Development Organizations (LDOs), operating mainly in rural areas to empower disenfranchised people and territories. The legal form of the LDO varies and can include public, private for-profit, and nonprofit entities.o Holy Houses of Mercy (Misericórdias), Catholic Church affiliated organizations that are among the oldest nonprofit organizations in Portugal.o Museums, legally recognized as nonprofit- distributing institutions, though many of these are public.o Mutualist associations (associações mutualistas) formed under the statute of Private Institutions for Social Solidarity (IPSS) to provide mutual aid to members and their families, financed essentially through membership dues.António Gameiro Henriques 7
  9. 9. Universidade Católica Portuguesao Cooperatives, governed by a special Cooperatives Law, which are allowed to distribute profits to their members.o Non-Governmental Organizations, private nonprofit organizations that maintain social, cultural, environmental, civic or economic programs that benefit developing countries, although many of them operate in Portugal itself. Non-Governmental Organizations (NGO) are nonprofit associations whose activities distinguish themfrom the State and other organizations, ―NGOs can be classified in different ways according to theiractivities, their geographical influence, (…)‖ (Plataforma Portuguesa das ONGDs; Netgraphy 1).Therefore, in order to identify which organizations this work project study applies to, it is essential tounderstand the differences between NGOs registered as Private Institutions for Social Solidarity (IPSS),NGOs not registered as IPSS, and NGOs for Development (NGOD). It is a common mistake to confusethe rights and obligations of these entities due to their legal similarities; however, funding opportunitiesand sources, benefits (tax exemptions, patronage benefits, and government support) and charges are verydifferent among them. Private Institution for Social Solidarity (IPSS) Associations, foundations, holy houses of mercy, mutualist associations and cooperatives can acquirethe status of Private Institution for Social Solidarity, which means that an NGO can acquire the IPSSstatus if that is the organizations objective. Those institutions are not administered by the State or a localgovernment body (Diário da República: Decree-Law No. 119/83 of 25 February, Article 1; Netgraphy 2).IPSS are registered in the General-Directorate of Social Security, whereby they acquire the status of legalpersons of public interest and receive, by the government, the allocation of benefits (tax exemptions,financial support) and charges (accountability, obligation to cooperate with the Public Administration)(Diário da República: Decree-Law No. 119/83 of 25 February, Article 8; Netgraphy 2). To carry out thesocial security objectives, the District Centers of Social Security usually get a cooperation agreement withthe IPSSs, which have to guarantee the management of social services to the population. Non-Governmental Organizations not registered as IPSS (NGOs) Nongovernmental organizations do not legally have to cooperate with the Public Administration andnor have they the adequate and relevant government support given to IPSS institutions. These entitieshave tax exemptions in the Corporate Tax Revenues (Imposto sobre o Rendimento das Pessoas Colectivas(IRC)) if revenues come from donations, fees, and revenues from activities related to programs andprojects of development cooperation, humanitarian assistance, emergency assistance and protection andpromotion of human rights. However, these entities are IRC taxpayers and are taxed by the total incomewhen the incomes are not related to the activities they are legally allowed to execute. (IRC – MinistérioAntónio Gameiro Henriques 8
  10. 10. Universidade Católica Portuguesadas Finanças: Articles 3., paragraph 1, b), 49., paragraph 3 and 4, 81. º, 109. , No. 6, b) of the CIRC;Netgraphy 3). Regarding the organizations‘ profits, nongovernmental organizations ―are not primarilycommercial in purpose and do not distribute profits to a set of directors, stockholders, or managers. Civilsociety organizations can generate ―profits‖ in the course of their operations, but any such surpluses mustbe reinvested in the objectives of the organization.‖ (Campos Franco et al, 2004). Non-Governmental Organization for Development (NGOD) Finally, a Non-Governmental Organization (NGO) becomes a Non-Governmental Organization forDevelopment (NGOD) if registered in the Portuguese Institution to Support the Development (InstitutoPortuguês de Apoio ao Desenvolvimento (IPAD)), which belongs to the Ministry of Foreign Affairs(IPAD – Netgraphy 4). In general, an NGOD acts in the following areas: education and culture, scientificand technical assistance; health, including medical care, medication and food; employment and vocationaltraining; protection and defense of the environment; social and community integration; ruraldevelopment; strengthening civil society by supporting similar associations and associations based indeveloping countries, education for development through the dissemination of the realities of thecountries in developing public awareness and through public opinion (Diário da República: Decree-LawNo. 66/98 of 14 October, Article 9; Netgraphy 5). The status of NGO is assigned by IPAD and is valid fora period of two years. After this period, the NGO must renew the application for the statute. By obtainingthe status of NGOD, the organization benefits from the status of legal person of public utility and afterthree years of activity is able to apply for both co-financed projects, and Education projects fordevelopment (IPAD – Netgraphy 6). With the legal status of NGOD, these entities can also apply to the NGOD Platform (PlataformaPortuguesa das ONGDs), which gives them several benefits at the approximate cost of an annual fee of360€ (Plataforma Portuguesa das ONGDs; Netgraphy 1). Moreover, NGOD benefits from the ―PatronageAct‖ (Ministério das Finanças: Decree-Law No. 74/1999, of March 16; Netgraphy 7), which allowsentities to receive donations, and gives to the donor a reduction in taxes through the augment of theauditing cost of the donation made (the objective is to give a tax benefit to the donor, as a way ofincentivizing donations) (Ministério das Finanças: Decree-Law No. 74/1999, of March 16; Netgraphy 7).Finally, Non-Governmental organizations for development can apply for specific funds designed for themfrom the Portuguese government, the European Union, and several foundations.2.3. NGODs’ Funding Sources The main sources of NGO funding are divided into five categories: the government; the private andpublic sector (all the private and public entities that have specific activities in the community);international funds (although there are a variety of international funds, this study will only consider theAntónio Gameiro Henriques 9
  11. 11. Universidade Católica PortuguesaEuropean Union funds); public; and own business. ―It is recommended that sources of funding or incomebe diverse and multiple to avoid dependence on a single funder.‖ (Conradie, 1999).1) Government Government support is done as payments for service rendered in the form of government grants,through direct contracts, and payment for specific services (Dolby & Gregory Dees, 1996). ThePortuguese government has specific funding programs for NGODs and is under the obligation to ensurethat those funds are properly distributed in order to achieve their social objectives (Programa do XVIIGoverno Constitucional; Netgraphy 8). These programs are implemented because the government doesnot have the capacity to implement all the social activities it intends to, so incentives NGODs to carrythem out. ―(…) people have begun to worry that they [public agencies] do not possess the competence todo it well. In response to these concerns (…) [government decided to do] (…) direct contracting withnonprofits and businesses for services previously delivered by public agencies, the government serving asa third-party payer for the services, or the government issuing vouchers to consumers.‖ (Gregory Dees,1994). NGODs must use this government need for support as an opportunity to ensure financing for theiractivities, and to reassure other potential funders that the organization has the capacity to manage fundsand projects ―the presence of on-going government funding might reassure [other] donors that theirproviding start-up funds will not be in vain since the organization has another source of support‖ (Dolby& Gregory Dees, 1996). However, organizations must ensure that they are not dependent on government payments becausethe government usually has co-financing rules that are not sufficient to finance the whole project, andincurs on payment delays. News about those delays is recurrent: ―Concerns about delays in thedistribution of lottery funding to NGOs are once again in the news. With many NGOs already takingfinancial strain or having to respond to ever-increasing demands for services as a result of the economiccrisis, serious questions have to be raised about the ongoing inefficiencies at the National Lottery.‖(SANGONeT; Netgraphy 9). Government funding for NGOs comes from different sources, namely national funds fromgovernment, the national budget, European funds, and through national lottery, among others, and eachone of them has different processes. There are, therefore, several challenges in fundraising for NGODs. According with the European AntiPoverty Network (EAPN; Netgraphy 10), one of the NGOD funding problems is the lack of informationabout fund processes, requirements and potential. Thus, it is important to provide a brief explanationabout the processes to obtain funding from the allocation of the Individual Revenue Tax (IRS), thePortuguese Institution for the Development, and the Social Security. The process to obtain funds fromAntónio Gameiro Henriques 10
  12. 12. Universidade Católica Portuguesaother public entities is then described because fund processes differ according to the purposes of thefunding. Tax benefits of share allocation of the Individual Revenue Tax (IRS) According to Tax benefit of share allocation of the Individual Revenue Tax (IRS), nonprofitinstitutions can receive 0.5% of taxpayers IRS. For that, taxpayers have to indicate the intended recipientfor the donation in Table 9 of Appendix H – Tax Benefits and Deductions (model 3). Although thedecision to donate is made by the taxpayer, the donation is considered as made by the governmentbecause it is a percentage of the taxes paid to the government (Agência Financeira, 2007; Netgraphy 11). Organizations have to register in the Ministry of Finance to be able to receive donations from the TaxBenefit of share allocation of the IRS. This is done through a letter to the Ministry, with all the documentsthat prove the organization‘s existence, registration, activities and situation. During the process, theMinistry will analyze and decide whether the organization can or cannot receive donations from the TaxBenefit of share allocation of the IRS (Ministério das Finanças; Netgraphy 12). Portuguese Institution for the Development (IPAD) The status of NGOD allows organizations to apply for both co-financed projects, and Educationprojects for the development after three years of activity. Organizations have to apply in accordance withthe rules of either the Co-financed Projects Program, or Education Projects for Development Program,respectively. Those rules demand the presentation of the following documents: Eligibility Criteria;Proposed Program; Project Cooperation Model; and Financial Plan (IPAD; Netgraphy 13 and 14). Social Security Social Security is a system that aims to prevent and remedy situations of deprivation and socio-economic inequality, dependence, dysfunction, exclusion or social vulnerability, and the integration andpromotion of people from the communities through the development of their capabilities. The protectionof social action takes place through the provision of: cash benefits of any nature and in exceptionalconditions; benefits in kind; and access to the national network of services and social equipment andsupport for programs to combat poverty, dysfunction, alienation and social exclusion. Entities responsiblefor implementing these programs are: General-Directorate of Social Security (DGSS); Institute of SocialSecurity (ISS); District Centers of Social Security; Private Institutions of Social Solidarity (IPSS); andother private entities (like NGOD) (Segurança Social; Netgraphy 15). Although NGODs can implement social security programs, their activity is subject to licensing,inspection, and supervision from relevant departments of the Ministry of Labor and Social Solidarity(MTSS) (Segurança Social; Netgraphy 16). The application for licensing the activity is done bysubmitting the application in its own model addressed to the competent organ of the Institute of SocialAntónio Gameiro Henriques 11
  13. 13. Universidade Católica PortuguesaSecurity, I. P. in the geographical area in which the establishment is located (Segurança Social; Netgraphy17).2) Public and Private Entities In this category all the private entities are included – corporations and other nonprofit organizations –and public entities – for-profit companies – that have specific activities in the community and have thefreedom to decide if they want to fund an NGOD through the payment of a service that is provided by theorganization to the entity, or through a donation that can be made in exchange of either nothing (the entitydonates and does not want anything in return), or of a sponsorship (which gives visibility and promotesthe entity). For-profit companies (Public and Private) The business community and the world‘s capital markets are urgently needed as partners to transformvision into tangible impact (Lubber, 2010). NGODs can adopt two approaches when considering for-profit companies as a funding source. Thefirst approach is the traditional one named ―pure corporate philanthropy‖. And a second approach is onedescribed by strategic visionaries like Michael Porter, which can be defined as ―strategic philanthropy‖. The ―pure corporate philanthropy‖ approach has been the usual practice. For-profit companies use―Philanthropy as a form of public relations or advertising, promoting a company‘s image or brand throughcause-related marketing or other high-profile sponsorships. (…) They are intended for as much asimprove employee morale as to create social impact.‖ (Kramer & Porter, 2002). However, ―morecompetition for grants and philanthropy, and changes in public service delivery policy, increasinglyenabled third sector organizations to look for contractual product and service income‖ (Nicholls &Pharoah, 2008). This caused a shift from the ―pure corporate philanthropy‖ to the ―strategic philanthropy‖approach: ―the nature of grants and philanthropy is changing as more engaged and demanding ‗venturephilanthropy‘ models emerge. Creative philanthropy aimed at innovation, scaling and replication as muchas project support is also becoming more fashionable (Anheier and Leat, 2006), as are notions of aphilanthropic capital ‗market‘ (Bernholz, 2004).‖ (Nicholls & Pharoah, 2008). The ―strategic philanthropy‖ approach has the potential to maximize the amount of donations andgrants made by for-profit companies if NGODs are able to structure a strategy that brings benefits forboth parts. As Porter and Kramer stated, ―It is true that economic and social objectives have long beenseen as distinct and often competing. But this is a false dichotomy; Companies do not function inisolation from the society around them (…) the more a social improvement relates to a company‘sbusiness, the more it leads to economic benefits as well‖, which means that a company becomes morecompetitive the more effectively it uses its competitive context. Moreover, there are other authors that areAntónio Gameiro Henriques 12
  14. 14. Universidade Católica Portuguesaeven more radical about how companies should look for the third sector ―Sustainability cannot be viewedby companies and investors as a side project. It‘s not something that can be relegated to the HR team, orone or two sustainability managers. Sustainability needs to be integrated across entire business models —from the boardroom to the copy room, across supply chains and throughout products, to customers andbeyond.‖ (Lubber, 2010). Therefore, NGODs can use their activities and services to enhance companies‘ social and economicgoals, improving a company‘s long-term business prospects ―for example: an established sociallyentrepreneurial organization in the service delivery field may well build new models on existingoperational best practice (lower innovation) but demonstrate more sensitivity to its beneficiaries (highersociality) and explore new resource strategies, including earned income (higher market orientation)‖(Nicholls & Pharoah, 2008). This creates an incentive for companies to give their money to an NGOD,because it enables them not only to contribute to the NGODs social activity, but also to leverage itscapabilities and relationships in support of charitable causes. However, a ―strategic philanthropy‖approach implies a big commitment and demands a professional service from NGODs over corporationbecause ―the impact achieved by a donor, then, is largely determined by the effectiveness of the recipient‖(Porter & Kramer, 2002), and NGODs have to ensure the donor that its donation will create impact forboth society and the companys competitive context through reports that measure the social impact andreturn caused by the service. As a result, ―companies would be more confident about the value of theirphilanthropy and more committed to it.‖ (Kramer & Porter, 2002). However, this poses a problem asissues like ―liquidity, exit frameworks, types of returns, scalability, track records, business models bywhich value is being delivered (new business models and innovation), need for metrics‖ (Frazão Pinheiro,2009) are not always easy to measure in social projects. Foundations Foundations can be seen as social investors, providing funds for NGODs that have activities in thesame area of the foundation. To receive a foundation grant contribution, the key is to find a foundationwhose funding orientation fits the mission of the nonprofit organization. ―If foundations are anappropriate source of funds for the venture, the first step is to identify a manageable number offoundations to approach. The screening process should be based on a sense of fit between the venture andthe foundation‖ (Dolby & Gregory Dees, 1996). As for the public and private entities funds, there isusually strong competition for these funds ―foundations are already heavily invested in social enterprises,mainly through grants, and donations‖ (Nicholls & Pharoah, 2008) making it difficult for small/newNGOs for development to obtain them. The process of applying for grants varies among foundations, butusually requires a formal proposal whereby organizations are required to present their projects and haveAntónio Gameiro Henriques 13
  15. 15. Universidade Católica Portuguesato show how transparent and reliable they are in order to deserve the fund. ―Pioneering Groups such asASHOKA (…) have challenged current investment and grant-making practice. They have called forfoundations to apply their funds to more innovative and transformative models of social change – onesthat are replicable and economically sustainable in the long-term‖, which means that the tendency foradopting a ―strategic philanthropy‖ approach instead of ―pure corporate philanthropy‖, happening withfor-profit companies, is also happening with foundations. Nonprofit Institutions as intermediary Platforms There are some NGODs that work as intermediaries, collaborating and helping NGODs to obtain thefinancing they need. One illustration of this is the fact that in the United States ―The number ofspecialised finance intermediaries such as CDFIs and Credit Unions has grown, and has widened accessto loan funds, but these organisations themselves have yet to reach scale‖ (Nicholls & Pharoah, 2008).CDFIs (Community Development Financial Institutions) and Credit Unions are small financialinstitutions that provide finance and support to individuals and enterprises. In Portugal, there are few of these intermediary organizations, but it is important to draw the attentionto ―Plataforma Portuguesa ONGDs‖ and ―Bolsa de Valores Sociais – BVS‖. The Portuguese Platformsmission is to help improve and enhance the work of Portuguese NGODs. For an annual fee of 360€, theplatform promotes NGODs‘ work, monitors and influences the design, implementation and evaluation ofdevelopment policies in Portugal, and works as an interlocutor of both government organizations andsupra-governmental organizations on issues of development and cooperation (Plataforma Portuguesa dasONGDs; Netgraphy 18). Bolsa de Valores Sociais (BVS) replicates the atmosphere of a stock exchangeand its role is to facilitate the meeting of NGODs with relevant work and proven results in the areaof education and entrepreneurship, and social investors (donors) willing to support these organizations bypurchasing their social actions. Following the example of what happens in the capital market, the BVS isthe space that promotes the meeting between social organizations and social investors, and ensures therequired transparency (Bolsa de Valores Sociais; Netgraphy 19). Loans There are banks and other similar intermediary institutions that are starting to take an interest inNGODs through loans and other financial instruments: ―a very small number of social enterprises arebeginning to deal in bonds and share issues‖ (Nicholls & Pharoah, 2008). However, this is not a commonpractice among NGODs for several reasons: ―limited liquidity, ownership restrictions, lack ofperformance data, and no developed stock exchange marketplace‖ (Nicholls & Pharoah, 2008). Adding tothese, most of the NGODs are not self-sustainable, which means that the only way to pay back the loansAntónio Gameiro Henriques 14
  16. 16. Universidade Católica Portuguesais through donations, which are not always certain. These are some of the reasons that limit thedevelopment of loans as a source of fundraising.3) European Union Funds The European Union (EU) is a unique economic and political partnership between 27 democraticEuropean countries, which aims to create peace, prosperity and freedom for its citizens. To achieve itsobjectives, EU countries set up bodies to run the EU and adopt its legislation. The main ones are: theEuropean Parliament (representing the people of Europe); the Council of the European Union(representing national governments); and the European Commission (representing the common EUinterest) (European Union; Netgraphy 20). The European Commission is the EU‘s executive organ that manages the day-to-day business ofimplementing EU policies and spending EU funds. The European Union funds are designed for smalland medium enterprises (SMEs), public bodies, farmers, young people, researchers, and NGOs. Non-Governmental and civil society organizations are a natural target group eligible for a vast part of EUfunding, as they are involved in many areas covered by EU policies on a nonprofit basis, a preconditionfor receiving funding from EU coffers (European Union; Netgraphy 21). In practical terms, NGODs may receive two types of funding: one is through a proposal for a concreteproject under a EU program which covers the organization‘s area of activity and, if successful, thisparticular project will be co-financed by the EU through an action grant. The other is under a specificoperational program, where the NGOD pursues a project delineated by the European Union. These fundsare known as structural funds and are managed by national or regional entities (Official Journal of theEuropean Union: Regulation (EC) No. 1081/2006 of the European Parliament and of the Council of 5July 2006 on the European Social Fund and repealing Regulation (EC) No. 1784/1999; Netgraphy 22). In2007, the European Union launched a new set of programs: up to € 975 billion over a seven-year period(2007 – 2013). However, the application process demands that NGODs have people who study theprocess in order to have knowledge of it, and who are able to correctly deliver the documentationrequirements. Moreover, to apply to the EU budget managed by national and regional authorities, theorganizations have to find out which operational programs are adequate to their activity area, what entitiesare responsible for the management and control of the budget (when more than one entity is involved),when the applications are available, and for which regions they are meant. Adding to this, eachoperational program has different application programs and different requirements that change over time(European Commission; Netgraphy 23).4) Public The public that donates is motivated by a sense of gratitude, personal passion for a particular cause,the desire to help others, the wish to honor a family member, and finally, the need to improve the donor‘sAntónio Gameiro Henriques 15
  17. 17. Universidade Católica Portuguesapublic image or social standing (Dolby & Gregory Dees, 1996). Adding to this, people have fiscalbenefits when donating to nonprofit institutions according to the ―Patronage Act‖ (Ministério dasFinanças: Decree-Law No. 74/1999, of March 16; Netgraphy 7). The fiscal benefit varies according to thelegal status of the recipient for the donation. Finally, grass roots campaigns gather a large number ofsmall donations from individuals that can be made in innumerous ways, depending only on theorganizations‘ capacities and creativeness. A widespread support is important in order to avoiddependence on a particular donor (Dolby & Gregory Dees, 1996) and to overcome the hard competitionfor public donations.5) Own Business Own business is the final category of fundraising. Here are considered the funds created by theNGODs without depending on other entities‘ funding rules, in other words, they are uncommitted fundingsources that are made through payments for goods or services. Note that services that imply contractswith public and private companies are excluded from this category, which is the case of the ―strategicphilanthropy‖ approach described in the public and private entities category of funding source (please seePage 11). Membership Fees NGODs‘ board members ―assist the internal workings of the NGO by setting criteria for membershipof, and appointing review panels and/or support groups‖ (Mostashari, 2005). The membership system canbe implemented with a fixed fee for every member, allowing the organization to receive an annualdonation from those who want to collaborate with it. What differentiates the fee from a donation is thatthe fee must imply a counterpart to the member, a benefit offered from the organization to the individual. Events ―Special events come in all shapes and sizes‖ (Ilona Bray, 2008). Organizations can create two kindsof events: Events that are directly related to the nature of the activity developed by the organization,which means that the organization is carrying out an activity aligned with the legal purpose of theorganization (e.g. a conference whose subject is to call people‘s attention to the current social problems inPortugal, and how they can be prevented and countered). And events that are not directly related to thenature of the activity developed by the organization, and whose only purpose is to collect money,entertain people, or provide an opportunity for people involved in the same activity to know each other.According with Ilona Bray (2008), events ―are occasions outside your nonprofit‘s usual activities, whereyour membership and/or the public is invited to attend and support your work, usually by paying anadmission fee or buying things once they get there.‖António Gameiro Henriques 16
  18. 18. Universidade Católica Portuguesa Sales (Merchandising) Merchandising products can be of every kind, must sell the image of the organization, and create arelationship with the buyer. Like events, merchandising ―gives you an opportunity to reach out to peoplebeyond your usual donor base‖ (Ilona Bray, 2008), which means that the interested buyers can possiblybecome donors. When selling merchandising products, the organization is not necessarily selling a serviceor product related to the legal nature of the organizations activities. Like Ilona Bray (2008) wrote,―everything that you sell with a tag or label on it should loudly proclaim what your organization is aboutand how the buyer is helping an important cause‖. Sustainable Business Model ―Financial sustainability is critical for NGOs to be able to sustain their organizations and programs‖(Conradie, 1999). Furthermore, the business models adopted by NGODs increase their profitability andself-sustainability without losing sight of their original goal. According to Elkington and Hartigan, thereare three business models, namely ―leveraged nonprofit‖, ―hybrid nonprofit‖ and the ―social business‖.All of these structures pursue social or environmental ends that the markets have failed to address, andNPOs use different means to do so. However, given the Portuguese legal structure, NPOs cannot adoptthe ―hybrid nonprofit‖ model, because they are not allowed to reinvest revenues and profits in purposesother than their legal one. Instead, in case of making a profit, nonprofit organizations have to allocate theprofits to future social projects. As Andrea Heinecke, founder and director of Dialogue in the Dark says,―It would be very interesting to come up with a new type of company that would be for-profit with astrong social mission that would also have the fiscal advantages of a nonprofit organization (…) what Imlooking for is a hybrid that would combine the best parts of both groups‖ (Goldsmith, 2009). Thisbusiness model would bring great benefits to the Portuguese third sector if it was allowed, but in thisstudy it will not be considered. Therefore, we will focus only on the ―leveraged nonprofit‖ and ―socialbusiness‖ models, when approaching the NPOs way of doing business - in other words, their way ofcarrying out their social activities and collecting funds.o The first model is the ―leveraged nonprofit‖ venture and is very common in cases of market failure, where the government or regular companies are not capable to provide the ―service‖ or ―good‖ needed‖ (Elkington and Hartigan, 2008 (mainly ―public goods‖), being considered very risky for them to try to. The NGOs that adopt this business model are financed by philanthropic entities, the government, or own resources, like paid services related to their area of activity and fees, thus being very limited in terms of sources of financing.o The third model is called the ―social business‖ venture and is more common where more obvious market opportunities exist, because these entities are ―for-profit entities focused on socialAntónio Gameiro Henriques 17
  19. 19. Universidade Católica Portuguesa missions.‖(Elkington and Hartigan, 2008). They operate like a normal company, being pro-profit, sustainable and not dependable on donations or public/private funds. Given the Portuguese legislation, Non-Governmental Organizations ―(…) can generate ―profits‖ in the course of their operations, but any such surpluses must be reinvested in the objectives of the organization‖ (Campos Franco et al, 2004). This regulation prevents Non-Governmental Organizations from adopting a ―hybrid business‖ model; however, the ―social business model‖ is an alternative that can be adopted by these organizations in order to be able to have paid services that are not related to the social area. This increases their scope of action and reduces the organization dependence on donations or other funds. This alternative is the creation of a ―social enterprise‖, which is the creation of a for-profit company separated from the NGOD in legal terms, but linked to it through the mission of achieving a better common good, reverting all the profits to the NGOD in the form of donation. This enterprise has to pay taxes and does not have the ―patronage status‖. ―The enterprises‘ financing – and scaling – opportunities can be significantly greater because social businesses can more easily take on debt and equity.‖ (Elkington and Hartigan, 2008). Each of the models described can be used to address any of the great social and environmentaldivides. ―The good thing about a for-profit company is that it is less burdened by regulations thannonprofit organizations. On the other hand, nonprofits enjoy significant tax advantages that […] for-profitorganization […] misses out on because of its for-profit status. This status also prevents it from receivinggrants or donations from foundations even though it is driven by a strong social mission‖ (Goldsmith,2009). In every model and for every market need these models seek to address, entrepreneurs must raisefunds and know how to raise them and use other resources.2.4. NGODs’ Situation and Limitations The studied carried out by Campos Franco claims that Portugal‘s civil society sector is a major andsignificant economic force. It represents 4.2 percent of GDP (Gross Domestic Product), it has a quartermillion full-time equivalent workers (70 percent being in paid positions), and employs more people than afew industries in Portugal, like the utilities and transportation industries. However, this informationreveals the importance that the third sector is beginning to get in Portugal. There are some problems whenmanaging third sector organizations: First of all, there is only a weak link between providers of funds and service users, making the publicless aware of social problems (Hudson, 1999), and there is little understanding of organizations asconstituting a single cohesive sector. This lack of sector consciousness limits the sector‘s ability topromote philanthropy, attract public support, and secure policies favorable to its future development(Campos Franco et al, 2004).António Gameiro Henriques 18
  20. 20. Universidade Católica Portuguesa Secondly, companies do not know how corporate philanthropy can add value to their competitivecontext. ―The majority of corporate contribution programs are diffuse and unfocused (…) in fact; mostcorporate giving programs have nothing to do with a company‘s strategy‖ (Kramer & Porter, 2002).Companies need to change their philanthropy strategy in order to focus on social needs that affect itscorporate context and utilize its unique attributes as a corporation to address them, creating a strongerimpact on both society and the company‘s competitive advantage. Adding to this, according to Hudson (1999), volunteerism is an essential ingredient. However, theperception of Portugal nonprofit employees is used to justify low wages and long hours, leading to lowemployee retention, with qualified workers leaving social institutions for public or private for-profit ones(Campos Franco et al, 2004). It is a challenge for NGODs to retain their employees, who have a valuablerole in the whole process of fundraising. Moreover, third sector management structure is intricate (Hudson, 1999). Portugal currently has adiffuse and confusing body of laws governing the formation and operation of different types oforganizations (Campos Franco et al, 2004). This creates a lack of understanding of the legal framework,diminishes the impact of the nonprofit sector in Portugal, and limits the number of business models thatcan be applied by NGOs in order to improve their activities and increase revenues. Finally, ―Close to half (48 percent) of the revenue of Portuguese nonprofit organizations comes fromfees and sales, followed closely by public sector support (40 percent)‖ (Campos Franco et al, 2004),which means that NGODs rely heavily on government funds. This is a situation that has to be changed,because the actual crisis is causing a social impact, forcing the government to incur in cost reductioninitiatives, which include cuts in social funds. Recently, the Government announced the recovery planwhere it was clear that ―the Government intends to reduce the annual expenditure made with the SocialIntegration Income in at least EUR 137.8 million by 2012, reveals the Stability and Growth Plan‖(Público, 2010; Netgraphy 24).3. Method and Data In order to indentify the most important factors that contribute or influence the funding process ofthese organizations and to carry out an analysis of a sample of Portuguese Non-GovernmentalOrganizations for Development, we have conducted a survey and interviews. Survey A survey was administered to a large number of Portuguese civil society organizations, bearing inmind that no two respondents could come from the same Internet address. This measure may haveprevented two respondents from responding from the same computer and ensured a greater diversity ofrespondents. The objective of the survey was not to have quantitative research, which would have beenAntónio Gameiro Henriques 19
  21. 21. Universidade Católica Portuguesaconsidered ―poor‖ since there is not that much data on the NGODs current situation to work on whichwould drive to sustained conclusions. The plan was to identify NGODs among a large number ofPortuguese third sector organizations, and analyze/evaluate the information regarding their fundingsituation. Appendix 1 offers a summary of the observed questions, and how NGODs‘ answers aredistributed (all the other entities‘ answers were removed). This filter is applied because only NGODs‘answers contribute to the development of a funding model for NGODs. Interviews After the survey, a research based on structured interviews with open-ended questions was used, as itis considered to be the most useful interview format for qualitative research (Barrio, 1999). Fourinterviews were carried out to the Heads of four different NGODs. These interviews were based on ascript of predetermined questions (please see Appendix 2) with a well-defined structure in order to obtainthe maximum information relevant for the funding model development. Interviews are divided in foursections of open questions: the first section gathers specific information regarding the legal status; thesecond section shows which activities the organization does in which areas; the third is to understandwhat the organization‘s main sources of financing are, and which methods the organization has used toraise them; the fourth section is about the organizations‘ problems in obtaining financing, and about therespondent‘s opinion regarding possible solutions. A fifth interview did not follow the same structure of the previous interviews, because it wasconducted to an IPSS to get more information about their business model. The goal was to understand theidea behind the model, which can then be adapted to NGODs. Therefore, the structure of this interviewwas different from the used in the NGODs interviews, with questions only about the organization‘s legalstatus, activities, and business model. Appendix 3 shows the interview guide.3.1. Surveys’ Data The survey was conducted online, and sent to approximately 110 organizations. From theorganizations that were invited to participate in the survey, 37 organizations completed the survey, fromwhich 6 did not identify themselves (16.2%). Among the 37 respondents, there were 7 NGOs, 20NGODs, 4 IPSS, and 5 nonprofit associations. From the 37 organizations that completed the survey, allthe answers that were not from NGODs were not considered. This filter left 20 responses that were usedin the present analysis, in order to support the NGODs funding model. To understand the size and importance of the sample obtained, the information available about theexisting number of NGODs is that up to March 19, 2009 there were 160 NGODs registered in IPAD(IPAD; Netgraphy 25). However, there are NGODs that do not exist anymore, or that are not carrying outAntónio Gameiro Henriques 20
  22. 22. Universidade Católica Portuguesaany activities. Therefore, we can consider that if every NGOD that registered in IPAD until March 19,2009 is still active, then the survey sample represents 12.5% of the NGOD universe. Organization’s Profile Regarding the organization‘s profile, in the final 20 responses data set, the majority of theorganizations have 1 to 10 members (8 NGODs, or 40%), 6 have between 11 and 49 members (30%), 4have between 50 – 99 (20%), and two of them have more than 1000 members (10%). The year in whichthe organizations were founded varies between 1949 and 2008, and the majority of them were foundedbetween 1995 and 2008 (14 NGODS, or 70%). 18 organizations have activities in Lisbon (90%), and 15operate also in other regions of Portugal (75%). 11 NGODs have activities in the Community ofPortuguese Language Countries (CPLP) (50%), and one has activities outside Portugal and CPLPs. All ofthe organizations have activities in the development area (economic, social, and community development)and housing category (using ICPNO Reference), which makes sense, given their legal nature. Beside thisarea of action, education and research is the second most practiced (15 NGODs or 75%), health and socialservices activities are both practiced by 9 organizations (45%). Regarding the organizations‘ activities,the majority of NGODs conduct training activities (18 NGODs, or 90%), and right after that activity,events are the second most practiced (14 NGODs, or 70%). The information about NGODs‘ profile wascollected from questions 1 to 6 from the survey (please see Appendix 1). Information about funding sources Questions 7 to 10 are about the financing sources used by NGODs. Regarding the most usedfinancing sources, the government provides funding to 16 NGODs (80%), being the most common sourceof financing among the respondents. Next, public donations are received by 15 NGODs (75%), and eventsare the third most used source of financing, being implemented by 14 organizations (70%). Sales, fees,and international funds are all sources of financing used by 10 respondents (50%), respectively (Figure 2).António Gameiro Henriques 21
  23. 23. Universidade Católica Portuguesa Every respondent agreed that there are limitations to the fundraising process and those limitationswere identified as: limited human resources without the capacity to carry out fundraising effectively (11NGODs, or 55%); limited visibility and reputation (9 NGODs, or 45%); limited number of financingsources (5 NGODs, or 25%); and the size of the organization (4 NGODs, 20%) (Figure 3). 9 organizations state that the financing they obtain does not limit their activities (45%); however, theremaining 11 organizations (55%) agreed that their activities were limited due to the financing theywere capable of obtaining, for several reasons: First, 7 NGODs say that had to cancel some of theprojects they intended to do because they were rejected by the funders (35%). Secondly, 5 NGODsbelieve that their activities are limited to the financing capital available because of some of the financingsources demands and rules (25%). Those rules are: The rule of reimbursement, which means an initialinvestment from the organization and later the financer reimburses the organization, which impliesavailability of working capital. The rule of co-financing, which is the sharing of the cost paymentsbetween the NGOD and the financer, creates the same problem as the reimbursement rule. The length ofthe financers contribution to the project is usually short term (12 months), which limits the projectduration and sustainability (Figure 4).António Gameiro Henriques 22
  24. 24. Universidade Católica Portuguesa The last question asked organizations how financial sources contribute to an improvement in theorganization’s management efficiency and capacity. The most common reason to explain the directrelationship of more financial capital leading to an improvement in the organization‘s management wasgiven by 10 organizations (50%) that stated it gives more independence to the organization, not beinglimited to the bureaucratic rules and payment delays of the financers. Secondly, 6 NGODs explained thatmore financial resources capacitate organizations to attract more human resources with specifictechnical capacities (30%). Thirdly, also 6 NGODs stated that it improves the organizations‘ capacity tomeet community needs (30%). Fourthly, 5 NGODs stated that it allows organizations to plan andexecute sustainable and long-term projects (25%). Finally, one organization stated that it gives morevisibility to the organization (5%) (Figure 5).3.2. Interviews’ Data Live interviews were carried out with four of the survey respondents, plus one other organizationwhose profile did not fit the requirements of the survey. The people interviewed were chosen in order toAntónio Gameiro Henriques 23
  25. 25. Universidade Católica Portuguesagive better insights into the information needed to develop the model. The interviews were conducted inPortuguese and took between 30 and 90 minutes. All interviews were transcribed and translated intoEnglish for posterior analysis and interpretation. Interviews’ Purposes Four of the interviews were carried out with NGODs that had replied to the survey and whose profilesallow the organizations to apply the funding model developed in this work project (the required profile touse the funding model is to be an NGOD with ongoing activities). The objective of these interviews wasto take inferring conclusions about the actual fundraising strategies that NGODs use nowadays. Thechosen NGODs were: ―WACT‖, ―AIDGlobal‖, ―TESE‖, and ―Engenho & Obra (E&O)‖. Among all theinformation gathered in these four interviews – about the organizations‘ legal situation and activities – themain focus/objective was to understand what their main sources of financing are, the reason why theyhave those funding sources, and the methods the organization uses to raise them. A fifth interview was arranged with an IPSS, but this interview was just to understand the businessmodel used by the organization, which gives a sustainable mode of operation to the organization. Thatorganization is ―CADIn‖. This interview had a different focus from the previous ones, bent on gettingbetter insights into sustainable models, which can be a good strategy to avoid fundraising problems, andensure a constant source of revenues. Information Gathered All the interviews were carried out in person, transcribed into the computer, and not recorded (pleasesee Appendix 6). In order to have a better understanding and to facilitate the analyses of the informationgathered from the interviews, the data collected during the interviews were transferred into tables, througha process of clustering the information according to the area under study (please see Appendix 4). Therefore, the information collected from the NGODs‘ four interviews is displayed in six tables,where it is possible to compare answers from the different interviewees. Those tables are available inAppendix 4. The first presents information regarding the NGODs legal status, natural obligations andbenefits (please see Appendix 4, Table1); information about other organizations‘ activities from a fundingperspective, and costs approach is presented in Appendix 4, Table2; after that, different sources offundraising information regarding the funding process, problems, and preferences (please see Appendix 4,Table 3, 4 and 5); and finally information about transparency and accountability is presented (please seeAppendix 4, Table 6).Information about the CADIn business model interview is available in Appendix 5. This interview wasextremely helpful to understand how a nonprofit organization can implement a sustainable businessmodel.António Gameiro Henriques 24
  26. 26. Universidade Católica Portuguesa4. Findings Through the analysis of the data collected from surveys, interviews, internal documents, andcorporate websites, it is possible to compare and infer conclusions about the current NGODs‘ financingsituation, the problems and the procedures that these organizations have to face in order to get funding.The analysis focuses on these topics, because this is crucial information to support the funding model thatis here developed.4.1. NGODs’ Funding Sources In the interview, the four organizations were asked to describe the processes and problemsencountered when obtaining funds from the different possible sources – companies; foundations; public;government; events; sales; training; fees; international funds; and loans – and a synthesis of thatinformation is available in Appendix 4. Starting with the government, interviewed organizations receive funds from IPAD, public entitiesand from the IRS consignation. IPAD has several funds for development. However, organizationscriticized these funds because the organizations can only apply to the fund after completing three years ofactivity. Adding to this, the funds are available with periodic breaks, and there is strong competition forthem. Moreover, sometimes there are delays in the payment. These conditions force organizations to lookfor alternative sources of funding. Regarding the IRS consignation, organizations have to send theaccount statement and a report of their activities to the Tax General-Directorate, which is a process thattakes a year to be implemented, being very bureaucratic (which explains why it is used by only one of theinterviewees). Public entities‘ funds are given through sponsorship, support, service fees, or partnershipcontracts, like with private entities (this source of funding is evaluated together with private entities). Toconclude, the government is the most common source of funding among the surveyed organizations(80%), which means that NGODs are very dependent on these funds. The organizations criticism aboutthese funds (delays, competition, and bureaucracy) adding to the fact that the government has decidedto cut on social expenditure because of the social economy situation, suggests that the organizationswill have to break free from their dependence on these funds in order to avoid pitfalls in their activities. To obtain funds from private and public entities (private and public companies and foundations), theorganizations explained that they have to approach them and convince them of the organization‘scredibility and capacity to develop good projects and activities that will bring benefits for the entity.Foundations and companies are the least common source of funding of the surveyed organizations(excepting training), with 9 organizations receiving funds from foundations (45%), and 7 from companies(35%), which means that organizations are not using an effective strategy when approaching theseentities, or that the companies and foundations willingness to fund third sector activities is still veryAntónio Gameiro Henriques 25
  27. 27. Universidade Católica Portuguesalow. Organizations will have to change the companies‘ mindset, creating projects and changing the waythey approach them (pure corporate philanthropy versus strategic philanthropy approaches) emphasizinghow beneficial a social project can be for the companies‘ competitive context. Own business – events, sales, training, and membership fees – activities have trouble incollecting support to carry them out in a way that generates profit. This support can be provided byentities‘ funding or human resources collaboration. However, not having full time employees andstability is referred as a big limitation to own business activities, because, in the majority of the cases, thevolunteers are the ones who do the selling, act in events, pay the fees, and give training. Events whenimplemented are pointed out as an opportune moment to make sales and request public donations. Public donations are a punctual source of funding for all the interviewed organizations, due tothe strong competition to get them. Organizations pointed out that networking and the capacity topresent a credible project are key success factors. International funds show some of the problems of IPAD and other funds from the government: theyare periodic funds, for very specific purposes, under great competition and complex rules. However, theyare considered to have great potential (please see Appendix 4, Table 5), and according to the President ofE&O (Alfredo Soares Ferreira), the European Commission is the biggest international source offunds, which is confirmed by the European Commission slogan: ―Europe is the biggest provider ofdevelopment aid in the world‖ (European Commission; Netgraphy 26) Loans are not seen as a considerable source of funding. Like João Loureiro, President of WACT,stated ―I have never considered this hypothesis, because we do not want to become indebted to do socialactivities, we would always lose the interest and the amount of money borrowed‖ (please see Appendix 4,Table 3). Visibility, good networking, experience, knowledge of the selecting criteria, and capacity todevelop a good project/activity that is aligned with the other entities’ objectives, are mentioned askey success factors to get funding (please see Appendix 4, Table 3).4.2. NGODs’ Funding Situation In the survey, when organizations were asked whether the financing they have limits their activities ornot, 9 organizations said that their activities are not limited (45%), and 11 said they are limited(55%). This result is almost split in halves, and the cause for it leads us into very interesting conclusions.A filter was applied to separate the results of the survey into two groups of answers – the organizationsthat have their activities limited due to the financing they obtain, and those whose activities are notlimited – and the results were conclusive.António Gameiro Henriques 26
  28. 28. Universidade Católica Portuguesa 9 of the 11 organizations that have their activities limited due to the financing sources have lessthan 50 collaborators (90%) (Figure 6), against only 4 of the 9 organizations whose activities are notlimited, which have less than 50 collaborators (44%) (Figure 7). More people means more resources toimplement projects, more skills to do fundraising, more possibilities of having a team dedicated toattracting more funds and more volunteers, and more contacts that can possibly help the organizations inseveral aspects (a bigger network). In this sense, it is understandable that the organizations with morecollaborators do not have their activities limited due to lack of fundraising. In the limit, it is possible tostate that collaborators can substitute funds in some purposes. This reality becomes stronger when 11 ofthe respondents state that one of their limitations to obtaining funds is the limited number ofhuman resources, or the lack of competencies in the fundraising area (55%). Moreover, president ofWACT João Loureiro affirms in the interview that ―the difficulty to ensure the continuity of volunteers,and not having full time employees‖ constitutes a problem in obtaining funds from the organizations‘ ownactivities (please see Appendix 4, Table 2). Another important outcome that resulted from this filter has to do with the sources of funding used byboth groups. When the sources of the two groups of organizations were compared, the organizationswith activity limitations due to lack of financing (11 NGOD, or 55%) had more financing from thegovernment (10 to 6 organizations), foundations (6 to 3 organizations), and international funds (6 to4 organizations) (Figure 6). However, the group of organizations whose activities are not limited (9NGOD, or 45%), have more financing coming from companies and own business (sales, fees, events,and training) (Figure 7). This result proves what has been stated about the different sources of financing,and contradicts the idea that organizations have that the number of volunteers is not an important resourcein the fundraising process (please see Appendix 4, Table 4). Group of NGODs with activity limitations As mentioned above, those organizations that have limited activities due to lack of financing have intheir majority few collaborators - less than 50 collaborators - which limits their possibilities to implementtheir own business sources of financing, such as events, sales, membership fees, training, and services forprivate and public entities (the number of volunteers was pointed out as a critical factor in theimplementation of own business activities) (please see Appendix 4, Table 3). Therefore, this group of NGODs is forced to look for funding in other sources – government,companies, public, and international funds (Figure 6) - which presents some limitations: first,government, foundations and international funds are in big demand, so theres strong competition to getthem – Susana Damasceno, President of AIDGLOBAL, pointed out that competition is the main problemto obtain funds from these three sources (appendix 4, table 2). Secondly, those funds are occasional, beingAntónio Gameiro Henriques 27
  29. 29. Universidade Católica Portuguesaavailable in specific periods, which limits the organization‘s freedom. Thirdly, the funds are for specificprojects, which does not allow the allocation of the financing from the fund to other projects. Adding tothis, the funds from the government also have the problem of payment delays, and reduced availabilitycaused by the economic crisis – Helena Gata, Vice-President of TESE, admitted they are currently feelingthese effects in government and public funding. Although the organizations have mentioned those limitations in government, companies,international, and public funds, these are funds that are present in almost every NGOD’s fundingstructure as is clear in Figure 2, and the organizations recognize the importance of those funds in theiractivities and management maintenance - when asked to evaluate in a scale from 1 to 9 the importance ofeach funding source in their structure (please see Appendix 4, Table 5). Group of NGODs without activity limitations In contrast, the group of organizations without activity limitations has more collaborators, whichgives NGODs more possibilities to implement their own business sources of financing. According to theinterviewers statements, these funding sources seem to be the best for organizations – events, training,and services for private and public entities (Figure 7) – giving them more independence and autonomyfrom the financers rules.António Gameiro Henriques 28
  30. 30. Universidade Católica Portuguesa Although these funds are appreciated among NGODs, the interviewees make a distinction in theimportance of these funding sources for their organizations. The four organizations classified services forprivate and public entities as the best source of financing, recognizing the importance, impact andpotential that this source of funding has or can have in their funding structure (appendix 4, table 5). Whilefees, merchandising/sales and events are considered less important than the funds provided by companies,foundations, government, public, and international entities, these funding sources (fees, sales and events)give NGODs more independence and autonomy. However, these funds generate less money and thereforehave less impact on the overall NGODs funding and that reflects negatively on the organizations capacityto implement their activities. (please see Appendix 4, Table 5).4.3. NGODs‘ Funding Limitations and Opportunities NGODs’ Funding Limitations Some organizations do not have any activity limitations caused by lack of funding (Figure 3), but thatdoes not mean that those organizations do not have limitations in obtaining funding (Figure 4).The lack of human resources and their limited competencies in the fundraising area are pointed out by 11organizations as a funding limitation (55%), recognizing the importance of human resources in thefundraising process, and contradicting the evaluation made by the interviewed organizations, where thenumber of volunteers was pointed out only as a helpful resource (please see Appendix 4, Table 4).António Gameiro Henriques 29
  31. 31. Universidade Católica Portuguesa The second most mentioned factor that limits the obtaining of funding is the lack of reputationand visibility of the organization (45%), which was also misevaluated by the interviewed organizationswhich pointed it out as an important factor, but only in sixth place (please see Appendix 4, Table 4). Thisshows that the fact that organizations consider that limited human resources and lack ofreputation/visibility are factors that limit the funding process, that does not mean they give them thedeserved importance and attention, when collecting funds. The organizations also point out that the lack of available funding sources (25%), and the size ofthe organization (20%) limit the organization‘s capacity to obtain funds. Again, the number ofvolunteers is the resource that makes organizations grow and enables them to apply to a bigger numberof funds. Adding to this, another factor that is directly linked with the availability of funding sources isthe NGOD‘s project nature, which was considered a very important factor in the funding process. Thenature of the project determines which and how many sources are at the NGOD‘s disposal. NGODs’ Funding Opportunities In the survey, organizations were asked to describe how funding contributes to their managementimprovement (Figure 5). More independence from the financers’ rules (reimbursement, co-financing, length) was pointedout by 10 NGODs (55%). Those rules require organizations to have working capital available to apply inthe project; therefore, they make organizations look for alternative funding. This is a common procedurein the third sector, and is something that own business activities avoid. Attracting more human resources is another benefit that funding availability brings to theorganization (30%), which means that with more funds, organizations have more capacity to attract morefunds, generating a virtuous circle. More capacity to meet the community needs, longer projects, and more visibility are factors thatbecome easier to achieve with funding; and all of them contribute to improving the organizations‘capacity to collect funds, to have better visibility, more human resources, and more independence fromthird parties. Finally, the interviewed organizations mentioned that having a good service/project is the mostimportant factor in the process, followed by having good connections, and human resources withcompetencies to sell and do fundraising. Transversal to all sources of funding is the way organizations register their funding in audit terms.The NGODs‘ legal status (Diário da República: Decree-Law No. 66/98 of 14 October, Article 15;Netgraphy 5) states that their services are free of tax when related to the third sector. This was verifiedduring the interviews, by asking how the organizations register their funding, and all the organizationsAntónio Gameiro Henriques 30
  32. 32. Universidade Católica Portuguesaconfirmed that the receipts they deliver for their services – contracts with other entities, events, fees,training, merchandising – are free of tax because all of them are created with social purposes, and thesame happens with donations. CADin has a sustainable activity using a ―social business‖ model,providing services for the public. Therefore, their activities are free of tax because their services arerelated to the third sector. This is an incentive for organizations to implement and develop services thatmake them self-sustainable while doing activities linked with the social sector, and organizationsmust profit from it.5. Discussion Through the analysis of surveys, interviews, internal documents and official websites, it is possible todevelop an inductive reasoning that will support the discussion of the NGOD‘s financing model - named“NGODs’ Strategic Funding Model” - which focuses on the actual needs and challenges that NGODsface nowadays. As it was shown, both organizations with and without activity limitations caused by their fundingsituation seek to overcome their funding limitations, and to become financially sustainable. The NGODsStrategic Fundraising Model is a framework that informs NGODs about all their potential sourcesand ways of funding, guides organizations through the process, and establishes the best practicestaking into consideration the current limitations and challenges that NGODs face today. Ultimately, themodel intends to improve the development of the Portuguese social sector, to capacitate/empowerNGODs, increment their social impact, and increase the number of social projects and NGODs. The model covers every factor and activity that influences the fundraising through four interlinkedadvanced components (please see Figure 8). Those components are Strategy; Governance; Process; andSupport. The strategy component involves the definition of the funding scope (what financing sources toconsider, how much is needed, what counterparts there will be, how the relationship is), the operation(length of the project; geography; activity areas; services), and the culture (how to motivate volunteersand break barriers to the funding). The governance component refers to the role that administrators havein the fundraising, having to identify the need, define a fundraising team responsible for the fundingprocess, estipulate what the organizations‘ members responsibilities are (of volunteers and members ofthe board), and the communication strategy. The Process component is composed by four stage gates:Searching for potential funds; approaching; selection; and project development. Finally, the supportcomponent is the part of the project where the organization defines how to maintain the whole fundingmodel. There are lots of different supporting tools, some of them are the creation of campaigns topromote the fundraising initiative, activities to increment the organizations visibility, definition ofAntónio Gameiro Henriques 31
  33. 33. Universidade Católica Portuguesaincentives to attract volunteers, creation of training courses to increase the volunteers‘ capability to raisefunds, increasing and preserving good networking, transparency methods, and others. This model was developed considering all the factors, limitations, bottlenecks, and opportunitiesrelated to the Portuguese NGODs. The third sector‘s economic situation, the NGODs‘ legal context,surveys, interviews, meetings, and reading about different strategic points were all used to support themodel. The model is transversal to every NGOD - different ways of applying the model will depend ontwo factors: the NGODs‘ area of intervention, and capabilities (number of volunteers, skills, resources,experience, visibility, reputation, and others). Strategy In a business context, strategy is the process whereby the commanders view, the commander‘s plan,and the commander‘s ability to marshal the successful deployment of resources and capabilities are putinto practice, in a competitive environment and in a manner that is conducive to success. The strategydefines ―how‖ the team will achieve their responsibilities and goals, and how the governance, process andsupport component will behave. This depends on the scope, culture, and operations of the organization. The funding scope is about which funding sources to consider, how much is needed, and the type ofagreements to make. During the interviews, it was common to affirm that when selecting the possiblesources to satisfy the financing need, the organization must analyze if the financers mission/activity isaligned with the organization‘s mission, to avoid breakdowns between the two parts and increase thechange of mutual benefits. Therefore, when the organization decides it needs a new funding source, theorganization must evaluate what the nature of their activities is, what resources they have at their disposal,António Gameiro Henriques 32
  34. 34. Universidade Católica Portuguesaand how much money is needed. After that, the organization is able to define what the category, orcategories, of funding sources are that best suit their mission/capabilities – own business; government;private entities; public; and international funding – where the organization will apply efforts to get thefunding. The scope depends on human resources availability, the organizations‘ own experience andvisibility, and on the characteristics of the different funding sources. Regarding the last point mentioned,it is very important to keep in mind what the study suggests about the different sources: to keepgovernment‘s funding as an option, but never depend on it; always try to implement own businessactivities (as Conradie (1999) says, ―NGOs that are successful in selling their services or goods at market-related prices are often in a better position to become less dependent on continuous funding support fromoutside sources‖); to stay aware of the international funds criteria and availability; to create opportunitiesto receive public donations every time there is a chance; and to explore opportunities to align privateentities interests/businesses with social projects. Because the study revealed that the nature of the project is one of the key influencers of the fundingprocess, the strategic project component is the definition of the project length, dimension/scale,geography, activity nature/area, and type of services. To approach any source of financing, theorganization needs to define the what, where, and how of the services/activities it intends to do, and inwhich area of activity – health, education, social development, or other. This component is fundamentalso that givers can know what they are contributing for and what the impact caused by the activities he isfinancing will be. The study carried out suggested that it is hard to retain and create stability of the human resourcesavailable, which is a real problem when devising a funding strategy. The culture component of thestrategy is crucial to create and ensure the adequate environment that motivates the organization membersto explore, investigate and approach different financing sources. The team must identify the barriers tothis behavior and deploy measures to counter them. Ultimately, understanding the underlying motivators,triggers and enablers is essential in order to decentralize the fundraising process, and create acollaborative environment involving everyone. Human resources are a key component in the fundingmodel, and the organization must captivate them. Defining a strategy is a continuous and long process. The world is changing fast, the economy isuncertain, financers‘ funding availability changes, and there is more and more competition for funders‘attention. Those responsible have a key role in strategy delineation, and must set the example.António Gameiro Henriques 33
  35. 35. Universidade Católica Portuguesa Governance The governance structure of the fundraising process changes from case to case, depending on theresources of the organization. In other words, the president of the organizations can be either directlyinvolved in the fundraising process, or not. In the interviews, the Presidents of the organizations confirmed that their role in the fundraising wasfundamental, being directly involved in the process, which makes sense. According to Dolby & GregoryDees, the board members must lead the way in fund-raising. The organization‘s directors must appoint,from the beginning, a team responsible for the financing of the organization, and define theirresponsibilities. In the case of the NGODs, all the interviewed admitted that the directors were alwaysresponsible for the funding process. This situation has to change for two reasons: first, the fundraisingmodel has more chances to work with a bigger number of people involved in the process, which meansthat if only the organization‘s administration can be involved in the funding process, there is a limitationin the funding process. Secondly, the people in charge have to manage and supervise other areas of theorganization, which means that less effort is being dedicated to the funding process than the effort thatshould be dedicated. The creation of a funding team that is constantly involved with the rest of theorganization has the advantage of decentralizing the funding process, keeping directors involved but notdepending on them. This team has to identify the need for capital resources in order to know where funds are needed,and to start the funding process. During the interviews, there was a perception that the need for funding isconstant. Even though the need is constant, the funding team has to identify where the funds are going tobe allocated, in which area of development, and for what purposes. This will facilitate the identification ofentities interested in the same activities, and the creation of bonds. In order to achieve a desirable resultbefore and after the project, the funding team must act in line with the organizations‘ strategy (scope,operations and culture). Therefore, it is crucial to have an ongoing communication process between the different departmentsof the organization, and with the exterior. The communication process must be defined by the fundingteam, and can be achieved through regular meeting, activity reports, social networks, events and reports.This will allow the funding team to have a better understanding and identification of the financing needs,and the other departments within the organization will become closer related to the funding process. Andit will make financers feel more connected with the organizations social achievements.Governance efficiency depends on the capacity to: identify the need, ensure collaborators‘ involvement inthe process, keep a close and friendly relationship with the financer, respect the organization‘s strategy,and manage the available funds.António Gameiro Henriques 34

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