Types of funding

Guide to Financial Management

Types of funding

Getting a good mix of different types of funding from a range sources increases your financial sustainability.

NGOs receive restricted and unrestricted income.

Restricted funds

Restricted funds can only be used for specific purposes that have been agreed with the donor. The restrictions may be very tight (eg to pay for a new photocopier) or rather general (eg to help fight HIV/AIDS).

Project-based funding from external donors is nearly always restricted. It is useful because it provides money for an NGO to pursue its objectives. But, it also brings problems, including:

  • It may need a big investment in writing proposals and developing relationships with donors - and in writing reports.
  • It is unpredictable - you may win a grant, or you may not.
  • It tends to be tied to donors' priorities - not your NGOs' priorities.
  • It can create dependency. What will you do when the grant ends?
  • It often comes with specific conditions attached to how you spend it.
  • Specific project plans can make it hard to adapt to changing local circumstances, or meet unforeseen costs.

Unrestricted funds

Unrestricted funds can be used for any purpose that helps your NGO achieve its mission. It is liberating because it allows you the flexibility to pursue whatever objectives and strategies you and your beneficiaries think are best. It also helps you plan for the long term. Three sources of unrestricted funding are:

1. Self-financing. NGOs may be able to generate income themselves, e.g. by charging membership fees, selling services or renting out spare office space.

2. Local financing. NGOs may be able to raise funds from the local community and local institutions, such as businesses or specific professions. (This can also generate restricted funds or gifts-in-kind, like office furniture.)

3. General donations. NGOs may be given unrestricted donations. These may not always be reliable year after year.

Every NGO has different opportunities and constraints in winning unrestricted funding. It needs an entrepreneurial approach, careful planning and commitment from senior managers. Generating your own income can have a big impact on your NGO's culture and may also have legal or political implications.

The more different sources of funds you have, the more financially sustainable you are.

Types of funding  - chapter from the Course handbook for Mango's training course Planning for financial sustainability 

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