Nonprofits build organisational strength by getting to know their funders

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In January 2023, when the global economy was beginning to shake off the grip of the COVID-19 virus and the attendant lockdowns, the education nonprofit Saajha doubled its budget to Rs5.3 crore ($662,500) for the financial year 2022-23. It was an incredibly stunning recovery for an organisation that ran activities on the ground and whose work nearly stopped when the pandemic hit.

Saajha's performance stands out in the landscape of the nonprofit sector in India. In 2021, a Bridgespan Group survey found that more than half of the 388 non-governmental organisations (or nonprofits) it surveyed held less than three months' expenses in reserve, a marker of serious financial stress. Organisations were hard-pressed to accomplish their work without financial reserves, including covering administrative expenses such as office overhead, salaries, and technology. These are called indirect expenses because they are not directly related to the programmes.

Set up in 2014, Saajha supports children up to 11 years old enrolled in government schools to learn reading and maths better. Its strategy is in-person training for parents to help their children with schoolwork. Naturally, Saajha's activities came to a standstill during the pandemic lockdowns in 2020 and 2021. But Saajha saw an opportunity to change its operations: shift to a technology-based model, use phone calls and WhatsApp to interact with parents and reduce in-person interactions.

The question was: Could it find funding for that innovation? Technology expenses are conventionally listed as indirect or organisational development expenses because they do not go directly to beneficiaries. But Saajha pitched a donor it knew by redefining technology development as a separate programme rather than as part of its administration costs. That approach proved attractive, and the funding came through. The move proved strategic.

"This year, we are hoping to manage 20,000 active relationships enabling improvement for about 8,000 children," said Prashast Srivastava, co-founder of Saajha. "Over the next two years, we have planned a significant scale-up. Our goal is to enable improvement in learning levels of 200,000 children by March 2026."

Donor Diligence

The Foundation for Ecological Security (FES), which works on ecological conservation by building the capacities of the communities to protect their natural resources, takes a different approach to meet its administration costs. FES had an annual expenditure of Rs85 crore (approximately $10.4 million) for FY 2022-23. Given the nature of its mission, it has worked at each location for several years, often running multiple programmes at the same location.

FES receives funding from CSR donors and foundations, and unlike Saajha, it has an FCRA or Foreign Contribution Regulation Act license, which enables it to access grants from international donors. The mix of funders implies that each donor may have its own policies and "dos and don'ts" for funding. For example, some of its international funders tend to have been more open to funding indirect costs and organisational development initiatives, while its CSR donors have tended to direct funds directly to community-focused initiatives, even though indirect costs are vital to reaching these constituents. So, FES spends a lot of time on "donor diligence" to see if there is a fit between the funder and its own priorities.

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This adaptability and focus on quality have paid off: FES has a track record of working with most donors for ten years or longer. Long-term relationships build trust, and its CSR donors, too, are becoming more flexible with their funding and understanding of FES' needs.

"With the existing donors, we can actually get (a) much higher percentage on organisational strengthening," said Subrata Singh, executive director of FES. "If we are approaching a new donor, it is largely about a project. We do try to discuss needs for additional components of technology, learning, and other cost heads… but it may not go through."

Getting to Know Each Funder

Bridgespan's report, as part of the Pay What It Takes (PWIT) India Initiative, found that indirect expenses and organisational development initiatives range from five to 51 percent of a nonprofit's budget. Covering these expenses is vital for the organisation's functioning and growth. Think of core organisational development activities such as strategic planning, IT infrastructure, financial management, or leadership development. All nonprofit or for-profit organisations need to invest in these functions to sustain themselves. Yet nonprofits often struggle to raise funds to cover such indirect expenses.

Indeed, when we looked at financial data from 20 organisations, the nonprofits that planned to invest in organisational development increased their annual expenditures by 15 percentage points more on average per year over a five-year period. Yet only 18 percent of the 388 organisations surveyed are able to invest meaningfully in organisational development.

The key could be in building relationships with donors and knowing how—not just how much—to ask for funding from them. By Saajha's calculation, it takes 12-15 months for a funding decision to be made, and during this time, it tries to pitch its big plans to the funder's leadership. In some cases, this outreach brings unexpected dividends, such as when the tech entrepreneur Sanjeev Bikhchandani joined Saajha's advisory board when his company Info Edge gave Saajha a CSR grant.

"When you get a decision-maker from the CSR organisation interested in your vision," Srivastava said, "the CSR partner becomes much more open to trying new things. Info Edge was probably the first CSR partner we had. And the first conversation we had with them was about the long-term picture."

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Nonprofits receive money from donors—which predisposes an attitude of gratitude and makes transparency difficult. How does one speak of not having enough funds with someone who is already giving you money and retaining their confidence in your operations and impact? Saajha and FES have succeeded in securing forms of unrestricted funding from CSR donors because they are transparent, effective communicators, and invested in building a trusted, longer-term relationship with them. They demonstrate the value of not only prudent, strategic, and disciplined thinking about budgeting and organisational growth but also about communicating thinking with funders in a way that suits the funders' own grantmakers' approaches.

Pritha Venkatachalam and Shashank Rastogi are partners at The Bridgespan Group. Aditi Sharma is a senior manager at Bridgespan.

The thoughts and opinions shared here are of the author.