Daniel Ferrell-Schweppenstedde

Former Policy and Public Affairs Manager

Charities Aid Foundation

The holy grail of unrestricted funding- it does exist, just not in abundance

25 January 2022

The Institute for Voluntary Action Research (IVAR) recently released a report on the use of unrestricted funding: The holy grail of funding: why and how foundations give unrestricted funding.

The report provides insights into the value that unrestricted funding offers and why funders decide to use it. The practical advice included can help funders to go further to offer more unrestricted funding.

The webinar to launch the report started by clarifying definitions to distinguish between:

  • core funding, which is often restricted grants for overheads or funding for core services
  • funding provided for any charitable purpose with the exception of capital expenditure
  • and truly unrestricted funding

Whatever the terminology, funders should give charities more control over their resources. We know it can support better outcomes and funding practice.

Unrestricted funding is rare – and often indirectly restricted

Funders offering unrestricted funding are quite rare. The same goes for full cost recovery of grants, particularly to smaller charities. In many cases, things like measurement and evaluation aren't accounted for in the grant, which can chip away at resources and reduce impact. The speakers offered ways of improving funding practices, including parking bespoke lists of evaluation criteria. Instead, funders can ask charity partners what they would normally report to their board already and use this as a starting point.

There could also be structural issues, as those that award funding might not have the same experience as those that apply for it. This might include a range of areas such as lived experience, running a charity or having had to apply for funding themselves.

Making the case for unrestricted funding is still needed. Provision is so rare that even some charities do not quite believe that it is unrestricted when they see it in a call for applications.

Wide consent on its usefulness

But the benefits are evident. Charity partners can be agile when lengthy application processes aren't draining resources. Time and skills can be saved, and funds leveraged in more innovative ways when they are unrestricted. One speaker mentioned viewing them as ‘unrestricted seeding funds’ could provide opportunities for additional developments and innovation on the side of the grantee down the line.

Many funders might not be engaging with the topic yet and it was recognised that many are on different stages of the journey. Funders could ease into the topic by making a range of smaller unrestricted grants to begin with. It could also be worthwhile to undertake a listening exercise to offer answers for common concerns. But before any activity, funders need to make a clear commitment of their intention to provide unrestricted funding to enable those seeking funding to direct their efforts and ensure that they will not fizzle out delivering internal change.

Provision of unrestricted funding is not the answer to everything  

There are also areas where unrestricted funding is not the answer. Funders still need to set boundaries and funding criteria. There is also a need to know your grantee and be able to see red flags in a funder-grantee relationship, as well as seeking reassurance to questions around dependency on funding, building resilience and sustainability.

Unrestricted funding will also not replace the need for data collection and analysis. It's also importnt for application processes to be fair and accessible to those that are disadvantaged and might get eliminated early in the application process. Evaluating the application criteria and process to spot barriers and reconfigure the funding in a transparent way will still be necessary.

But providing unrestricted funding can help build a sustainable and trust-based relationship with those being funded, while empowering them to develop and innovate further. It can help to build true partnership between organisations who do not just appear as a ‘disconnected list of grantees in the Annual Report’ (as one speaker put it).

Unrestricted funding as part of a wider toolbox

There is a wider discourse on what funders can do to further enhance their grantmaking, and different approaches are available. Many of them have similar aims: increasing grantees’ impact and organisational sustainability.

But there are often also distinct approaches. ‘Funder Plus’ involves pieces of support on discrete topics (e.g. fundraising strategy, social media or more cause-specific work). We can now draw on the lessons learned from using ‘Funder Plus’. ‘Funding for resilience’  involves paying for staff time to be freed up to focus on the long-term organisational health of a charity partner, which can often include ‘Funder Plus’ type support in addition to that.

Funding targeted at building resilience can therefore come with a description of what it should be used for. In a very narrow sense one could classify it as ‘restricted funding’. But resilience funding comes with a wide range of (intended) positive organisational impacts that enhance the long-term survival and development of grantees. Similar impacts are also brought up when discussing the benefits of providing unrestricted funding.

A proliferation of tools for funders to draw upon which that have wider the development and impact of grantees in mind (which can also supplement each other) can be a good thing. But it also requires a funding landscape which offers enough unrestricted (and resilience) funding that charities can tap into.  Currently charities are telling us that this type of funding is rare.  

Takeaways for funders

One of the common reasons that unrestricted funding schemes is rare is funders’ concern that it ‘will just increase the demand if you start offering it’. But as one webinar  participant mentioned, the pandemic has shown that demand is great anyway. And a clear set of funding criteria will already restrict the pool of those that are eligible in the first place.

Funders firstly need to fully commit to ‘going unrestricted’ and act with transparency. There might also be a residual tension between trust and perceived risk when handing over the money, but lots of work can be done to invest into relationships and know the grantee.

The main message from IVAR’s webinar was that many are asking themselves ‘how can we add value as a funder’. They have a very humble view that they put central to their funding approaches: ‘our job is to support charities, while their job is to make a difference’ (as one speaker put it). Further use of unrestricted funding can be a powerful tool to put this view into practice.