Social investment in community-based organisations Ali Channon – Social Investment Specialist

The recent unrest and the humanitarian crisis arising from it have highlighted not only the inequality and anger pervading our society, but also the resilience of communities across the country that are working together to rebuild and bring about change at a local level. Community-based organisations (CBOs) play a critical role in this landscape. They represent communities identifying and addressing the issues that most affect them, and being at ‘grassroots’ level gives them a legitimacy that organisations coming in from the ‘outside’ may lack. Social investors are increasingly recognising the importance of resourcing CBOs, but are faced with the challenge of how to reach them as effectively, efficiently and responsibly as possible.

Many CBOs are caught in a vicious cycle where they are effectively too under-resourced to access resources. A limited financial track record, lack of connectivity, and limited capacity to implement at scale make accessing funding challenging for these organisations, which in turn restricts their opportunities to develop to a point where they could do so. Similarly, there are barriers for social investors wishing to fund CBOs. Most funders have minimum standards for compliance, which can make it difficult for them to provide direct support to less-resourced organisations, especially those operating without formal registration.

Recognising the challenges that both CBOs and social investors face, Tshikululu has worked with several clients to develop and implement a range of approaches to investing in these critical organisations:

• A direct approach is where a grant is made by the social investor and paid directly into the CBO’s bank account. This approach is most appropriate when compliance requirements are flexible and when the funder has capacity to provide support to CBOs as needed. This approach cuts out intermediaries, ensuring that as much of the allocated budget as possible reaches CBOs. However, funding CBOs directly presents a higher risk in terms of compliance, and many CBOs lack the structures, systems and capacity to implement and report in line with standard donor expectations.
• An indirect approach seeks to resource CBOs by channelling funds towards a more established NGO, umbrella body or network, which then assumes accountability to manage the funds and work with targeted CBOs. This ‘intermediary’ approach is ideal when the funder wishes to invest in CBOs, but is unable to relax compliance requirements, or unable to offer the time and expertise required to support CBOs. Partnering with intermediaries streamlines grantmaking as it allows for a smaller number of larger grants, while also ensuring that funding reaches the organisations that need it most. However, partnering with intermediaries does mean that a smaller proportion of the funding will reach the end beneficiary.
• A dedicated capacity development programme takes a structured approach to supporting and developing CBOs, with (direct or indirect) grants as only one component. This is suitable when the priority is investing in CBOs’ sustainability, rather than simply funding project activities in the short term. This approach provides focused support to a cohort of CBOs, helping them to develop and operate more effectively in the future. However, a capacity development programme can be expensive and requires a longer period of time to achieve maximum benefit.

A tailored approach is needed to ensure that social investment achieves its intended purpose most effectively. Regardless of the approach taken, we recommend that the following core principles be followed by social investors looking to invest in CBOs:

• Clear and appropriate compliance requirements: To support CBOs directly, it is important to introduce flexibility wherever possible. The necessity for each compliance requirement should be carefully considered in the context of the funding’s desired impact, the compliance needs of the funder, and the capacity of the intended partner organisations. For example, an investor that doesn’t require Section 18A certificates may choose not to request that partners demonstrate registration with SARS as a Public Benefit Organisation.
• Support to partner organisations: Even without a dedicated capacity development programme, a more ‘hands-on’ approach is needed to effectively support CBOs. Many organisations will need support to parse compliance requirements or report effectively, and it is important to have capacity for CBOs to ask questions, give feedback and receive guidance where needed.
• Core funding: Providing funding for core operational costs is the simplest way to invest in the functionality and sustainability of CBOs. It provides space for partner organisations to implement their programmes effectively, pay staff consistently and seek other funding opportunities.
• Access: Funders should ensure that access to application platforms is aligned with the needs of the target beneficiaries – this may include creating multiple channels for applications (physical and/or digital), translating application forms into multiple languages, and/or making use of community media platforms to advertise funding opportunities.

At a time like this, it is more important than ever to support community-led responses that can offer homegrown, context-appropriate solutions at a local level to help address many of the challenges facing South Africa as a nation.