Redefining Philanthropy in an Enterprising Ecosystem

by Mel R. Yan – COO, IISLA Ventures

Our concept of philanthropy may be wrong. The value-driven nature of philanthropic organisations like NGOs1 distinguishes them from the profit orientation of private businesses.  This suggests that NGOs are not supposed to ‘make money’, and that philanthropic funding must be used, as much as possible, entirely for community projects. Regulatory bodies like the Philippine Council for NGO Certification (PCNC) peg the standard for administrative (overhead) expense in the non-profit sector at 20% maximum of the total organisational operating cost.2 Many NGOs are forced to comply with this restriction, given that the legitimising effect of a PCNC accreditation can significantly aid in getting donations. Fundraiser Dan Pallotta3 argues, however, that fund usage restrictions may be counterproductive as they prevent philanthropic organisations from engaging in relevant ‘non-project’ undertakings like resource mobilisation and human resource development. Fundraising can aid in expanding beneficiary reach whilst sending staff to trainings can improve the quality of project delivery. Despite the obvious benefits, these activities are often dismissed as “making money out of donations” or “using donations for personal gain”.

The stigma surrounding the use of philanthropic funding is driven by the social construct that creates a stringent distinction between development work and business (profit-making). This distinction also informs how philanthropic funding is acquired, eventually leading to grant or donor dependency in some NGOs. This dependency and its attached fund utilisation restrictions, however, may not necessarily pose serious problems when donors are abundant. In the past, funding for NGOs in developing countries became a crucial component of international aid.  This reached its peak in the 1980s when the international community adopted a ‘sustainable development’ agenda4 that promoted a tripartite cooperation among government, business, and the civil society where NGOs became the institutional ‘face’.   Support for NGOs was also evident at the national level, with countries like the Philippines recognising the sector’s role in nation-building as enshrined in its constitution.5

Unfortunately, what appeared to be the ‘golden era’ for philanthropic organisations has been threatened because of corruption issues.  The ‘pork barrel scam’ in the Philippines in 2013, for example, has tainted the image of NGOs due to accusations of public funds being channeled to bogus organisations and fake community projects.6 My personal interactions with impact investors reflect this concern.  Some of them used to be philanthropists who have become more concerned with how their money will be spent, noting historical philanthropic fund mismanagement.  Hence, many have opted for their money to be treated as loans or equity investments rather than donations to retain control.  This means that such funding cannot be readily accessed anymore by philanthropic organisations, who are legally established as non-stock and non-profit.  The apparent ‘shift’ in development finance has also provided an opportunity for social enterprises which, as for-profit entities, are designed to accept, earn from, and potentially return impact investment.

Does this mean then that philanthropy is obsolete in the present social enterprise ‘regime’? I have been engaged in discussions with former colleagues in the NGO community on how they can diversify revenue sources.  The obvious option is to venture into social entrepreneurship.  But the more I explore such possibility, the more I realise that we may be forcing NGOs to become something that they are not.  Aside from the fact that they have not been trained on how to run a business, thinking about profitability may also be too much to ask from community organisers faced with the big challenge of changing people’s mindsets and behaviors. The failure of several NGO-initiated livelihood programs due to poor and/or lack of business and revenue modelling illustrates this point.

On the other end, many social entrepreneurs struggle with community organising. I have observed that most incubation and accelerator programs, whilst teaching relevant business management strategies, substantially lack input on community development.  I have also met social enterprises on the brink of bankruptcy because they cannot sustain the enthusiasm of their community suppliers-cum-beneficiaries or cannot play along local political dynamics.  Effective community organising cannot be readily learned through a module but requires the years of experience that NGOs have. Moreover, the time and resources needed to do development work may be too much to bear by start-up capital or pre-growth revenue. This is where philanthropy, which measures ‘profit’ under social and/or environmental rather than economic terms, becomes a more appropriate funding source.

Our concept of philanthropy must go beyond fund utilisation.  Attention should be given, instead, to the increasing difficulty of accessing philanthropic funding, which threatens the very survival of NGOs.  Philanthropic organisations must continue to exist in an enterprising ecosystem because social entrepreneurs would need to partner with them if we are to achieve the Sustainable Development Goals (SDGs). This collaboration will entail social entrepreneurs to focus on building profitable yet inclusive business models whilst development workers anchor the capacity building of beneficiaries-cum-business partners so they can effectively engage in the value chain.  Private funding for development, therefore, should still allocate a fair share to philanthropy.  NGOs must also do their part though, particularly in ensuring that community projects are properly implemented under a sound financial management system to maintain credibility with donors.

End notes

1NGO in this article refers to non-stock, non-profit, non-government, and development-oriented organisation.
4See: Cabo, W. 1997. Theory and Practice of Public Administration. Quezon City: UP Open University
5See: Article II, Section 23: