Financial sustainability—a phrase in development circles much used and often with more heat than light!
Frequently we are not clear in our usage of what we really mean by sustainability, apart from the fact that everyone now agrees that it’s a good thing. Often the uninitiated simply assume that financial sustainability used by development practitioners means designing granting projects that can financially continue after the current funding stops. But if we are honest, we know that is nonsense.
At the very best, unless another donor comes in to replace our funding, the project activities will diminish drastically. So, often this is what we mean by “financial sustainability”—the act of swapping donors.
I have a client, a financial investor, that has another name for granting: “capital destruction.” Most grants by definition cannot be financially sustainable vehicles, because intrinsically, unless they have some sort of revolving fund component, they just destroy capital.
Income generation and revolving grants can make your grants work harder and in some cases really reduce the unit cost significantly, but they still do not mean an organization dependent on grants is fundamentally financially sustainable.
I have two good examples of extending the sustainability of granting from a recent trip I took in March to Malawi and Zambia.
On behalf of a client, we are running an Early Childhood Development program in Malawi for 7,000 3-5 year olds at a cost of $38 per year per child. That’s the same cost as a monthly child sponsorship program that some non-profit organizations run. It aims to help teach the children vital socialization skills to prevent school dropout, life skills such as hygiene, and also gives the children nutritious lunches.
The sustainable part is the maize flour grinding mills that are run as businesses by the community—one mill has been running for seven years—and then the food is donated for the children’s meals out of the mill’s profits.
Likewise, in a preventable blindness program we’re managing for another client in a part of Zambia known as the “valley of the blind,” we set up a revolving drug fund. It sells eye drugs to the poor for a minimal fee as a way to replenish the drugs. This means we estimate it can operate for another two years without the need for additional granting.
Yet, in the end, granting means the resources run out.
Thus enter the attractive notion of impact investment—investing in businesses doing some type of social good. This seems to me to be the humanitarian version of having your cake and eating it too. (Which, after all, is what we all do on birthdays, don’t we?)
We make loans or take equity in a for-profit or not-for-profit enterprise and get our money back with hopefully an added return! And with a triple bottom line, the environment and society benefit at the same time.
If our long-term goal is economic development that benefits the poor by providing them jobs and appropriate products and services, then this has to be a good thing. But if your short-term goal is significant social transformation at scale in one particular place, the traditional model of investing in businesses that may be hundreds of miles apart just does not cut it.
Several years ago we learned, through our clients’ granting, that you need to focus all your resources in one place (with the geography only as large as your resources can still be significant), if you want to see a social impact greater than the sum of the parts.
So we are taking that lesson and applying it wider—to an innovative experiment, which is trying to accelerate positive social change in the city of Gulu in Northern Uganda, in a region recovering from the horrors of the Lord’s Resistance Army.
We are focusing in one place, integrating and coordinating economic development, education, and health initiatives using a blended capital approach. The latter means we are applying grants (where there is no revenue model), loans (where there is a possibility of paying back the loan) and even taking equity in social businesses. The point is to make the initiative as financially sustainable as possible and our attitude is to be agnostic as to which type of capital to use.
Financial sustainability is not the only type of sustainability that we value. We believe working with and building local leadership, local organizations, and local communities are all sustainable investments.
But in a time when the focus is on accelerating effective positive change and finding tipping points in poor communities, it only makes sense to make our finite and valuable resources work as hard as they can. After all, every master craftsman knows that it’s always a question of using the right tool for the right job.