Unrestricted funding provides grantees with greater control and more flexibility. It also strengthens them by enabling them to cover overheads and have some funds in reserve.
Why provide unrestricted funding?
Restricted funding and unrestricted funding both have their place, but community groups typically have little access to unrestricted funding.
Restricted funding is provided on the condition that it will be used for an agreed purpose, often to achieve pre-defined outcomes. The problem is that community development is often an iterative process. It may be impossible to predict what outcomes might be likely or preferable before work has begun. Unrestricted funding allows grantees the freedom and control to exercise their best judgment throughout a project, rather than having their discretion limited by a grant agreement.
The UK-based STARS Foundation and New Philanthropy Capital (NPC) - a charity think tank and consultancy - have published a guide to unrestricted funding. This help sheet is based on that guide.
Benefits of unrestricted funding
According to the guide, unrestricted funding brings several benefits:
- Unrestricted funding puts non-government organisations in control of their work. This secures better outcomes because grantees know more about what works and should be able to make better decisions than funders.
- Unrestricted funding allows grantees to be flexible and to respond to new needs or adapt or abandon projects in favour of other approaches if they are proving ineffective.
- Unrestricted funding strengthens organisations by enabling core costs them to cover such as paying staff and fundraising, and to have some money in reserve.
How can we make it work?
The guide suggests that grantmakers should consider unrestricted funding as a first option when their mission aligns with the grantee's mission. If restrictions are considered necessary, they should be applied at a level that is as broad as possible.
The guide suggests a number of measures that can be taken to address the challenges presented by unrestricted funding (it expands on each of these):
- strict eligibility criteria.
- rigorous assessment.
- a responsive and open approach to relationships, in which grantseekers are encouraged to discuss the strengths, weaknesses and challenges of their organisations, rather than describing specific projects.
- additional capacity support and non-financial benefits.
- extensive monitoring.