Not surprisingly, a key component of a nonprofit’s success (and underlying survival) is raising funds. And as a nonprofit searches for various funding opportunities, it is often required to comply with donor restrictions on how the money should be used and demonstrate that compliance with stringent reporting requirements. 

In this all-too-common situation, donors hold all the power. It’s what many of us learned in Economics 101—a matter of supply and demand, really. They have a supply of money that the nonprofit requires. And, along with that money comes power. “Foundations and donors have virtually all the power in determining where, to whom, how, and when money is redistributed in service of their vision for social progress, and there are typically few pathways for those with lived experience to make decisions, drive strategy, or share feedback.” 

It makes sense, to an extent, that nonprofits must show what they will do with the funds and follow the donor’s wishes with regard to them. Yet, taking a step back, it’s clear that the nonprofits are generally the ones who are far more involved with the cause they support, know where the funds are needed most, and understand what works best. And here lies the conundrum.

The Rise of Trust-Based Philanthropy

While nearly all involved agree that it’s important to ensure the organization is aligned with the donor’s priorities, more are realizing that a shift in this power is needed. The needle has moved slowly in recent years. However, the premise is not necessarily new. 

Trust-based philanthropy gained traction in 2018 when a group of foundations came together to develop an initiative called the Trust-Based Philanthropy Project. The objective was to build more equitable, inclusive, and trust-based relationships, where the distribution of power among the parties was more reasonable. To that end, they identified six core practices of trust-based philanthropy – 

1. Multi-year, unrestricted funding. Providing flexibility for the nonprofit to determine where dollars are most needed and when.
2. Homework. Donors getting to know prospective grantees.
3. Streamlined paperwork. Encouraging an increased focus on dialogue and collaboration to build deeper (and more trusting) relationships and a decreased focus on extraneous reports and documents.
4. Transparent and responsive. Encouraging open and honest communications to help build trusting relationships.
5. Solicit and act on feedback. Encouraging different perspectives and views on a topic.
6. Offer additional support. Increasing non-monetary support to benefit overall organizational health.

Although these principles have been recognized for years, it was only when a global pandemic shook everyone and everything to their core that broader uses of funds inched toward becoming the norm rather than the exception. Simply, the pandemic’s onslaught of uncertainty surrounding impending challenges propelled the use of trust-based philanthropy. People were ready and willing to help in any way they could, yet that help was largely restricted to donating funds due to social distancing requirements. 

With time being of the essence, donors gave more unrestricted dollars to quickly meet the changing needs of organizations. And in so doing, trusted the organization to make the best use of those funds. According to the National Center for Family Philanthropy, “The global pandemic, racial reckoning, and a mounting climate crisis have all highlighted philanthropy’s inequities, and increased the momentum of trust-based approaches.”

The Benefits of Trust-Based Philanthropy

It’s not just nonprofits that are realizing this shift is long overdue. More donors are beginning to better understand the benefits, including a more sustainable approach to fundraising, creating an ecosystem of longer lasting, meaningful change, and a redistribution of power. In fact, we discussed the rising trend of trust-based philanthropy in our Innovations in Philanthropy Insights Paper published earlier this year – 

We found that the collaboration resulting from these relationships also has an impact on trust-based philanthropy. When trust is built through a collaborative effort, where each party is going above and beyond for the collective good, the granting of unrestricted funds increased. The correlation was clear – if donors trust the nonprofits they are working with, they are more apt to allow them to make their own decisions regarding fund allocation.

To continue to move the needle on trust-based philanthropy, donors must have a commitment to relationship building, be willing to give up some control, and be ready to advance a healthier, more equitable non-profit ecosystem. This doesn’t mean handing over money without any say whatsoever. While one option is to have complete unrestricted funding, other options include limiting overly burdensome reporting requirements by providing communication options (such as more conversations with minimalistic reporting) and allowing others in the community or those affected to collaborate on how the money should be utilized.

Trust-based philanthropy is not about ending accountability. Rather, it’s about giving those with the more in-depth knowledge the power to make the best decisions. They will remain accountable for those decisions. If donors want to make a difference, especially in light of our highly unpredictable society and circumstances, some of that power must be relinquished. Simply, it’s time to trust that the nonprofits know how to make the money go the furthest to benefit those in need in the most efficient and impactful ways.

At The Win Woman, we focus on funding opportunities for nonprofits and Corporate Social Responsibility for organizations of all sizes. We work with boards and C-Suite executives to help develop the right solutions for their specific situation in their specific industry. For more information about trust-based philanthropy, please hello@thewinwoman.com. 

Until next time, keep Building Your BADASSERY.