A few weeks ago, I stumbled onto a post on Chris Blattman’s website provocatively titled “Is this the most effective development program in history?” In it, he shares the story of how, in 2011, the Nigerian government handed out 60 million USD to 1,200 Nigerians—about 50,000 USD each—to help them create, run and/or scale a business. According to that post, “Three years later there are hundreds more new companies, generating tons of profit, and employing about 7,000 new people.” Not bad for a reasonably modest amount of money.

Currently, only about 1% of humanitarian aid goes directly to local actors in the global south. Tweet This Quote

Although I see this as more of an investment program rather than a development initiative, I come to similar conclusions as Chris. What if we channeled more funds to the middle and the bottom, and let local market forces and entrepreneurialism take over?

More recently, I read another post that posed a similar question, this time on the Guardian Global Development Professionals Network. In “Five reasons funding should go directly to local NGOs,” Jennifer Lentfer—creator of how-matters.org and director of communications at International Development Exchange—argues that we should channel more funding directly to local innovators, NGOs and social entrepreneurs on the ground in developing countries. To put things in context, only about 1% of humanitarian aid goes directly to local actors in the global south at the moment. The rest goes through what Dhananjayan Sriskandarajah calls “fundermediaries”—larger global development players who then “trickle” it down (or so the theory goes).

Local organizations are part of the social fabric of the communities they serve and more vested in developing solutions. Tweet This Quote

Lentfer’s call for more local funding is based on five key arguments:

  1. While outsiders struggle with concepts such as “community participation” and “local empowerment,” there are often “dedicated and embedded local partners who are working hard to understand and address their own problems” who do get it.
  2. Local organizations are part of the social fabric of the local communities they serve. Thus, they are often more vested in developing meaningful, sustainable, and long-lasting solutions.
  3. The larger the (outside) institutions, the more funds they need to divert to their own internal operational budgets to sustain their staff and pay for offices, among other costs.
  4. Most local institutions—free from the burden of annual reports, log frames and three-year funding models—have greater staying power than outside, larger institutions that come and go based on a range of external factors.
  5. There is proof, albeit in low quantities (because of the lack of direct funding at this level) that “grassroots grantees get results.”

Local institutions have greater staying power than outside, larger institutions that come and go. Tweet This Quote

In a separate post, Dhananjayan Sriskandarajah shares five excuses donors give for not funding local NGOs directly. Among these are that local NGOs don’t have the expertise or capacity to fill in all the forms; it is too expensive to administer the smaller grant amounts suitable for smaller organizations; that funds need to be channelled through “trusted partners” to manage risk; money laundering and anti-terror rules make it hard to give to “non-trusted partners”; and there’s pressure for funds to be put through organizations in their home country (organizations more often than not also in the global north).

I’ve been arguing for more direct support for local innovators, social actors and NGOs for well over a decade, so each of these posts resonated strongly. It has also been a central part of my argument that we build tools that local organizations can take and use on their own terms.

We must build tools that local organizations can take and use on their own terms. Tweet This Quote

Of course, not all international NGOs are the same, and not all grassroots are the same, either. But if there’s evidence that in certain circumstances local players have a better chance of achieving a desired impact, often for less money, then it’s right and proper we investigate further.

So, I propose a new “Development Challenge,” modeled on the same types of competition where investors start with the same amount of money and aim to turn it into as much as they can within a fixed period of time. It would need to be a fairly long-term experiment, and it could go something along the lines of:

  1. Identify half-a-dozen international “fundermentaries” (organizations based outside of the local community they aspire to help).
  2. Identify half-a-dozen grassroots NGOs (organizations working “from within”).
  3. Determine a modest starting budget—the same amount for each organization.
  4. Allow them to dictate where and how they spend the money (via a short proposal).
  5. Using an independent evaluator, take some baseline data based on the proposals.
  6. Disburse the funds.
  7. Come back in a predetermined amount of time (at least three years).
  8. Using an independent evaluator, carry out some monitoring and evaluation to assess results.

In many circumstances, local players have a better chance of achieving a desired impact, often for less money. Tweet This Quote

Which projects are still running? What impact have they had? What changes have they helped facilitate? How sustainable are they? What changes have there been in the community? How did the approaches of the local organizations differ from the others? What conclusions can we draw from all of this?

We wouldn’t have much to lose by trying out an experiment like this, but we would have a whole lot to gain. Of course, if it was shown that grassroots designed and managed projects performed better, the international development community would have some awkward and difficult questions to answer.

And if the international community does better? Well, then it’s just business as usual.

A version of this post also appeared on the Stanford Social Innovation Review and Ken’s blog.

About the author

Ken Banks

Ken Banks

Ken is the founder of kiwanja.net, Means of Exchange, and FrontlineSMS. He is a Pop!Tech and Ashoka Fellow, Tech Awards Laureate, and National Geographic Emerging Explorer, and has been internationally recognized for his work applying mobile tech for positive social and environmental change in the developing world. Ken is also the Entrepreneur in Residence at CARE International.

  • Victor Ribakare

    You have my 100% support for this idea. I believe that the excuses being used about the “risk” are ridiculous. The “Development Challenge” is a simple system that can be implemented which is very similar to how some may invest with a start up company. There is risk everywhere, but with this method, the risk is a bit lower because the budget is fixed and it is going to a local company. The control the investors would have is a lot stronger than that of a national company. The way I see it is that what would hold investors back is the lack of faith in the mission of these possible local innovators.

  • McKenna Solomon

    There is a lot more value in a local NGO than an outside organization in developing areas in general. There are economic risks in supporting developing NGOs but the cultural and community value afforded by an organization formed by someone within the community to assist in a problem they understand entirely is something we have to consider. There is value in culture and community and providing them with the economic resources to help themselves could provide more value in the longterm. These are vital considerations we have to make as investors and as members of a global economy trying to inspire global development.

  • Danielle Devereux

    I definitely agree with you McKenna! I also think providing them with the resources with also help eliminate the excuses when it comes to risk.

  • Taylor Lonsdale

    This is a really interesting idea. I saw a somewhat similar idea earlier today about how it’s easier to be innovative and creative when you don’t have to worry about basic needs like shelter and food. The idea there was that if that was taken care of, people would be more able and willing to branch out and take risks. There is so much that local NGO’s can offer but they are held back for reasons like funding and competition. I think investing in organizations that are community based can provide so much to the community. It feels a lot more like a community. People are already taking the step towards shopping locally and supporting local business, I love this idea and I think it’s one that’s easy to get behind.

  • Chris White

    I very much agree that utilizing this type of funding for communities in developing countries would likely bring about a greater amount of benefit than through investing in “fundermediaries”, but I wonder if this type of funding could also benefit marginalized populations in the United States. If more of our funds were delivered to people working directly with the community members on the ground to help improve the quality of life, specifically NGO’s, I think that we would see larger amounts of benefit to our systematically disadvantaged populations than through the theoretical “trickle down” system.

  • kiwanja

    Thanks for the supporting messages, everyone, and your comments and ideas.

    @Victor – There would obviously have to be some kind of work to figure out the capacity of these local organisations, so some of the risk could be mitigated that way. But I agree – many things are a risk in the development sector so this isn’t really very different.

    @McKenna @Danielle – I agree. We need to make global development more inclusive, and that includes showing more faith, and working more closely with, local institutions.

    @Taylor – Thanks! I’m not hopeful anyone is going to fund an idea like this, which is part of the problem, but I’m sure one day it will happen.

    @Chris – Absolutely. I don’t think local funding just applies in the developing world. In most countries, local problem-solvers understand the local landscape better than even national charities, so a little more support to them could lead to even better results. Let’s see if we see a shift in that direction or not – I hope we do.

  • Amanda

    This is a really interesting idea that I feel like doesn’t get touched upon as often as needed. I think that if the project was both successful and put in the spotlight, we would see a change in the way money is distributed. Since the trickle down theory is proven to not work, why are we continuing in our old ways when there are vibrant ideas in front of our faces?

  • David Kidd

    Brilliant article. I entirely support funding for the grassroots movement rather than a support for already established big business. As discussed, this will serve to promote entrepreneurial innovation and I can only hope it is executed with the audacity and accuracy you highlighted in the article.

  • Reid Trauernicht

    I’d have to disagree with this article. It’s tough to have these fundermediaries trickle funds down to start ups to get them off the ground. It sounds very similar to Trickle down economics. Trickle down economics doesn’t work nearly as well as it sounds. Generally the company that gets the funding continues to grow while the companies below it receive very little. Historically, it’s been quite the failure. I see this following a similar path. Investing in these companies so that both the large company and the small company can receive benefits appears to be the best option, rather than this trickle down theory.

  • Sarah Nelson

    What a great article. Making it easier for people in developing countries to create small businesses and employ more people is such a great idea and I don’t know why this isnt more widely used. Nigeria is a great example of investing directly into these entrepreneurs can make such a positive change and grow economies starting from the local economies.

  • Sierra Stein

    I firmly believe sending funding directly to the NGOs will continue to increase progress within economies all around the world. I know several companies are starting to pursue economic development projects centered around the idea of design thinking. Think Impact for example send students into rural areas, allows the students to immerse themselves in the culture and encourages the local community to think and in turn start their own enterprises. Would donating money directly without any sort of coaching or other business knowledge be as successful compared to personally going to the rural locations, giving them funding, and helping them to start companies? It could be beneficial to start but would need to be phased out eventually so the people can learn to do it on their own.

  • Ruiz Estrada

    Of course investing in small business and entrepreneurs will work for the whole of the international community and economy. The problem with that is the “stigma” that investors are essentially “throwing their money away”. Now I understand that (this idea) the government will be the investors. But you still have to think like a business person. WHO are you giving this money to? We have to invest in local entrepreneurs yes but those who are sure about their *sound* ideas and goals. Now, this may just be the author saving time from detail but that issue in particular should be addressed, there should be a process to weed out good potential business away from consistent failures. We are trying to build an economy, after all, “it’s business as usual”.

  • Brittany Lane

    Hey @sierra_stein:disqus, thanks for your comment. What you ask is interesting. It’s important to wonder if aid money is effectively targeted and implemented, but at the same time it can be presumptuous to assume that local organizations need some certain business knowledge they currently lack in order to successfully use the money—and potentially more problematic to assume that the donors are the ones who have the answers. Who is the “expert” anyway? I suppose Ken’s proposed experiment could shed some light!

  • kiwanja

    Hi Reid

    I’m actually arguing against trickle down and giving money to ‘fundermediaries’. So it sounds like you agree with me! 🙂

  • kiwanja

    Thanks, David! All we have to do now is get some kind of action (always the hard part).

  • kiwanja

    Absolutely, Brittany! There’s been much talk for a long time that trickle-down, big development is the way forward, but that’s now coming into question. The only way to prove it either way is to run some kind of competition/research project (like the one I propose).