The Rise of ‘Trust-Based Philanthropy’ – aka Unconditional Cash Transfers to NGOs

Last week’s Economist had a really useful Special Report by Avantika Chilkoti on the evolving world of philanthropy. It highlighted the rise of what it calls ‘no strings giving’ or ‘trust-based philanthropy’, in which some v big donors have essentially adopted an institutional cash transfer approach: if organizations are doing good work, just sign the cheque and leave them to get on with it, rather than submerge them in reporting requirements. Huzzah! Some extracts:

‘The covid-19 pandemic, protests for racial justice across America that summer and the outflow of refugees from Ukraine starting in early 2022 created a new urgency around charitable giving and revealed failings in how it worked. Donors began to consider how they could disburse money faster and with more impact.

Just as the storm of global events was raging, a poster child for the new movement emerged. MacKenzie Scott received a 4% stake in Amazon when she and its founder, Jeff Bezos, divorced in 2019. It was worth $38bn. In the same year she announced that she would give the money away “until the safe is empty”. As global problems spread in 2020, Ms Scott started handing out big grants, to organisations in America and across the world, with no strings attached. Without making any big declaration or setting up a charitable foundation, the quiet billionaire has since shelled out $16.5bn.

The reason Ms Scott could give so much so quickly is that she did away with the hoop-jumping and form-filling that have long defined philanthropy, especially for the past 20 years. There was no lengthy application process to receive a grant from her. She contracted an independent firm to help her with strategy, do due diligence to check up on the NGOs, and then donate the money. Crucially, she decided not to police every decision recipients made in the name of monitoring and evaluation.

This kind of “no-strings giving” is not completely new. The William and Flora Hewlett Foundation, set up by a tech tycoon, has long given “unrestricted” grants that do not specify how they must be used. Since 2015 the Ford Foundation has put $2bn into its Building Institutions and Networks (BUILD) programme, which hands recipients five years of funding, including a chunk of money dedicated to investments in the organisations themselves. 

But Ms Scott is leading a group of new big-ticket donors applying the strategy at scale and transforming the relationship between wealthy donors and the charities they fund. Since 2020, Jack Dorsey, the co-founder of Twitter and Square, has put $1.5bn into his fund, Start Small, and dished out a big chunk of it, largely in unrestricted grants. Brian Acton and his wife, Tegan, who came into their wealth after Mr Acton co-founded WhatsApp, give out tens of millions of dollars every year with a similar no-strings approach through their group, Wildcard Giving.

In many ways, this new no-strings approach is a reaction to the approach, known as “philanthrocapitalism”, that has dominated the giving industry since the turn of the millennium. It aimed to bring the discipline of the market and management practices from business to the non-profit sector. At that time, there was a hope that the rich were going to change the world. Bono and Bob Geldof, a pair of activist rock stars, were making philanthropy cool. The Gates Foundation, which now gives more money every year than many rich governments spend on foreign aid, had just been born. When the founders of Google took the firm public, they promised to put 1% of profits and 1% of equity into doing good.

Businesspeople promised to revolutionise the industry by approaching giving like for-profit investment. Foundations helped craft projects for NGOs to deliver, pushing them to measure impact, whether counting mosquito nets or quantifying changed attitudes to women. The logical framework, or “logframe”, a grid managers use to plot a project, became a crucial planning tool, and “key performance indicators” the new measure for success.

The new approach achieved much. The Bill & Melinda Gates Foundation, for instance, developed a reputation for efficient, data-driven grant-making, and poured billions of dollars into eradicating diseases such as polio. Thanks, in large part, to its efforts, Africa was declared free of wild poliovirus in 2020. The foundation’s efforts to tackle malaria and improve sanitation have saved countless lives.

Too much process

However, in its attempts to measure the good it was doing, philanthrocapitalism began to tie up charities in bureaucracy; it ended up not doing as much good as it had hoped. In the face of urgent global need, in the years before the pandemic a dissatisfaction emerged among the big foundations handing out money, the NGOs receiving it and many experts looking on.

Many former supporters have now accepted that making the world a better place differs greatly from the business of making money. In the market, self-interest focuses minds, competition means bad ideas do not thrive, and resources are naturally drawn where the pay-offs are largest.

But, in philanthropy, donors rarely operate on the basis of rational judgment. People who see a problem up close have ideas about how it might be solved. They may have personal experience of it or personal attachment to the cause. They often work together, rather than in competition. And NGOs do not operate in an efficient market. There is no single metric for a charity’s success comparable to profit in business. Charities rarely go under. This is an environment that fundamentally differs from the market-based economy.

On top of that, the surge in giving that the philanthrocapitalists foresaw never emerged, either among the wealthy or ordinary givers. The rich are disproportionately important in philanthropy. In America “micro” donors, who give $100 or less, make up over 60% of all givers but only 3% of charitable dollars. Big donors, who give $50,000 or more, make up just 0.2% of all donors but contribute over 47% by value.’

And one interesting caveat on this new wave:

‘Trust-based philanthropy starts with doing your due diligence on an organisation. You understand what they are doing, who they are supporting, and the impact they make. If that resonates, then you fund them.

That might be the real flaw in no-strings giving. If it is based upon trusting the recipient, lesser-known groups may lose out.’ NGOs that benefit from the new model tend to be ‘led by people who speak good English, know how the cogs of Western philanthropy turn and how to work a room.’