What practical challenges (required skills, legal and tax aspects, choice of financial partners, implementation of ethical control systems) are identified as major when implementing these strategies and tools?
Implementing financial autonomy strategies and tools for DOs/NGOs can present several practical challenges. Here are some of the main challenges identified.
REQUIRED SKILLS AND INSTITUTIONAL CAPACITY #
- The first essential condition for creating and operating financial tools and mechanisms is the competence of the staff within the DOs/NGOs. These skills require university studies, a great deal of practice, rigor, total honesty, and an understanding of the purpose of the action in the service of grassroots organizations.
- If the NGO/DO does not have the necessary staff, it will have to recruit them, knowing that these managers are difficult to find and demand salaries comparable to those in the private sector. The NGO/DO should avoid recruiting less qualified staff for cost reasons.
- Strengthened institutional capacity is another requirement for engaging in a self-reliance strategy through complex financial mechanisms. Small NGOs must start with simple tools and progress to more complex systems.
- For venture capital, foundation or fund/capital type mechanisms, the NGO must have acquired significant experience, total institutional and financial control, as well as equity capital enabling it to control operations.
- Managing economic activities requires new skills and leads to changes in powers within the organization.
- The main demands of development companies include competent management support, control of supply and marketing, control of financial flows and investment financing.
- Inadequate organizational and management skills, as well as a lack of mastery of techniques and productivity, constitute significant internal blockages.
- The more complex the financial mechanisms, the more expertise is required, often located in the city, which can lead to a risk of centralization. The board of directors must ensure a balance between centralization and decentralization.
- Training is essential to strengthen the institutional capacity of NGOs in the area of corporate finance. An institutional strengthening program may include needs assessment, portfolio diversification, information management, operational planning, NGO/bank linkages, operational credit procedures, organizational and institutional auditing, strategic planning, personnel management, board relations, fundraising, financial management, program management, monitoring and evaluation, and the development of management and training plans.
- Negotiation skills are important, especially for fundraising and lobbying.
LEGAL AND TAX ASPECTS #
- Non-profit organization/NGO leaders often neglect the legal and fiscal aspects of their work, contenting themselves with the status of a non-profit organization, which can become limiting in a process of autonomy.
- When you get involved in the economy, you need to know how to use the legal statuses of commercial companies, economic interest groups (EIGs) or public limited companies (SAs).
- Financial mechanisms that require a legal personality distinct from the DO/NGO must have specific statutes, internal regulations, and management rules. It is essential to know and refer to each country’s legislation. In some cases, to circumvent overly rigid legislation, the creation of supranational institutions at the subregional level can be considered with other partners.
- The issue of taxation becomes very important in economic activities, as profits are generally taxed. The financial and accounting management of the OD/NGO and the companies created is therefore crucial, requiring the support of competent people (accountants, lawyers, tax specialists).
- Seeking or negotiating tax or duty exemptions for imported equipment is an issue that needs to be addressed quickly.
- Legal aspects must be weighed at the project level and at the regional delegation level when choosing legal statuses.
- A financial regulation must be drawn up in any organization that wants to grow, because financial management is often complex and requires precision.
CHOICE OF FINANCIAL PARTNERS #
- The choice of financial partners is an important issue to resolve.
- It is essential to identify your allies and build a financial autonomy strategy with them.
- DOs/NGOs should identify organizations (non-governmental, governmental, intergovernmental, foundations) that understand the importance of financial autonomy and that are already directing their policies towards supporting these mechanisms.
- National commercial banks rarely consider DO/NGO programs as attractive partners, preferring to work with larger economic players. However, some commercial banks may become preferred partners after a few successful collaborations.
- It is essential to encourage banks to be more flexible in responding to the demands of developing the economic activities of NGOs/ODs.
- Cooperation with banks (those that express a desire for openness) and investment companies must be developed. Alliances between support organizations, investment companies, banks, and grassroots organizations exist but need to be strengthened.
- The establishment of savings and credit unions or popular banks with the ODs and their members is an option, but these systems may encounter difficulties in lending the collected savings locally.
- When creating complex financial mechanisms, it may be necessary to draw on financial contributions from regional development banks and international aid, which requires grouping together and consulting with competent partners.
- Care should be taken with regard to the terms of venture capital lending, which may depend on the sponsoring organization or banking market conditions.
- Establishing partnership relationships not only regarding funding, but also policy development, planning and program monitoring is crucial.
IMPLEMENTATION OF ETHICAL CONTROL SYSTEMS #
- Ethics and fund investment are important issues to consider. Capital/promotion managers, if they belong to a development organization/NGO focused on human development, will have ethical concerns regarding their bank investments. Banks can be asked not to invest in sectors that run counter to the development organization/NGO’s values (armament, nuclear power) and to encourage investments in development and the environment.
- The distinction between the cost of the financial system and the cost of support must be rigorously managed, using good cost accounting to distinguish social costs from financial costs.
- A system of overall control of capital, means of production and distribution of profits by the members of the association must be organized within the company created by the OD/NGO, without hindering its management.
- The problem of the ethics of the company that sells its goods and services arises, particularly with regard to the remuneration of qualified personnel.
- It is also necessary to consider whether one can engage in the production of goods that are contrary to religious values and rules.
- Democratic control is essential, ensuring that excessive priority given to management or recruited specialists does not come at the expense of member participation. It is imperative to reconcile technical efficiency and democratic control in savings and credit mechanisms.
In summary, implementing financial autonomy strategies and tools for DOs/NGOs raises major practical challenges in terms of developing internal skills, navigating legal and tax complexities, carefully choosing mission-aligned financial partners, and establishing robust ethical control systems to ensure consistency with the organization’s values.
