Do the IRED authors explicitly raise the risks associated with certain empowerment strategies?
The IRED authors explicitly highlight several risks associated with financial empowerment strategies used by development organizations (DOs/NGOs). They warn against mission drift when creating economic activities, highlight the increased management complexity associated with new financial tools, and discuss the potential instability of self-generated income.
RISK OF MISSION DRIFT WHEN CREATING ECONOMIC ACTIVITIES #
The book “Financing Differently” directly addresses the risk of mission drift when an OD/NGO launches profitable economic activities. It raises a fundamental question about reconciling the autonomy necessary for the company’s development and its connection to the association, which has a social objective. There is a question about decision-making in the event of a problem: is it the company’s board of directors or the association’s that takes precedence? If the company’s board of directors becomes too independent, there is a risk of a definitive break and failure in relation to the association’s initial objective.
Furthermore, it is emphasized that businesses created by NGOs must respect the association’s charter and only negotiate contracts that fall within the social and solidarity economy or provide services to an institution that pursues a laudable goal. This requires constant vigilance to ensure that economic activities remain aligned with the organization’s social mission.
The Fundraising Handbook also highlights the potential conflict of interest between commercial activities and the NGO’s mission. A focus on business could distract the NGO from its primary objective. It is therefore crucial to carefully analyze the specific opportunities and challenges before embarking on a business venture.
INCREASED MANAGEMENT COMPLEXITY LINKED TO NEW FINANCIAL TOOLS #
The authors emphasize that DOs/NGOs rarely have the capacity to independently manage complicated financial mechanisms. They highlight the difficulty of finding competent staff, who must be highly professional, because incompetence or lack of good financial management can have disastrous consequences.
The creation or development of intermediary financial institutions is being considered, but this requires a preliminary feasibility study to assess the viability of the idea. The complexity of these financial mechanisms (venture capital, foundations, funds/capital) requires significant experience, complete institutional and financial control, as well as equity capital allowing the NGO to control operations.
Furthermore, the authors warn of the risk of technocratization, where specialists recruited to manage complex financial mechanisms could gradually impose their system and rules, thus removing control from the grassroots members. A balance between centralization and decentralization is necessary to avoid this trap, and training members is essential so that they understand and control what is being done.
The “Practical Management Manual” also emphasizes that the search for and management of larger financial resources poses more complex problems for the association’s executive committee, requiring adequate organization and training.
POTENTIAL INSTABILITY OF SELF-GENERATED INCOME #
Although self-financing through the development of profitable economic activities is a key strategy towards self-sufficiency, the authors implicitly acknowledge the challenges associated with the stability of this income. The need to calculate cost and sales prices to be competitive in the market suggests an awareness of competition and potential fluctuations in income.
The “Funding Research Manual” explicitly mentions the financial risks associated with starting a business, including the possibility of generating losses that could jeopardize the sustainability of the NGO.
Furthermore, in the context of credit management, the authors note that production income is being attacked in many Third World countries by high inflation, which is wiping out potential savings. They propose the creation of monetary anti-erosion mechanisms with the agreement of cooperation agencies.
Finally, ORAP’s experience in Zimbabwe shows that even successful economic initiatives require taking risks and surrounding oneself with the maximum skills to ensure their success.
In conclusion, the IRED authors are well aware of the risks inherent in financial empowerment strategies. They emphasize the need to maintain alignment with the social mission, develop the management skills needed to cope with the complexity of new financial tools, and be vigilant about the stability of self-generated income, while emphasizing that professionalization and a “new mindset” are essential to address these challenges.
