Charities Aid Foundation written evidence to the International Development Committee Inquiry on Extreme Poverty and the Sustainable Development Goals
About Charities Aid Foundation (CAF)
The Charities Aid Foundation is among the UK’s largest foundations and works with partners across industry, government, and individual philanthropists to ensure vital funding reaches charities around the world. We operate in nearly every continent and distributed £958 million globally last year. We are headquartered in the UK and have operations in the United States and Canada and wider network partnerships in Brazil, South Africa, India, Russia and Australia.
We work to stimulate philanthropy, social investment and the effective use of charitable funds by offering a range of specialist financial and philanthropic services to charities and donors, and through advocating for a favourable public policy environment.
CAF is part of a coalition of charities working to secure the survival of small, UK-based international development charities in the face of financial pressures.
Measures to Facilitate Cross-Border Giving
Cross-border giving to help tackle crises is not a new phenomenon, but the pandemic and events associated with the climate emergency have seen the issue become increasingly prominent. Notably in the immediate aftermath of the Australian bushfires of 2020, over 100 million Australian Dollars was raised by various associated charities, with the bulk of that coming from international donations. Millions more have been donated by people across the globe to help other communities impacted by regional disasters around the world.
We have seen in particular during Covid-19 that when common cause arises, people in all countries band together to provide global solutions, with prominent examples including the WHO Solidarity Response and the Go Give One campaign which fundraises for the COVAX appeal – both have been supported by CAF.
Poverty is both a symptom and a trigger of these crises and cross-border giving is a vital way of engaging new funding streams to combat these challenges.
There is an increased global potential for cross-border giving to grow further. Researchers from the Lilly Family School of Philanthropy looked at 2018 data on cross-border resource flows coming from 47 economies that cover 85% of global GDP. They identified USD 834 billion coming from four cross-border flows: philanthropic, ODA, remittances, and private capital investment. The data shows that individual and philanthropic giving represents a significant factor in the international aid and development system, with private sources contributing USD 658 billion in 2018, nearly four times the amount of ODA (USD 175 billion).
Despite the massive potential of cross-border philanthropy, it is still limited by restrictive global frameworks, with a complex web of national policy decisions and tax systems varying from country-to-country.
Intermediaries facilitating giving face considerable administrative burdens, including in the UK. They are required to submit information multiple times to ensure that fund recipients are fulfilling national definitions of charitable causes, and to minimise the risk of contravening AML & CFT regulations. When sending charitable funds and fulfilling these requirements across multiple jurisdictions and in various languages, costs grow substantially and in some instances act as firm barriers to operating in certain geographies altogether.
Building on the elements of its liberal system for cross-border giving, the UK has a unique chance to position itself as a global frontrunner in enabling cross-border giving. This world-leading position could not only enable various types of donors (both the general public and high-net-worth donors, institutional funders, businesses), but also become a global centre of excellence for philanthropy and social investment that attracts others to move their giving activity to the UK.
The United States provides a potential regulatory template for the UK to consider in order to facilitate donors to grant funding internationally.
The American Tax authorities formally endorse cross-border philanthropy via two different schemes: Equivalency Determination and Expenditure Responsibility. Expenditure Responsibility requires a review and funding of a specific charitable project and calls for at least annual reports on the expenditure of granted funds. Equivalency Determination is the process through which a US foundation makes a good-faith determination that a non-US grantee would meet the requirements of a US Public Charity registered under IRC Section 509(a). This is a review of the organisation itself rather than a specific project and allows for unrestricted grants without the legal requirement to collect grant reports.
Equivalency determinisation also allows philanthropic intermediaries to run what is known as an Expedited Grant Programme, through which they contract suitable overseas organisations to administer local (in-country) due-diligence and post-grant reporting. Expedited Grantmaking partnerships allow philanthropists to support more charities without having to vet every grantee directly. In this model, the local partner receives a fee based on the size of donation.
While a direct transfer of the US regulations may not be suitable for the UK context, these two existing and well-tested mechanisms can serve as valuable reference points in order to deliver a more effective method for philanthropy to fund charities across borders.
0.7% and the UK Aid Budget
CAF has been vocal in its opposition to the Government’s decision to cut the 0.7% of GNI commitment to international assistance, which we believe to be a devastating blow to both international development charities and the UK’s international standing.
UK Aid has been an historic 21st century success story over recent years, delivering crucial services where other organisations cannot and offering unique insight into complex international challenges.
The decision to reduce that funding has a direct effect on the capacity of development charities to focus on their frontline operations, including poverty reduction. Whilst we acknowledge the Government’s pledge to reinstate 0.7% by 2024/25, there remain significant hurdles to overcome if the worst effects of the cut are to be avoided. Perhaps most notably, any return of the 0.7% target in 2024 is reliant on certain fiscal measures being met -specifically that "on a sustainable basis the government is not borrowing for day-to-day spending and underlying debt is falling." Organisations planning their operations for the coming years would be able to be far more confident in their plans if the increase was made unconditional. Government spending plans have already set aside the relevant funds – around 5.2 billion pounds – and confirming the increase would not affect Government budgeting. Funding pressures are already being made even more acute in the context of a sharp increase in demand for the work of development charities. The twin challenges of the pandemic and the climate crisis are seen disproportionately in areas where UK Aid has been operating – the global south, where poverty rose in 2020 for the first time this century. If poverty reduction is to be achieved steps need to be taken to combat the effects of the UK Aid budget cut.
An immediate increase in funding would be welcomed, but if there will be a gap of several years it is vital that the time is used to maximise the effectiveness of any new money. We would urge the Government to publish a clear strategy for where the additional funding due in 2025 would be spent, both in terms of the issues which they hope to address and the geographies being targeted.
Any strategy should also make explicitly clear the mechanisms through the funding will be distributed, giving organisations the opportunity to adapt their internal grant application procedures appropriately well in advance.
Trust-Based Funding and the Localisation Agenda
With funding pressures more acute than ever, both public and private grantmakers should investigate how to maximise the effectiveness of their spending on international development projects.
Although the UK Government is far from unique in this instance, too often charities from all backgrounds find themselves hamstrung by strict funding conditions and the administrative burden of recording and reporting details of their activity. This serves to give certain types of development charities a disproportionate advantage in the grant application process, and can exclude other charities from applying from funds in the first instance. More specifically, the status quo suits large organisations with experienced English-speaking administrative teams at the expense of small, local charities.
One positive from the pandemic both in the UK and internationally has been a reversal of this trend, as through necessity grantmakers have been forced to rely on “Trust-based funding”. With pandemic restrictions limiting the ability of foundations and funders to follow standard procedure, funding was provided to trusted organisations without the traditional level of restrictive administration or report requirements, as shown by CAF research on the topic.
In practice, this means empowering organisations to plan longer-term and to take calculated risks with their projects for the sake of greater success. By lessening the administrative burden on charitable partners, resources can instead be targeted towards maximising impact. With fewer “strings attached” to funding, organisations have more freedom in their grant applications, reporting practices and on-the-ground operations, allowing them to think creatively and respond to changing circumstances.
Applying for repeat funding every year can soak up resources and exclude charities lacking in administrative expertise or experience. Multi-year funding with reduced reporting requirements would give international development charities the flexibility to assess and determine where the money would be most effective, and allow for innovation, adaptive thinking, and sustainability.
That flexibility would particularly benefit local charitable organisations, which have historically been underserved by the current structures. Whilst they may not always have the administrative experience of multinational development charities, local non-profits are uniquely placed to understand local politics, cultures, and needs.
Communities in targeted areas of development are more likely to respond to local voices, rather than unfamiliar voices delivering centralised messages.
Localisation is particularly advantageous in areas of immediate crisis, as a result of conflict or natural disasters. Proximity to an affected area, with staff members who are familiar with local language and geography, means that local agencies are better equipped for rapid response and decision-making. Their proximity can also radically reduce the costs associated with logistics, such as transportation and infrastructure development, freeing up more funding for frontline work.
CAF research, in collaboration with LSE, has identified a number of additional areas where funders could help accelerate a shift towards greater levels of localisation going forwards.
International partners need to evidence the cost effectiveness of localisation programmes - both in terms of contributions made by local counterparts and their lasting effects of reducing aid dependency. This could shift funding towards strategic interventions that focus on local civil society organisations (CSOs) and strengthen their impact in terms of resilience and capacity. However, local CSOs and national governments need to regain ownership of their own development agenda and focus on partnership principles with Global North funders and organisations, moving away from accepting aid dependency as the norm.
Development and implementation of strategies that require local knowledge need to be owned by local people with international counterparts focussing on other roles such as advocacy, global network building and navigating the international aid system. Using this approach will result in a system that recognises the strengths and complementary contributions of both local and international organisations.
FCDO Aid Strategy
FCDO deserves credit for its commitment to maximising the impact of the money spent on international aid and for identifying areas of inefficiency in the 2015 UK Aid Strategy.
Challenges that have been identified as the areas where UK Aid spending can make the most difference are listed as:
CAF has spoken before about concerns that the focus areas lack a specific mention of poverty reduction.
All of the topics listed above are valid in their own right, but poverty is overwhelmingly prominent as a route cause of each of them.
Concerningly, this appears to be a specific choice rather than an accidental omission. The Foreign Secretary’s predecessor wrote a letter to the International Development Committee in December 2020 saying that the UK Development would “focus only on countries where the UK's development, security and economic interests align, such as sub-Saharan Africa and the Indo-Pacific region. The FCDO will ensure the UK's development and diplomatic efforts are combined”.
The international development charity Bond suggested that this decision to focus on trade and economic development over poverty reduction risked “placing development second to diplomacy”.
CAF strongly supports the principle that development should be driven on the basis of need rather than another wing of diplomacy. When handling hostile foreign influences and Governments, the UK should look to alternative methods of delivery rather than bypassing development altogether. The actions of the FCDO in Afghanistan following the withdrawal of coalition forces were therefore a welcome step forward, with the UK and others adopting new ways of delivering support without relying on the Taliban government.
The UK has pledged £286 million for 2021, £30 million of which will be for Afghanistan’s neighbours to support regional stability and refugees. £125 million will also be spent to address humanitarian needs such as providing food and shelter, and protecting women and girls from gender-based violence in the country. This UK aid is being delivered through international organisations, such as UN agencies and the International Red Cross, rather than directly to Taliban authorities. The Government has also matched public donations up to £10 million to the Disaster Emergency Committee’s Afghanistan appeal, of which CAF has been an active supporter.