The Nigerian NGO Funding Dilemma

I have always wanted to start a grassroots NGO to serve my community. This ambition grew with my experience in Rotary-Rotaract, where I saw the gap between what the government should do and what it has actually done to help Nigerians. If my NGO could address this gap, it would improve the living standard of the villagers. Yet, the crippling fear of the financial hurdles that come with running an NGO in Nigeria has always stopped me from executing. The fear is not without merit.

For years, I've witnessed the devastating impact that funding uncertainty has had on local NGOs. One organisation I know of funded a rural family's move to town for their child's education. Unfortunately, the NGO's main donor passed away during the child's senior year. Unable to secure continued support, the NGO closed down. With the girl's fees unpaid and living costs rising, the family had to return to their village.

These struggles resonate with the experiences of many Nigerian NGOs. Mmesoma Stella, manager of the Medichi Foundation, is bitter about how inflation always disrupts project planning and execution. Marycynthia Okonkwo, founder of the PML Foundation, is frustrated with the unreliability of local donor commitments due to Nigeria's rising cost of living. These challenges raise a crucial question: How can grassroots NGOs navigate these pitfalls to obtain the funding they need to impact the communities they serve?

To answer this, we'll discuss the pros and cons of the two available funding options - traditional donors and Web3 grants - and explore the most suitable approach for Nigerian grassroots NGOs.

Traditional donor funding

Traditional donor funding counts foundations, banks, multilateral aid agencies, international NGOs, and government ministries, departments, and agencies as funding sources.

It should be noted that none of the grassroots NGOs I contacted have been beneficiaries of government funding. It's also strange that a quick Google search couldn’t produce the name of even one Nigerian NGO that has been a beneficiary of the top-down funding. This leads me to wonder if the approach even works or if it has become another avenue for looting.

Advantages

Traditional donor funding offer a number of advantages:

• Huge funding pool - In 2023 alone, the Nigeria Humanitarian Fund received $18.2 million in donations and distributed US$13.1 million directly to NGOs working on critical emergencies. Similarly, USAID remains a major contributor, providing over US$500 million in humanitarian assistance to Nigeria in 2020-21.
• Network effect - By building strong relationships with donors, grassroots NGOs increase their chances of continued funding and gain access to potential new funding sources. They can also get access to technical expertise, training, and other support to strengthen an NGO's operations.
• Reputation - Receiving funding from reputable organisations can significantly boost an NGO's credibility and legitimacy in the eyes of other potential supporters, partners, and communities.
• Wide donor base - NGOs can access funds from a larger pool of donors, making them less vulnerable if a major donor drops out or changes priorities. NGOs with a diversified base can also expect to secure more funding cumulatively than from a single source.
• Familiar payment channels - Traditional donors typically provide funding in local currency via bank transfer. This simplifies access to funds, allows for easier dispute resolution should any issues arise, provides a clear audit trail for expenditures in case someone absconds with the funds.

Disadvantages

But it also comes with some disadvantages:

• Strict eligibility criteria - Donors often require things like full legal registration, professionally audited financials, and established project evaluation systems. The associated costs can be overbearing for grassroots NGOs, who may choose to prioritise impact rather than invest in processes that don't guarantee funding. In some cases, funding hinges entirely on personal connections, regardless of track record.
• Preference for intermediaries - Donors often prefer to channel funds through intermediaries in the Global North rather than directly supporting grassroots organisations. Among other reasons, they cite the lack of capacity among smaller NGOs to navigate complex administrative procedures and utilise funds efficiently. This approach diminishes the autonomy of local African NGOs, of which 80% are dependent on foreign funding.
• Changing donor priorities - Donor priorities can be unpredictable and subject to frequent change. This creates a significant challenge for grassroots NGOs because it forces them to prioritise donor interests over community needs. Those choosing community needs first may struggle to align their work and secure continued funding. In the worst case, NGOs may even be forced to shift away from their core mission to chase donors with different priorities.
• Uneven grant opportunities - Ayodeji Omlabu, Principal Plogga at Plogging Nigeria, club UNN, mentioned that some causes offer many grant opportunities, whereas others have few. It's easier, for example, to find grants for empowering girls in Sub-Saharan Africa than for environmental sustainability.
• Funding restrictions - Donor funding often comes with limitations like delayed disbursements, tight spending deadlines, and unspent balance returns. Some donors even exclude overhead costs from funding.

Web3 grant funding

Web3 grant funding is a relatively new approach to NGO fundraising. It uses the number of individual contributions to a project to determine the allocation from a pool of "matching" funds.

As an example, AYOWECCA Uganda has raised more than US$19,000 in matching funds from Gitcoin funding rounds based on US$980 in donations from 722 community members. As you can see, this mechanism amplifies the impact of smaller donations and reduces the influence of large donors.

Advantages

Web3 grant funding has three advantages over traditional donor funding:

• Decentralised and community driven - Web3 grant programs, such as those offered by Gitcoin, use decentralised mechanisms that allow grassroots NGOs to break free from the agendas of big donors. Instead, funding signals come from the community, who ultimately decide who gets a lion's share of the funding.
• Minimal application criteria - Many Web3 grant programs have minimal requirements with simple application forms and fast approval timelines. The focus is primarily on project merit, less so about connections. It's also a great way for new NGOs to validate their ideas without investing the time and effort needed for traditional donor funding. Gitcoin funding rounds, for example, only require that projects be at least three months old to apply.
• Broad accessibility - Virtually any NGO can access Web3 grant funding as long as they meet the criteria of a particular round.

Disadvantages

There are, however, a few disadvantages:

• Technical complexity - Web3 is not known for its usability. NGOs need to understand unfamiliar concepts like crypto wallets, on- and off-ramping, private key security, blockchain transactions, and cross-chain bridging in order to take advantage of Web3 grant funding. It can be a steep learning curve for under-resourced organisations.
• High-risk payment channels - One of the main risks with crypto wallets is that they can be liquidated by using phishing, malware, and social engineering attacks on unsuspecting users. Once funds are stolen from a compromised wallet, they cannot be recovered. This also includes the case of sending funds to the wrong address.
• Uneven funding distribution - Unlike with traditional donor funding, where NGOs are allocated a specific amount (usually between US$5,000 and US$15,000), the amount of Web3 funding depends on the NGOs ability to galvanise the community to donate. Successful projects can earn as much as US$20,000+; the less successful as little as a few dollars. Daniel, the founder of Anu Initiative, suggested that this reliance on popularity favours projects with established networks, creating a cycle where well-connected projects secure funding repeatedly while potentially transformative initiatives go unnoticed.

What is a Nigerian grassroots NGO to do?

Nigerian grassroots NGOs do not have the luxury of picking one funding model over the other. With the government unable to fully address the needs of Nigerians, they must utilise whatever they can to maximise their impact. With that in mind, what can they do to benefit from both models?

Leverage Web3 funding for capacity building

Nigerian Web3 communities can be a valuable resource for grassroots NGOs. These communities provide support to newcomers, helping them navigate the grant funding section of the ecosystem. An example of such a community is GreenPill Nigeria, which empowers Nigerian grassroots NGOs by onboarding them onto Web3 platforms to access sustainable, adaptable funding and capacity-building assistance while teaching them the ropes of crypto-asset management. GreenPill Nigeria doesn't stop there – they sometimes provide funding through their own private funding rounds and even collaborate with grassroots NGOs on specific projects.

Utilise Web3 solutions for transparent impact tracking

Grassroots NGOs face a catch-22: they can't afford to implement the impact-tracking systems needed to secure funding. As a more cost-effective alternative, they can leverage free, blockchain-based solutions to enhance transparency and accountability in their funding and project implementation.

The Karma Grantee Accountability Protocol (GAP) is one such example. Karma GAP allows both NGOs and donors to track grants received, how funds are spent, and the progress made by the NGO. Hypercerts, another Web3 solution for impact tracking, are impact certificates that NGOs can use to document their achievements and potentially earn rewards retroactively. This creates a recurring income avenue for the organisation.

Cultivate financial resilience

Grant and donor funding can be unreliable. To ensure long-term financial sustainability, grassroots NGOs need to diversify their income streams. One strategy is to allocate a portion of funding to revenue-generating investment instruments. This could involve bonds, interest-bearing savings accounts, or crypto-asset staking. By creating these backup mechanisms, NGOs can maintain operations even during funding shortfalls, although they may need to temporarily adjust the scale of their impact.

Build and leverage networks

To maximise access to traditional funding, grassroots NGOs should focus on cultivating meaningful relationships with potential funders. They can provide value to global NGOs by offering local project support, seeking advice, leveraging their expertise, and regularly updating them on their progress and impact. With prospective individual donors, it's important to keep them engaged by sharing frequent project updates, checking up regularly on them, and publicly expressing gratitude for their support. Resource and network sharing with other NGOs through partnerships is another way of enhancing visibility.

Obtain legal counsel

Conditional funding for grassroots NGOs creates tension between accountability and flexibility in addressing local needs. To navigate funding complexities, NGOs should carefully evaluate conditionalities and, where resources allow, seek legal assistance. In situations where compromise through negotiation is impossible and the conditions significantly hinder the NGO's ability to deliver its mission, rejecting the funding is the best course of action.

Conclusion

Grassroots NGOs in Nigeria struggle to secure the funding needed to address persistent problems fueled by the government inaction. The two funding options available, traditional donors and Web3 grant programs, both have drawbacks that limit their effectiveness. NGOs simply don't have the luxury of relying on one or the other. Instead, they need a combined approach that maximises benefits and minimises risk.

NGOs can access sustainable funding and capacity building with the help of local Web3 communities. GreenPill Nigeria demonstrates this with private funding and project collaboration. To bridge resource gaps and expensive impact tracking, Web3 solutions like Karma GAP enhance transparency and accountability for both NGOs and donors. NGOs can achieve financial resilience by building a reserve of revenue-generating assets and develop strong relationships with donors to increase funding opportunities. When working with traditional donors and their strict funding conditions, NGOs must evaluate offers carefully and retain legal counsel to guide them through the negotiation process.

Mmesoma sums it up best. "As humanitarians, our calling is to promote empathy and create a better world for everyone, despite funding obstacles. We embrace this responsibility, and we'll keep at it to improve the lives of Nigerians in need.

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