Report reveals 'compelling’ evidence of unrestricted funding benefits

A report has detailed the benefits to good causes of grant makers offering charities unrestricted funding to best achieve their objectives and support communities.

It looked at restricted funding models, where funds can only be used for a specific purpose and with stipulations, typically involving budgets and reporting requirements. It also looked at unrestricted funding models, where funds can be spent at the discretion of charities to best fit their mission.

It found that unrestricted funding gives charities “time, resources and freedom to engage in strategic planning”.

Those benefiting from this form of grant making improved their planning and had “a stronger focus on making strategic decisions in line with their charitable mission”.

Unrestricting grants also “devolves power to communities” by ensuring decisions are community led, rather than funder led, adds the report, called Why restrict grants? published by IVAR.

To be effective unrestricted funding needs to be multi-year to get the “full strategic planning benefits” of grants.

In contrast restricted funding is “underpinned by an assumption” that grantees are “less effective at allocating resources”. It also leads to funders being able to “dictate strategy”. This can lead to “mission drift”, as charities are forced to deviate from their original mission and purpose.

Researchers say they “found insufficient evidence” to support the rationale that a benefit for funders in restricting funding is that they can “exert enlightened strategic control”.

“The research evidence provides reasonable assurance that enabling funded organisations to exercise greater control over strategy means they make better choices when judged in the light of their own mission, priorities and changing context,” says the report.

“In light of these findings, funders may wish to consider what, if any, additional value they see in restricted funding above and beyond that delivered by their own due diligence processes.”

Last year IVAR released research that found another benefit of unrestricted, long-term funding was being able to support charities to tackle recruitment and retention challenges amid the cost-of-living crisis.