Core funding is usually defined as financial support that covers basic “core” organizational and administrative costs of an NGO, including salaries of non-project staff, rent, equipment, utilities, and communications.
Core funding is sometimes called indirect funding, cost recovery, administrative cost, overhead, or unrestricted funding. Core funding should be understood as covering expenses that are required to keep the NGO functioning independent of any projects being implemented.
Why is core funding important?
Core funding is important for the long term financial sustainability of an NGO and its effective functioning. There are many important long-term benefits of core funding to consider:
Improving project quality. Core funding improves NGO capacity to deliver high-quality projects by ensuring staff are trained and have the tools to perform. Core funding may also provide cost-saving over time, as high-quality NGOs can deliver projects better, quicker, and more efficiently.
Help reduce staff turnover and increase job security. Having additional resources available in lean times can ensure that staff continue to get paid. Having a budget for staff development, staff retreats, training, and safety help reduce staff turnover and increase job satisfaction. NGOs that offer good benefits and a great work environment can attract high-quality staff and in turn improve project quality and impact.
Act fast in emergencies. NGOs that have financial leeway can act quickly and flexibility to rapid developments. If an emergency requires a rapid response, core funding offers the NGO the ability to adapt.
Reduce risks. Core funding is also critical to those NGOs working in unsafe or emergency situations. Investments in safety equipment (CB radios, mobile phones, office security), logistics (transport), and security training help reduce risk to staff and equipment.
Increase project and financial efficiency. Donor investments in monitoring and evaluation (M&E) can lead to improved implementation and reporting. Improved financial controls and reporting ensures that donor investments are safeguarded and have the maximum impact.
How can I get core funding?
There are many clear advantages to increasing your core funding. What are some of the techniques that can help?
- Identify donors that are more likely to provide core funding.
- Ask your current donors for core funding.
- Develop funding proposals that focus on organizational development and sustainability.
- Include sufficient core funding in your project budget.
- Understand the amount of core funding you need.
Do all donors provide core funding?
Most donors will provide core funding, but some will only pay for project cost, shifting the burden to other donors and the NGO. Some donors allow core funding to be included as specific budget lines (e.g. a portion of the rent, utilities, etc.) and on top of that add an overhead percentage (e.g. 5%, 10% or more of the total budget).
What if a donor is not willing to pay for core funding?
Any budget submitted to a donor should include the core costs associated with that project. In other words the percentage you have calculated as core (see above). For example, if the budget request to the donor is $10,000 and your core costs are 25% of your budget, you should include at least $2,500 of core cost either as specific budget lines, an overhead percentage, or a combination of both.
Do not be shy in pushing the donor to include core budget as the cost of excluding those can be high. Use some of the reasoning highlighted above to argue your case.
Ask the donor if the core cost directly related to the project can be included as specific budget lines. Stress that you have an organizational responsibility as well as strive for equity between donors. Be willing to walk away from a grant if it is detrimental to your NGO. Accepting too many grants that do not cover core expenses will slowly suffocate your NGO.
Having adequate core budget ensures impact and good value for money. Something all donors should want!