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A nongovernmental organization (NGO) is an organization independent of the government that focuses on social, environmental, educational, and other issues. These organizations generally aim to make the world a better place, whether that’s the American Red Cross holding a blood drive or the World Wildlife Fund working to protect and restore species in their habitats.But how do NGOs raise the kind of money they need to operate, which may be on the order of millions, or even billions, of dollars? It depends on the NGO, but here’s a look at some of the key sources of NGO funding.
What Is an NGO?
The acronym NGO stands for non-governmental organization. These groups function independently of any government but may be involved in national or international philanthropic, developmental, or social missions. For example, Doctors Without Borders is an NGO that provides medical assistance and access to medicines to those in need throughout the globe.Though they are independent from the government, NGOs may receive funds from government agencies.
How Do NGOs Work?
NGOs are typically nonprofit entities organized by private citizens. These organizations can pursue a wide range of goals for social, developmental, or political purposes, and may operate on a local, national, or even international level.As nonprofits, NGOs can accept donations from private individuals, for-profit companies, charitable foundations, and governments (local, state, federal, and foreign). They also raise funds by charging membership dues and selling goods and services.
NGOs vs. Nonprofits
So what’s the difference between a nonprofit and an NGO? Technically, an NGO is a nonprofit, but there are a few key differences between the two.
NGO
Nonprofit
Usually has a more global reach
Tends to focus on a local community or group
Receives donations and funds from the public or government agencies
Receives donations and funds from the public or government agencies
Is also a nonprofit
Is not also an NGO
NGOs tend to operate on a much larger scale than nonprofits. They’re not concerned with only helping people in one city or community; instead, they often support national and international projects for causes such as disaster relief and human rights. Their budgets tend to be much larger than that of a local nonprofit, and therefore the funding needed by an NGO is typically significantly higher.Both nonprofits and NGOs, however, rely on fundraising, donations, and grants to sustain operations.
How Do NGOs Get Funding?
While NGOs aren’t affiliated with any governmental agency, funds for NGOs often come from grants that are offered by local, state, and federal governments. Grants can also come from foreign governments.NGOs may also accept private donations from individuals, charitable foundations, or corporations. They may also raise funds through sales, memberships, and fundraising campaigns.
6 NGO Funding Sources
Here are some of the ways an NGO may raise revenue to fund their operations and support their missions.
1. Grants
Often, a significant portion of the funds for NGO projects comes from grants offered by corporations, as well as local and federal governments. Unlike business loans, grants for businesses, nonprofits, and NGOs don’t have to be repaid. Competition for these awards, however, tends to be stiff. Writing a grant proposal can also take a fair amount of time, effort, and expertise.Pros:
Money doesn’t have to be repaid
NGO may be able to automatically qualify for the same loans year after year
Can be for large amounts
Cons:
Funding for grants can dry up
There may be heavy competition to qualify for certain grants
Requires a grant writer on the team to fill out applications
2. Fundraising
Just like other nonprofits, NGOs often engage in a variety of fundraising activities to help fund their operations and fulfill their missions. Fundraising efforts can range from offering a website donation link to hosting elaborate events like galas, festivals, and auctions. There’s no limit to the possibilities when it comes to fundraising. In fact, Doctors Without Borders even organizes charity video game marathons to help raise funds.Pros:
Money doesn’t have to be repaid
Funds can come from any donor who’s interested in supporting the NGO
Fundraising activities provide a way to publicize an NGO and its cause
Cons:
Planning fundraising events can be time-consuming
Fundraising needs to be ongoing; it’s not a one-and-done event
May require finding businesses and individuals to donate time or products
3. Private Donations
Funding from NGOs can also come from wealthy individuals who seek philanthropic activity. They may donate money annually or bequeath large sums in their wills upon their death.Pros:
Money doesn’t have to be repaid
Donations can be sizable
For the donor, money given to NGO may be tax deductible
Cons:
Large donations aren’t guaranteed
Donors may want to be honored through a plaque in their name or a mention at an event
Donations may slow during sluggish economic times
4. Membership
Another way for NGOs to raise money is to charge for membership. To attract members, the NGO may offer exclusive benefits and perks. For example, PETA (People for the Ethical Treatment of Animals) offers members a subscription to its magazine as well as a calendar, vegan recipes, and discounts on products.Pros:
Money doesn’t have to be repaid
The perks offered to members are usually low-cost
Members feel more invested in helping the NGO
Cons:
Membership fees are typically low, so it takes a lot of members to raise significant funds
NGO needs a membership coordinator or department to run program
Perks need to be enticing enough to draw members
5. Corporate Sponsorships
Just like private individuals, many corporations engage in philanthropy, and many do so by financially sponsoring NGOs. There are a variety of ways a corporation can sponsor an NGO, including direct donations, event partnerships, and matching gifts. This allows a corporation to give back, potentially get a tax deduction, and become affiliated with an NGO that has a powerful and positive mission.Pros:
Corporate sponsorships can be of significant value
Partnering with a corporation can amplify the NGO’s message faster and further
Corporation may get tax benefits with the donation
Cons:
May require a dedicated individual or team at NGO to find corporate sponsorships and manage the relationships
Continual support from a corporation isn’t guaranteed
6. Business Loans
Like businesses, nonprofit organizations sometimes need cash in the form of a loan to operate their programs effectively. For example, an NGO may encounter a situation in which the timing of when they receive funds from grants and other sources and when they need to pay bills are out of sync. A cash flow loan or business line of credit can help bridge gaps in cash flow and enable an NGO to run efficiently. Different types of business loans can also make it possible for an NGO to take advantage of a time-sensitive opportunity or make costly but key capital improvements. Sometimes a grant or in-kind donation can fit the bill, but in many cases, a loan with monthly payments may be the best funding tool.Pros:
Can be easier and faster to get than a grant, corporate gift, or large donation
Can enable an NGO to take advantage of a short-term opportunity
Can help an NGO make capital investments that will improve operational efficiency
Cons:
Money has to be repaid, plus interest
NGO will need to prove it has sufficient revenue to repay the loan and may need to provide collateral
Lenders may charge nonprofits a higher interest rate due to higher risk involved
The Takeaway
With budgets sometimes in the hundreds of millions, finding sources for funding projects, operations, salaries, and other overhead costs is typically an ongoing effort for NGOs. As nonprofit organizations, NGOs often rely on a variety of funding sources, including membership dues, the sale of goods and services, grants from corporations and governments, fundraising activities, and private donations. Loans can also be a tool that can help an NGO grow and succeed.
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Frequently Asked Questions
What does NGO stand for?
What are some notable NGOs?
Are NGOs and nonprofits identical?
Photo credit: iStock/gorodenkoff
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About the Author
Susan Guillory
Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
