Maximising Impact: How philanthropists can do the most good on the ground
Expert opinion
It’s set to get even tougher out there
Recent political and economic factors have changed the landscape in which NGOs and philanthropists operate. 2014 saw yet one more conflict develop, this time in Eastern Europe. The threat of terrorism is growing stronger, while conflicts in the Middle East and civil wars in Africa, now also impacted by Ebola, continue to take their gruesome toll. Needless to say, humanitarian help is needed, and every penny from NGOs and philanthropists is important on the ground.
However, we often find that a lot of funds are lost on the way to their causes due to a lack of strategic currency insight and limited expertise in moving funds from the UK to those in need overseas. Failing to effectively plan international operations, be it financial or otherwise, may seriously hinder the impact of work on the ground, and therefore, it is something NGOs and philanthropists should pay special attention to. 2015 is set to be yet another year of global challenges, where the work of NGO’s and philanthropists’ will be crucial and so maximising potential impact should be a priority.
Philanthropy and financial risk management?
At first look, philanthropists and financial risk management may seem an unlikely pair. But as you start thinking about the emerging markets the projects are most situated in, the procedures and regulations involved in transferring their funds into the local currency, and the operational work involved in getting the funds delivered to the right people on the ground, you begin to build up a picture of the how complicated this international operation actually is. One of the main issues for NGOs is that often they receive donations in one or two currencies, which then need to be transferred to the local currency. This issue is just as prevalent in the world of philanthropy as the denomination will often be held in one currency, usually the ‘home’ currency, and this will be far removed from the currency needed for work delivered on the ground.
Although this issue is not new, it still remains a challenge for many nonforprofit organisations and philanthropists alike. The impact that currency volatility and transfer fees can have on the end work on the ground and the lives of the beneficiaries is still not fully recognised. Charity Finance Group identified this issue back in 2011 and produced a hefty report outlining the lack of proven FX strategies within NGOs as a major challenge. The comment is supported by their striking finding that UK charities suffer losses of £2050 million due to inefficient FX management.
Since the release of that report some charities have begun addressing this issue by implementing comprehensive FX strategies including deliverable and nondeliverable forward contracts, market orders and hedging. However, these practices are yet to be adopted across the wider NGO sphere and specifically with philanthropists, where there are many benefits to be gained.
Implementing the right FX strategy is becoming increasingly relevant due to the international nature of philanthropist’s projects. But what is the actual problem? The exchange rate risk. Traditionally it seemed easier (from an administrative and reporting point of view) to send ‘hard currency’ to overseas projects, but all this really does is pass on the exchange rate risk from the philanthropist, who usually has a range of exchange options and specialists at hand in their home country, to the local project managers who have limited solutions to the currency question. Sending hard currency actually exposes the projects to hidden losses, which may not be instantly apparent: poor management of currency reserves, very large commissions taken by local banks for conversions, lack of transparency from local banks and black market dealing. This can lead to potential loss of funds as well as security and compliance concerns.
Centralising FX management to the philanthropist’s home country (and sending international payments in their desired local currency) can negate these risks. In practice this ensures that the process of transferring funds becomes more transparent, funds are secure and greater cost efficiencies can be achieved. The bottom line is that more money earmarked for good causes will reach its intended goal. All philanthropists need to do to remove this risk is take responsibility for the type of currency they are sending internationally and seek the specialist advice that is available to them but may not be available on the ground to their project leaders.
Philanthropy and international operations
As the effects of the global economic crisis in 2009 continue to unfold in many developed economies, philanthropist’s work in supporting those in less developed nations becomes increasingly important. Widely applied austerity programmes and cuts in spending have caused a significant drop in government contributions to the sector. This places increasing emphasis on the contribution of philanthropists, with philanthropy becoming a prominent pillar in the humanitarian architecture. It has never been more important that the funds achieve the greatest impact.
The work of philanthropists faces similar operational issues to that of smaller charities. Without a doubt, international operations, and their risk management, impact the way the finances of philanthropic trusts are run and what it is possible for them to achieve. Philanthropists, just like medium and small charities, often do not have inhouse capabilities or the expertise to efficiently and effectively manage the flow of capital overseas. It does not take long to realise that when large amounts of money are involved, international operations can become risky. The money from philanthropic trusts is often sent to emerging economies, where the need is often so much more pronounced. Transferring money to these destinations faces the additional operational challenge that comes with a lack of infrastructure systems. The issue arises of how to make sure that the available funds reach their destination securely and in an optimal way?
Using the right currency provider to move money into developing nations can make all the difference as their work is supported by in depth market insight and expertise. I have worked with a range of philanthropists, some who employ incredibly complex structures to maximise their impact, and some who previously were practically blind to the risks associated with moving funds overseas. The currency provider with an experienced operations team, who often work with the emerging markets and are familiar with the banking and institutional structures, will be able to offer the greatest assurance of the security of your funds. Without a doubt the risk associated with moving funds is not the only aspect of international operations that both charities and philanthropists share, but it’s a good starting point in securing the right processes are put in place and that the funds, which are the starting block for any project, are delivered securely and in the correct volume. The risk involved in buying currency locally, and often on the black market, and being moved by project manager on the ground, is now eliminated.
There are ways
It’s an important step for charities and philanthropists to maximise the potential of their work by working with the right professionals who can manage their financial risk and help to deliver efficiencies on the ground. It is also imperative to understand that the right currency provider will not use the funds to speculate on the market, but rather to make the most of every penny that can reach those in need. By managing the funds effectively, philanthropists and small charities can have just as much impact on the ground as their larger peers.
And that’s what this is all about - making sure the individual can have as much impact as possible with the funds they are generously willing to offer to others.
Beverley Traynor works for Ebury, a London-based fintech company, which among other financial services provides specialised expertise in currency delivery for Charities, NGOs, Microfinance Institutions, Private Equity companies and businesses investing or supporting projects in Emerging Markets. Previously, Beverly spent seven years at Charities Aid Foundation (CAF), with the last three years of that time spent as Senior Business Development Manager. In this role, Beverley worked with charities to help them navigate the economic climate and manage, attract and save funds through various financial and fundraising solutions.
Areas of specialism:
● Alternative finance for charities
● Risk management for international fundraising operations
● Navigating exotic currencies as a charity
● Securing the maximum amount of money for a charitable cause on the ground
