We Need a New Model for Philanthropic Funding

August 25, 2020 – By Andrea McGrath, Saumya Shruti and Shaily Acharya

For decades, foundations and donors have followed a similar approach to helping communities – evaluating, designing and funding what seem to be appropriate interventions – and achieving various levels of impact. While most would agree that the local communities themselves have critical insights on needs and challenges, as well as the expertise to build solutions, funders more often than not design solutions for communities rather than with communities. Globally, however, there are a variety of funding models that recognize the expertise of individuals and communities to design or choose the solutions they need, and empower them to do so. There are also a number of grassroots efforts in the U.S., with an increasing interest to do more. Beyond philanthropy, we see other models emerging that prioritize community, such as participatory budgeting, community designed development, and crowdfunding. 

After many years of utilizing similar funding models, perhaps it’s time to try a new approach – one that invites the community to design, inform and select solutions, and provides opportunities for local investment and community wealth building. Beeck Center Executive Director Sonal Shah recently welcomed two pioneering leaders from organizations championing this new approach to our second Ideas that Transform conversation. Emphasizing the need for both community participation and community-led decision making, Dana Bezerra, President of the Heron Foundation and Lucas Turner-Owens, former fund manager of the Boston Ujima Project, challenged funders and investors to rethink and redesign their traditional approaches to investing in communities.

Nothing About Us Without Us

The idea for the Boston Ujima Project emerged from conversations among local activists, advocacy groups, impact investors, business owners and entrepreneurs, which highlighted the need for a catalytic vehicle to address the disconnect between impact and philanthropic investors, and local, grassroots community efforts. To ensure inclusive input, they hosted multiple community feedback events that provided free food, childcare, translation services and fun activities as a way to engage the community members and make it easier for them to participate. They used an asset-based lens to evaluate potential investments, and leveraged the social capital of the founders to bring in grassroots, community voices to give them guidance. As Turner-Owens emphasized, ultimately this work “has to start from a place of (asking) what is here, what needs capital, what is already loved – not the idea that you should add something new – but what might need a facelift? Once you have sized the pipeline, you can determine what kind of capital you need.”

 

From those early community meetings, and after a few years of planning and piloting, the Ujima Project creatively designed what is often referenced as the first democratically managed fund in the country. The local community drives four critical aspects of the fund:

  1. Identify the investment opportunities (and community needs).
  2. Define and prioritize the desired social and economic impacts.
  3. Help conduct the community due diligence.
  4. Vote on what businesses should be funded.

Perhaps most importantly, the Ujima fund is structured to incentivize community investment and wealth building by utilizing a ‘capital stacked equity’ model (designed by Ujima Fund visionary Aaron Tanaka) which prioritizes smaller dollar investors through higher rates of return and shorter terms. This is what shifting power looks like.

Walking the Talk: From Net Extractor to Net Contributor

The Heron Foundation has been a leader in pushing forward new boundaries in philanthropy by constantly embracing experimentation and risk taking. As Bezerra describes, it’s been an evolution to move from its first 20 years of more “traditional” approaches where they decided on appropriate interventions (which worked well), to its pioneering leadership in moving 100% of its assets towards mission. Along the way, they learned that investing 100% towards impact didn’t necessarily mean 100% towards mission. As they moved forward to reconnect with their mission to help communities help themselves, and speak more deeply to the communities they served, Heron had a “reckoning” moment: instead of extracting community knowledge to inform their strategies to deploy funds, why not simply hand over the money (and the power) and assist the communities in deploying the funds?

That is now the new path for Heron, and they are “all in”. This is not a program strategy – this is their wholesale strategy. But change is challenging, and Bezerra was candid in describing how these shifts have brought “two kinds of hard” to light. The first is uncovering community needs when there are power dynamics with funders and communities. Heron is spending time learning how to uncover community agency and culture and determine how best to work within it. The second is that Heron was not structured or staffed to do this work, so they are doing significant organizational development to figure this out. Their strategy shift brings a variety of changes, some driven by staff opting out of its new direction and some driven by organizational needs. As Bezerra admits, these changes are hard and painful, but necessary work to change the paradigm.

 

In addition to rethinking its philanthropic funding strategy. Bezerra argues that foundations need to look inwards at all of their practices – from procurement to technical assistance to advocacy to investment. Moreover, foundations should leverage their roles as both philanthropists AND investors to get the wheels of capital moving. Our current economy is broken, but our next economy has not yet materialized, so funders need to get more comfortable (and honest) in leaning in to tinker at the edges to improve things today.

Moving Forward: Calls to Action

While Bezerra and Turner-Owens noted that the work of these models is just beginning, Shah observed that in some ways these models are not new at all, but rather represent ideas whose time has come. Here are some takeaways from the conversation:

  • Build Trust: Funders must build relationships with their target community. Turner-Owens recommended connecting with trusted entities and networks in the communities, as well as starting with an asset lens and utilizing an expansive “we” in engaging the community.
  • Deploy Your Capital: Bezerra noted that foundations can do more and that they are tax-advantaged for a reason. Foundations are financial institutions that need to look beyond just their programs to opportunities across their enterprises (as philanthropists, buyers and investors) to do more.
  • Get in the Arena: While this work is hard, today’s challenges are too great to sit on the sidelines with the critics in the ‘cheap seats’. Stumble forward, knowing you’ll make mistakes, and be transparent. As Bezerra says, “nobody cares about your perfect story.”
  • Scale Down: Shah challenged everyone to rethink the focus and pressures on scaling up and instead consider how we might scale down towards what the community needs and starting where they are.

Watch the entire conversation on Shifting Power from Investors to Communities

We hope this is just the beginning of important conversations on shifting more power and capital from investors to communities. You can see the full conversation above and share your ideas or questions using the #BeeckIdeas on Twitter. Please join us September 29 for our next Ideas That Transform conversion exploring What if Colleges Designed Impact-oriented “Bridge Years”? And be sure to check #BeeckIdeas on Twitter every Tuesday at noon where we’ll share a thought prompt to foster further conversation.

Andrea McGrath leads the Fair Finance portfolio at the Beeck Center for Social Impact + Innovation

Saumya Shruti is a recent graduate of Georgetown University’s College of Liberal Arts

Shaily Acharya is a rising sophomore at Georgetown University’s School of Foreign Service

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