February 22, 2016

Impact Investing Might Help Nonprofits Overseas Asphyxiated by Their Governments

Yuri Kadobnov, AFP, Getty Images

As governments like Russia and China cut off charitable support from the United States and elsewhere, nonprofits might benefit from donors’ growing interest in blending investments and social-good work.

When Priscilla Chan and Mark Zuckerberg announced they would devote 99 percent of their Facebook wealth to charity, they became the public embodiment of two important trends transforming the world of philanthropy.

Not only did they demonstrate why philanthropic giving worldwide is at an all-time high, according to Charity Aid Foundation’s World Giving Index, they also made clear that we’re going to see an increasing focus by the wealthy on blending charitable giving with investment and policy work.

But what got lost in the excitement about the new philanthropy is a countervailing and deeply disturbing trend that limits the possibilities for people around the globe to improve their societies.

The story begins with the geopolitical shifts of the 1990s that enabled active citizens the world over to help remake their societies by forming nonprofits, many of which secured funding from large private foundations and governmental aid organizations in America and elsewhere.

Those nonprofit organizations grew like wildfire during the past quarter century, with many of them focusing on thorny problems their governments lack the resources, expertise, or political will to tackle. They help the public understand and express outrage about injustices suffered by minorities in their midst; they create opportunities for individuals to help others in their own communities; and they make legal systems work to protect the rights of the disadvantaged.

So what’s the problem?

In the past several years — with Russia and China in the lead — country after country has enacted new laws and policies designed to asphyxiate nonprofits by focusing especially on the cross-border oxygen supply of charitable capital that has fueled their growth.

Indeed, governments of all political stripes, including those in long-standing democracies like India and newer ones like Hungary, have discovered an easy way to eliminate the complications presented by nonprofits they perceive to threaten their unitary control: vilify them as agents of foreign interests and adopt legal measures to cut off the cross-border flow of funding.

Nonprofits have suffered attacks from unfriendly governments before, but this fast-growing phenomenon, exploiting a vulnerable dependence on foreign financial support that has always been there, could pose an existential threat to civil society as we know it in many countries. And traditional modes of resistance might not work because it’s difficult to generate a sense of outrage about enforcement of seemingly technocratic legal requirements that have strong popular support.

Dr. Chan and Mr. Zuckerberg do not appear to be contemplating that particular problem, but they and all of the other new philanthropists popping up around the world — particularly in emerging markets like India, China, and Brazil — represent an important opportunity for increasingly beleaguered nonprofits.

The pragmatic thinking of new philanthropists may lend itself well to the challenges of building civil society in places where governments are cutting off essential sources of support. Regulatory barriers restricting foreign charitable transfers do not apply to business investment, and new philanthropists are often agnostic as to whether their funding is characterized legally as a charitable donation or an investment. Further, the rise of new philanthropists in emerging markets throughout the world means there may be untapped local sources of support, though of course these donors’ expectations will be different from those of the large international ones.

It may be outside their comfort zone, but nonprofits that have grown strong on foreign grants would do well to re-examine their approaches to see if they might accomplish similar aims in ways that exploit this opportunity. Even human-rights organizations may be able to achieve some of their goals using approaches to support the work that is more familiar in fields like public health or delivery of basic services to the poor.

Some are already leading the way, particularly in showing how they can earn money by charging fees for their services, taking a page from social enterprise.

In India, for example, Schools of Equality develops and distributes curricula addressing inequality and human rights in Indian public and private schools to tackle attitudes that sustain phenomena such as infanticide of the girl child. Launched in 2014, the organization has already reached 10 schools in two provinces, with fees earned from private schools partially subsidizing the public ones. Their efforts to reshape the future generation’s attitude about gender equality might be exactly what is required to end this persistent human-rights problem.

Schools of Equality uses a strategy to fight gender violence very similar to that of other nonprofits. But it has developed a more resilient financial model of organization than most, one that could prove attractive to new philanthropists, whether from abroad or homegrown.

That approach won’t work for all human-rights goals, but it’s an example worthy of consideration by nonprofits under attack everywhere.

Edwin Rekosh is founder and former president of PILnet: the Global Network for Public Interest Law.