Opinion: The special delight of unrestricted funds

Nick Cater, a consultant and writer: catercharity@yahoo.co.uk

In the spirit of the saying 'a mark, a yen, a buck or a pound is all that makes the world go round', many charities actually operate in two different currencies without ever crossing a border.

One currency is the funding that pays for specific projects and functions only, whether through grants, contracted services, corporate allocations, earmarked donations or item-specific appeals.

Nothing wrong with that, since these earmarked - or restricted - funds will fulfil the contract or grant terms, match pre-agreed budget criteria and meet what funders believe are the needs of beneficiaries. Earmarked funding has been planned, budgeted and, in effect, spent even before it arrives in the charity's bank account, and any surplus left over for use elsewhere is usually sliver-thin.

Luckily, there's also that other, far more valuable currency: unrestricted funding. This is not just 'free' money for core costs; it's flexible money for investment in the innovative, creative or even risky. It's freedom money, giving the charity independence to tackle its own priorities, rather than just do its funders' bidding.

It is also money worth well in excess of its face value. I've seen one charity rejoice more over an unrestricted £5,000 than over a £125,000 project grant. That implies a restricted-to-free exchange rate of at least 25 to 1 - perhaps far higher for those caught in the service contract cul-de-sac.

So why, since unrestricted funds are so useful, easily managed by both donor and recipient and highly valued, do most big funders - especially foundations - resist the opportunity to splash the cash?

Since it cannot be about arrogance, control or power, perhaps transparency and accountability makes everyone obsessed with micromanaging every penny rather than backing the good judgement of good charities to do good work.

That said, a revealing report from the Four Acre Trust did find that commitment-phobic foundations could be superior and aloof in their grant making. Perhaps foundations should donate 1 per cent of their capital each year as unrestricted funds, liberating charities to practice the independence everyone preaches without the patronising diktat of those with the purse strings.

According to figures from the Charities Aid Foundation's Charity Trends 2006, that would cost a mere £330m a year. But calculated on my exchange rate, it would be valued by charities at a rather useful £8.25bn.

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