A sad year ahead?

Is merging the only solution?

Relief agencies have been hit by the global recession and falling donations, forcing them to cut jobs and to scale back or slow aid projects, and experts warn they may have to take more extreme measures as 2010 unfolds.

The combination of a slump in giving, exchange rate pressures, erratic inflation levels overseas and reduced income from interest on reserves has put the squeeze on the aid sector.

Even as markets rebound and the world economy shows signs of recovery, relief groups are braced for tougher times. Unemployment could rise further and economic growth will bring higher interest rates, cutting donors’ disposable income.

“The decline in donations lags behind the worst of the recession,” said John Low of the Charities Aid Foundation (CAF), a UK charity that helps other non-profit groups manage money.

“History suggests there might be more pain to come.”

Charitable giving in Britain fell 11 percent in 2008-9 in inflation-adjusted terms, according to the UK Giving report, compiled by CAF and the National Council for Voluntary Organisations between April last year and March 2009.

In the United States, donations fell by 5.7 percent in real terms, according to Giving USA’s 2008 report – the largest drop since the group began tracking U.S. donations fifty years ago.

InterAction, a U.S. coalition of more than 150 humanitarian groups, says funding could fall further, particularly by foundations, which tend to give in one-year or multi-year grants and whose assets have been hit hard.

“We know some foundations have either frozen what they’re doing or are cutting back,” said Barbara Wallace, InterAction’s vice president for membership and standards. “I don’t know if we’ve seen the worst either.”

“It’s a real crunch because the economic decline isn’t local it’s global and there’s a greater need for our services at the same time as our resources are shrinking,” she added.

Job losses

Some areas of giving, certain charities and some regions of the world more immune to the crisis have bucked the trend.

Low said giving through payroll in Britain is rising, for example. Agencies with child-sponsorship models, such as Plan International, are faring better as are some, but not all, faith-based groups.

Donations have fallen but those who monitor the sector say giving has not collapsed. Many existing supporters are staying loyal to their causes – the problem is recruiting new donors.

Nevertheless, the Brigdespan Group, a U.S.-based nonprofit that helps to develop other charities, found in a recent survey that 80 pecent of charities reported funding cuts, from 52 percent a year ago while 44 percent said their situation was worse than six months ago.

It is the combination of less giving with other aspects of the economic crisis that is causing charities so much pain.

UK groups have been hit by a weak pound. Their overseas work is largely priced in dollars so their money buys less.

British charity Cafod said it had also lost 1 million pounds off its reserves because of lower interest rates.

“We don’t have extra resources to put in so the reality is some programmes have had to be scaled back,” said Tom O’Connor, Cafod’s director of communities and supporters.

“If things got worse, if the economy got worse and our income dropped, we’d have to pull out of particular countries.”

Cafod is facing a 10 percent budget shortfall next year and is making about 12 posts redundant in the UK and out in the field. Oxfam and World Vision have also cut staff.

At Christian Aid, there may be up to 90 redundancies as the charity faces a 7 million pound deficit for 2010-11. Its main shorfall came during an annual voluntary giving week in May.

Other organisations have been hit as some governments – Ireland and Italy for example – have slashed their aid budgets. Irish aid organisation Trocaire said in September it was cutting projects in nine countries because of a fall in state funding and a drop in donations.

Changing strategies

Afghan Aid, a UK-registered charity that works solely in Afghanistan, has had to lay off almost 150 staff over the last 18 months, close to a third of its work force, after the British government changed its funding strategy for the country and as donations have fallen.

“Come March next year, I know we’ll have to make more painful decisions on staff layoffs,” said managing director Farhana Faruqi Stocker.

The crisis is forcing charities to manage money more effectively, target new donors and think more strategically.

“We’ve had to revise our project fundraising strategy to focus more on local sources,” said Ridwan Gustiana, founder and director of Indonesian aid group, IBU Foundation.

Afghan Aid, despite the lay-offs, is recruiting a new member to its team to write proposals for donor funding.

Indian environmental charity SEEDS, meanwhile, says income has held up well as India has escaped the worst of the crisis, but it has changed tack, fundraising more aggressively with individuals and firms at home and relying less on overseas institutional donors.

Simon Wooldridge, Colombia programme manager for Mines Advisory Group (MAG), said the crisis “makes us more focused on the value added and which projects are making a difference”.

The last option for struggling agencies is to merge. Earlier this year, Interact Worldwide, a small British sexual health charity, merged with Plan UK after struggling to raise funding to match European Union grants it had received.

Britain’s Charity Commission is urging members to consider merging to stay afloat, while InterAction is helping members find ways to pool staff and resources and to identify whether the time has come to merge.

Source: Reuters