[This post is part of a series on the future of think tanks in Africa.It addresses a key issue concerning their development: how will they be funded in the future, as more and more Aid moves to the poorest countries and assumes that middle income nations will take on the role to fund their own research themselves? This is also a subject of an ongoing series of posts on domestic funding.]
The issue of domestic funding is now firmly on the agenda for international think tank funders. We have put together a short Topic Page on the subject to guide a future series of posts. This, if you may, is a preview of the kind of work we will feature in it.
While visiting Kenya in June 2015 I came across a study by the Kenya Community Development Foundation (KCDF): Creating an enabling environment for philanthropy through tax incentives, written by Daisy Ogembo-Adongo and Sam Kamau.
For years, I have been arguing that international funders (and think tanks themselves) need to invest in this kind of research. Questions about context too often remain at the level of grand political assessments: is democracy good for think tanks? Yes, it is (but is not a condition for their existence -and think tanks themselves can actually be a bad thing for democracy. They rarely focus on economics or the details of the various laws that affect (different types of) think tanks.
To understand how to promote more domestic funding we need to understand the various barriers (and opportunities) for it. A study like this one is a good example of what could be replicated elsewhere, with a focus on think tank -although I do not think the results would be dramatically different.
Tax incentives (or disincentives) are often quoted as a barrier for mobilising domestic funding. Our experience suggests that many of these barriers are also found within think tanks themselves but this is nonetheless an important one.
Do local public benefit organisation (which we can change for think tanks from now on) view local philanthropy as an important source of funding?
Although the researchers found that the overwhelming view was that Kenyans are charitable, they struggled to find any organisation that was sustained (either fully or significantly) by domestic funds.
Giving is popular but organised philanthropy not so much. Philanthropy happens but at a very personal and micro scale. Also, people and even foundations are more likely to support food aid than research on how to reduce the need for food aid.
But philanthropists are also limited by a lack of information. Both at the level of individuals and larger foundations, they are unsure about how and whom to support beyond their families and immediate stakeholders. The structures and processes available to offer support are limited (if they even exist) and are not sufficiently trustworthy.
What is most important, however, is that organisations do not see domestic funders as a priority. They are perceived as being rather cost-ineffective.
Of course, we know that there are philanthropists (individuals and institutions) in Africa (and other developing regions) that support think tanks. But how much do we know about them, their motivations and what they have learned in the process?
Applied to think tanks, this finding suggests that a greater effort needs to be made to make their work and their contributions to society (and the changes that the few professional philanthropists would like to see) more visible. They will need to be more transparent, too, to attract this new funding. And will have to consider alternative funding mechanisms to match philanthropists’ expectations.
Efforts like the Premio PODER al Think Tank del Año (an annual celebration of think tanks’ positive contributions) can help to connect researchers with potential philanthropists. They can also help think tanks to present their contributions to society in ways that may be easier for philanthropists to understand.
Similarly, we could consider efforts to showcase good philanthropic practices to show the positive contribution that domestic funding can make on think tanks’ missions. This may convince more organisations to more actively pursue different funding models.
Are recipients interested in applying for tax exemption certificates?
The answer that the researchers arrived at: No, not really.
Not many organisations seem to know about the tax exemption certificate in the first place, while others know about it but choose not to apply. The study found that tensions between the government and human rights, democracy and social justice organisations can help to explain this. These organisations rather not demand too much from the government in case they were to notice them and make things harder for them to function. Better to keep their heads down and focus on retaining their foreign funders.
Furthermore, those who have applied for a tax exemption certificate may have to wait a year for a reply, as the average waiting time ranges from one to two years and involves a process that is:
difficult, time consuming, involving and strenuous.
Here the implication for think tanks depends on whether or not they are taking advantage of the incentives provided. But it could suggest that, as a whole, this is an issue that ought to be considered as central to their research agenda.
In the end, most philanthropic money will not benefit them; instead, most of it is destined to reach NGOs providing services directly to the poor. So taking on the challenge to change the law or improve its implementation ought to be a public service and a worthwhile policy objective for think tanks
An effort that their international funders, should certainly support.
Do tax incentives motivate organisations and individuals engaged in local philanthropy?
Across the world, tax incentives to encourage charitable donations tend to work, not only for the economic incentives, but, because they provide recognition and respect by the government (and society) to those who donate.
However, as we’ve seen above, mistrust between government and CSOs, or the excess of red tape can effectively create significant barriers to domestic funding.
The study found that tax deductions would encourage donors to give significantly more than they currently do. However, many donors do not even know how to take advantage of the incentives offered by the law and those who do are discouraged by government bureaucracy.
The same forces that limit organisations’ uptake of this opportunity work against donors’ interest in taking advantage of it: bureaucracy, distrust, lack of information.
Invest in philanthropic capacity alongside research and policymaking capacity. This is a part of the system that has been left out from every initiative directed at supporting evidence informed policymaking. Both so-called “supply” projects and “system” initiatives have forgotten the role of two key players: boards and patrons, sometimes the same but not always.
Supporting existing philanthropic foundations or individuals as well as working to nurture new generations of philanthropists ought to be a priority of these efforts.
Think tanks themselves could do a lot more, too.
What can be done about it?
Besides the recommendations I’ve offered above, the study introduces a series of strategies aimed at increasing the supply and demand side of the philanthropic sector in Kenya:
- The authors argue that philanthropy is motivated by passion for a cause, and not only for economic reasons, and therefore tax incentives have to go hand in hand with non-tax incentives. In other words, think tanks would have to argue their cases on their own merits and add the tax incentives as the cherry on the top. But, in addition, foreign funders could help by praising their domestic peers more often than they do.
- A better understanding of non-tax incentives needs to be developed. These include:
- Charitable legacies that appeal to people’s desire to “leave a mark”;
- Better use of information and communications technology to facilitate giving for certain causes including, for instance, using MPESA or other mobile or web based funding mechanisms such as crowdfunding tools;
- Enhancing the credibility of the recipients, possibly by increasing their visibility and improving their communications;
- Generating collaborations and partnerships with government and other charitable organisations to enhance their own fundraising capacity;
- Increasing awareness and strategic campaigning on the issue of philanthropy.
- Tax incentives can be strengthened too:
- By enhancing efficiently at the Kenya Revenue Authority (KRA) through research and advocacy;
- Improving the relationship between KRA and civil society organisations through shared fora and events; and
- Taking the steps to acquire a Tax Exemption Certificate. In other words, they should test the system by using it.
The implications for think tanks
The implications for think tanks could be divided into two long term (and into the future looking) efforts:
New research for Policy influence
Firstly, they ought to try to use the law as far as it will go. Some will certainly be able to take advantage of it. This means combining tax incentives with non-tax incentives to attract domestic funding.
In the future, think tanks offering good value for money to their funders will be able to mobilise the few available domestic funds. But they will certainly have an edge over others.
Secondly, they ought to consider this a researchable topic and see to improve the tax system to make it easier for all charities to access funds from local philanthropists. Researchers are not likely to benefit from this in the short run; the first to gain will be very local NGOs and some other more public ones. But research and think tanks will benefit in the long run. Charities will be able to fund their work and philanthropists will eventually turn to them.
The implication for research funders is obvious: fund more research on domestic philanthropy!
Think tanks need to begin to use any opportunities that do exist to prepare the ground for the future. Even if it will take a few years to receive be certified for a tax exemption, they ought to get going.
They ought to develop lines of work that could be easily funded by current or potential philanthropists, too. Paid-for newsletters, for example, can provide think tanks with an income stream as well as an opportunity to establish a relationship with private sector funders. Consultancy projects for the private sector (e.g. many think tanks have boosted their incomes undertaking social or environmental impact assessments for extractive industries) could be turned into long term cooperation efforts that may transition into a grant making model. But none of this will happen unless they plan for it.