While USAID and the US federal government have been supportive of Negotiated Indirect Cost Rate Agreements (NICRAs), many other donors (World Bank, Gates Foundation, etc.) impose caps on indirect cost rates or restrict reimbursement for administrative support. They think doing so allows more funds to flow directly to beneficiaries. However, what these donors often overlook is that indirect costs are crucial for the long-term sustainability of these organizations.
Check out some of the insights uncovered by Humemtum:
- Most funders provide inadequate coverage of their grantees’ administration costs,
contributing to a starvation cycle with significant negative organisational impacts. - Inadequate cost coverage and limited access to unrestricted income is making it extremely challenging for most NGOs to achieve stable financial health.
- To stop trapping grantees in the starvation cycle and start building resilience, funders will need to provide: a) full cost coverage b) means by which grantees can contribute to unrestricted reserves and c) support to strengthen grantees’ cost recovery capabilities. MORE