Financing Development in Southeast Asia

Opportunities for Collaboration and Sustainability

The Synergos Institute

How can foundations in Southeast Asia increase their financialviability and in turn meet their critical missions to alleviatepoverty, conserve natural resources, and create social change?How can international funders and aid agencies contribute toincreasing resource flows to local foundations in the region?What are the benefits of such partnerships?

The case studies and perspectives collected in this book set outto provide answers to these questions as well as to spark dia-logue on what are sometimes contentious issues. The authorsspeak to the dynamics of the foundation movement inIndonesia, the Philippines, and Thailand; the historical rela-

tionships between international aid agencies and local founda-tions in these countries and future possibilities to enhance suchrelationships; and the opportunities to mobilize funding forlong-term development.

This book will be of value and interest to foundation profes-

sionals, international donors, policymakers, and all who areinterested in understanding the complex dynamics of financingdevelopment in Southeast Asia and other regions of the world.

SynergosThe Synergos InstituteMain Office9 East 69th StreetNew York, NY 10021 USATel +1 (212) 517-4900Fax +1 (212) 517-4815synergos@synergos.orgwww.synergos.orgwww.globalphilanthropy.info

endowments

financial sustainability

Thailand

earned income

official development assistance

debt swaps

Indonesia

corporate philanthropy

social investment

civil society

the Philippines

foundations

grantmaking

lending

FinancingDevelopment in Southeast Asia

Southeast Asia Regional OfficeRm. 207 - Center for Social Policy & Public AffairsSocial Development ComplexAteneo de Manila UniversityLoyola Heights, Quezon City 1108The PhilippinesTel +63 (2) 426-6001ext 4647Fax +63 (2) [email protected]

Financing Development in Southeast Asia


Financing Development in Southeast Asia

Produced by The Synergos Institute with support from The Sasakawa Peace Foundation

With contributions from

Ernesto Garilao Eugenio M. Gonzales Ismid Hadad Rustam IbrahimConsuelo Katrina A. Lopa Sarah MaximSuzanty SitorusGary Suwannarat Gil Tuparan David Winder

Edited by Natasha Amott

© 2003 The Synergos Institute9 East 69th Street, New York, NY 10021 USATel +1 (212) 517-4900, Fax +1 (212) [email protected], www.synergos.org

Permission is given to copy and/or distribute material from book inprint for non-commercial purposes provided that Synergos is sent acopy of the material, appropriate credit is given on the material toSynergos and the author of the excerpted material, and the followingnotice is included on all copies:

Excerpted from Financing Development in Southeast Asia:Opportunities for Collaboration and Sustainability© 2003 The Synergos Institute – www.synergos.org

Synergos reserves the right to revoke such permission to copy and/ordistribute material from this book at any time, and any such use shallbe discontinued immediately upon notice from Synergos.

Commercial use or reproduction of any part of this book is prohibitedwithout written permission from Synergos.

Book design and typesetting by John Tomlinson. Printed in thePhilippines by Art Angel Printshop.

ISBN 0-9747097-0-0

ContentsList of Acronyms vii

Preface ix

1 Introduction: The Quest for Financial Sustainability, Natasha Amott 1

2 Options for Financial Sustainability: Collaboration BetweenCivil Society and Development Agencies in Southeast Asia,David Winder 19

3 Unfinished Business: ODA-Civil Society Partnerships in Thailand, Gary Suwannarat 57

4 The Rise of Philippine NGOs in Managing Development Assistance, Consuelo Katrina A. Lopa 81

5 Building and Managing Endowments: Lessons from Southeast Asia, Eugenio M. Gonzales 99

6 Corporate Resources for Local Development in the Philippines: The Jaime V. Ongpin Foundation, Inc.,Ernesto Garilao & Gil Tuparan 125

7 Building an Endowment for Biodiversity Conservationin Indonesia: The Case of KEHATI, Sarah Maxim, Ismid Hadad & Suzanty Sitorus 151

8 Earned Income for Financial Sustainability in Indonesia: The Dian Desa Foundation, Rustam Ibrahim 175

Author Biographies 197

Profiles of Foundations in Case Studies 205

About Synergos 211

F I N A N C I N G D E V E L O P M E N T I N S O U T H E A S T A S I A

List of Acronyms

AusAID Australian Agency for International Development

BC Benguet Corporation

CEP Community Empowerment Program

CIDA Canadian International Development Agency

CODE-NGO Caucus of Development NGO Networks

DCF Development Cooperation Foundation

DOH Department of Health

FSSI Foundation for a Sustainable Society, Inc.

FPE Foundation for the Philippine Environment

GAGRP Grant Assistance for Grassroots Projects

JICA Japan International Cooperation Agency

JVOFI Jaime V. Ongpin Foundation, Inc.

KEHATI Indonesian Biodiversity Foundation (YayasanKeanekaragaman Hayati Indonesia)

KIAsia Kenan Institute Asia

LDI Local Development Institute

NGO non-governmental organization

ODA official development assistance

PDAP Philippine Development Assistance Programme

PO people’s organization

SDC Swiss Agency for Development and Cooperation

USAID United States Agency for InternationalDevelopment

vii


viii

Preface

As a native and resident of Southeast Asia, I am proud of my heritage.As I think those who have lived or worked here would agree, theregion is singularly unique for its tremendous diversity reflected inthe people, cultures, religions, environments, and political systems.This diversity has contributed to a rich collection of human, natural,and socio-cultural resources. However, these resources are facing thethreat of unsustainable use and eventual depletion. Far too many chil-dren and families are living in poverty. It is a poverty that manifestsitself in different ways – from meager livelihoods to natural habitatdestruction to weakened chances for democratization.

In this context, The Synergos Institute began working inSoutheast Asia in 1997. We initially set out to understand the oppor-tunities within civil society to mobilize resources for community andnational development. Since then, we have moved from research toaction by forming partnerships with emerging and existing indige-nous foundations to strengthen their capacities and together catalyzenew opportunities to bring about social change. This reflectsSynergos’ mission to develop effective, sustainable, and locally rootedsolutions to poverty in which we believe local foundations are critical.

The activities we conduct with our partners in Southeast Asia drawon both experience and knowledge from within the region as well asexpertise from over a decade of work strengthening foundations inAfrica and Latin America. Our hope is that over time these partner-ships will realize increased human, financial, and social resources toput toward decreasing poverty and increasing equity in the region.

ix

This book represents the culmination of many of these efforts andwe owe its production to the support of the Sasakawa PeaceFoundation, especially the support of Akira Iriyama, Takahiro Nanri,Kaori Kobayashi, and Yayoi Tanaka. Synergos has had the great priv-ilege of collaborating with the Sasakawa Peace Foundation since wefirst began working in Southeast Asia. The foundation’s generoussupport has helped further understanding of the dynamics of localcivil society organizations and their quest for financial sustainabilityduring a time characterized by economic crisis but also flourishingideas and changes that ring of great promise.

I hope that our efforts, and this book particularly, provide not onlyinsights but spark dialogue among local foundations, aid agencies, andothers to develop more ideas on how to successfully finance develop-ment in the region.

In addition to the staff of the Sasakawa Peace Foundation, severalother individuals and organizations need thanking for their generos-ity of time and spirit with which they dedicated themselves to thisproject. These include all the authors (Ernie Garilao, EugeneGonzales, Ismid Hadad, Rustam Ibrahim, Consuelo Katrina Lopa,Sarah Maxim, Suzanty Sitorus, Gary Suwannarat, and Gil Tuparan);staff of KEHATI, the Jamie V. Ongpin Foundation, Dian Desa,Foundation for a Sustainable Society, Inc., Foundation for thePhilippine Environment, the Local Development Institute,Philippine Development Assistance in the Philippines, the JapaneseEmbassy in Manila, the Japan International Cooperation Agency inJakarta, the Canadian International Development Agency in Ottawa,Manila, Bangkok, and Jakarta, and the United States Agency forInternational Development in Manila; and my colleagues at Synergos,David Winder, Natasha Amott, John Tomlinson, and John Heller, fortheir dedication and unwavering vision in compiling, reviewing anddesigning this book.

Thanks also to LP3ES in Jakarta and the Center for Philanthropyand Civil Society in Bangkok for their translation efforts and theauthors of previous research for Synergos who originally surfacedmany of the themes in some of the chapters (Alan Alegre, Milo Casals,Angelita Gregorio-Medel, Antonio Quizon, and Dr. PimjaiSurintaraseree).

Each of the chapters is available as individual papers. In Indonesia,LP3ES has produced versions of Chapters Two and Five in Bahasa


x

Indonesia, and in Thailand, the Center for Philanthropy and CivilSociety has produced versions of Chapters Two, Three, and Five inThai language.

– Ma. Gisela T. Velasco, Regional Director, Southeast Asia The Synergos Institute, Manila

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Chapter 1Introduction: The Quest for

Financial SustainabilityBy Natasha Amott

T H E Q U E S T F O R F I N A N C I A L S U S T A I N A B I L I T Y

1

Foundations in Southeast Asia

Slowly, a portrait of Southeast Asia’s organized philanthropic sector isemerging. And the numbers behind this picture are very enlightening.Surveys conducted by The Synergos Institute of the small number offoundations in the Philippines, Thailand, and Indonesia reveal that asignificant sum of funds is in fact being channeled through suchorganizations. In the Philippines, 56 indigenous foundations madeapproximately US $10.5 million in grants and loans to non-govern-mental organizations (NGOs), community-based organizations, andindividuals in 2000. In that same year, 30 local Thai foundationsgenerated a total of approximately US $3 million in financial assis-tance and some 25 foundations in Indonesia disbursed about US $8million.

While these surveys highlight the significant contributions thatfoundations are making to the development of the region, furtherinformation gleaned from the surveys reveal the fragile nature of thefoundation sector there. Investigation reveals that organized philan-thropy in Southeast Asia is still in its infancy and foundations facelong-term fundraising challenges. One major challenge is to increasethe flow of funds from local sources, while still taking advantage ofopportunities to partner with international organizations in mutuallybeneficial funding arrangements. Another challenge is to build longterm financial sustainability of foundations, regardless of fundingsource. The 2000 surveys referred to above indicate that a majority offunds received by indigenous foundations come from overseassources, namely official development assistance (ODA) agencies. InIndonesia and the Philippines, 65 and 57 percent of funds, respec-tively, were from international sources. Domestic revenues in thethree countries are largely derived from government contracts, corpo-rations, and some earned income.


2

Within this context, this volume explores a range of strategies forincreasing the flow of resources to the foundation sector, with partic-ular reference to the Philippines, Indonesia, and Thailand (althoughmuch of what is presented here is applicable to other Southern coun-tries with a still developing foundation sector). The current develop-ment milieu is ripe for innovation as many foundations in the regionseek out new opportunities to increase their resources and impact.Foundations are beginning to build permanent endowments and areexploring market-driven mechanisms to cover the costs of carryingout their social missions. They are also beginning to realize multipleways of engaging with ODA agencies to leverage their assets.

With this collection of essays and case studies, Synergos is chal-lenging all support organizations including private donors and ODAagencies, to focus attention on how we can significantly increase thefinancial resource flows to civil society organizations (and foundationsin particular) fighting poverty and inequality. The challenge also goesout to foundations to explore how they can take advantage of theexperiences described in this volume to enhance their own financialviability and potential impact. The following chapters offer a glimpseof what’s possible should sufficient commitment and creativity beharnessed.

Overview

In this introductory chapter I will briefly explore six themes that cutacross the authors’ work and that may be focal points for ensuingdiscussions. Before doing that, however, a brief overview of the chap-ters is required.

Chapter Two, by David Winder, proposes a range of options forODA agencies seeking to engage more effectively with a range of civilsociety organizations in addressing development challenges. It pres-ents a strong argument for ODA agencies to channel more resourcesto development activity through existing or new local development orenvironmental foundations.

In Chapter Three, Gary Suwannarat takes the reader to the specificcase of Thailand’s experience with ODA-civil society collaboration.She explores the potential for further ODA flows to NGOs and foun-dations in the country in the context of diminishing ODA supply.


3

Chapter Four, by Consuelo Katrina A. Lopa, explores the rise ofPhilippine NGOs in managing ODA and considers new challengesand opportunities for NGOs and ODA agencies moving forward.

The focus of the remaining chapters is on exploring additionalmechanisms that foundations can apply to raise financial assets. InChapter Five, Eugene Gonzales presents a general overview of the useof endowments for achieving sustainability based on case studies offour foundations in the region.

Chapter Six by Ernie Garilao and Gil Tuparan presents the endow-ment-building experience of the Jaime V. Ongpin Foundation, Inc.(JVOFI), a foundation formed with corporate resources in thePhilippines. It discusses how this organization created, expanded, andmanaged its endowment fund, including the challenges it continues toaddress and the success factors that other foundations could poten-tially incorporate into their fundraising strategies. Chapter Seven bySarah Maxim, Ismid Hadad, and Suzanty Sitorus presents a differentexperience in endowment building through the story of theIndonesian Biodiversity Foundation, or KEHATI, which was estab-lished with an initial endowment of US $16.5 million, provided as agrant by the United States Agency for International Development(USAID).

And finally, Chapter Eight by Rustam Ibrahim turns to the strategyof earned income, examining how the Dian Desa foundation inIndonesia has been generating nearly 40 percent of its annual budgetthrough a for-profit business in order to support its social mission.

Lessons Learned

Several issues cut across the following chapters and I would like tohighlight six of these that together form a framework for thinkingabout options for financing development in Southeast Asia.

First – and this is an assumption that the book admittedly beganwith – of all the types of civil society organizations, indigenous foun-dations are thought to be a highly effective vehicle for building long-term financial assets for development. Second, building permanentfinancial assets in the form of an endowment may be advantageous forachieving long-term growth and sustainability. Third, while the over-all volume of development assistance from ODA agencies may be


4

falling in the region, there may still be a range of opportunities forcontinued ODA-civil society collaboration. Fourth, the value ofearned income in building sustainability needs to be considered andtapped more, where appropriate. Fifth, there may be opportunities toleverage the financial assets of foundations in more creative ways.While much more thinking needs to be done in the area, some initialideas are proposed here. Finally, the ability of foundations in the threefocus countries to build long term financial sustainability may behindered by a number of factors, including complex decision-makingprocesses at ODA agencies, weak enabling environments for organ-ized philanthropy, lingering mistrust of NGOs and foundations, andquestions of adequate capacity within civil society organizationsgenerally.

1. Foundations as Effective Bridging Institutions

A premise of this book is that indigenous foundations are appropriatevehicles to build assets, financial and otherwise, for development.When The Synergos Institute began conducting research on thistopic in Southeast Asia in 1997 with the support of the SasakawaPeace Foundation, the indigenous foundation was an obscureconcept. Today, there is much greater familiarity with the idea.

Like their counterparts in countries as far widespread as LatinAmerica, Canada, and Eastern Europe, foundations in Southeast Asiahave shown the capacity to successfully bridge divides betweencommunities and resources (financial, intellectual, human, and other).Although the number of such bridging organizations remains small,they are nevertheless helping to support, strengthen, and sustainthousands of small and large civil society initiatives. These organiza-tions are distinct from NGOs because, as bridging organizations, theytend to share the following characteristics:

First, they mobilize and facilitate the transfer of financial resourcesfrom both local and international sources to NGOs and community-based organizations in their country or region. These organizations inturn are directly working to effect positive change in pressing areassuch as rural development, economic inequality, women’s reproduc-tive health, and environmental conservation.

Second, by building permanent endowments and executing stronggrantmaking or lending programs, foundations can become a self-


5

Indigenous foundations

have the potential to

bridge divides between

communities and finan-

cial, intellectual, human,

and other resources

sustaining and long-term domestic funding resource for developmentactivities.

Third, foundations often provide community leadership in impor-tant community and national dialogue, often by advocating on behalfof those who are more marginalized.

Fourth, foundations assist in testing and scaling up poverty-focused strategies.

Achieving a common name for such organizations across countriesand multiple contexts and languages has not yet been achieved(although these characteristics are emblematic of foundations in otherparts of the world too; see Schearer 1997 for more on their rolesgenerally.) Most often, and in this book, they are referred to as “foun-dations” or “community development foundations” in recognition ofthe roles they have in common with foundations in the United States,Canada, and parts of Europe. In Southeast Asia, the term “civil soci-ety resource organization” – or “CSRO” – has also been used. Thelack of an adequate “label” notwithstanding, the functions detailedabove do exist in organizations across several countries and makestheir experiences all the more important to understand further.1 Thegrowing universe of such organizations in Southeast Asia is onlybeginning to be systematically studied.2 (In Chapters Two throughFour, the term “NGO-managed funding mechanisms” is used to referto NGOs or foundations managing ODA funds.)

2. Sustaining Permanent Assets

Throughout this volume we present diverse examples of endowmentcreation and management. An endowment is a collection of fundsmanaged by an organization for the charitable purposes specified bythat organization’s governing body and donors. The funds areexpected to remain intact either in perpetuity, for a defined period oftime, or until sufficient assets have been accumulated to achieve adesignated purpose. It is expected that the size of the endowment willincrease over time and that it will provide regular income over thelifetime of the organization.3

An increasing number of civil society leaders in Asia are now gain-ing direct experience in the creation, management, and growing ofendowments. In the Philippines, most endowments have beensourced from corporate contributions or ODA funds; a smaller


6

1 Of course, this is not tosuggest that operatingNGOs and foundationsare the only two kinds oforganizations that repre-sent civil society. In fact,civil society in SoutheastAsia tends toward a richarray of institutions thatinclude media, academia,and other types of organi-zations.

2 In February 2002, TheSynergos Institute andPhilippine Business forSocial Progress co-hosteda conference for SoutheastAsian CSROs in Patthaya,Thailand. The two majorthemes of this event werefoundation accountabilityand sustainability. In manyways, the discussion thatensued there is reflectedin the chapters collectedherein.

3 The Ford Foundation hasproduced an excellentprimer on endowments.

number have been built from earned income and the levying of feesfor services. Comparatively fewer organizations in Indonesia andThailand have formed endowments.

Depending on an endowment’s size and skills with which it isinvested, the interest earned on an endowment can enhance theautonomy and security of a foundation, thus freeing up more stafftime to focus on long-term planning and program development. Forexample, while JVOFI (Chapter Six) existed for 11 years before itsendowment was established, the foundation’s management prudentlychose to establish one because the corporation could not guaranteethat it would always be able to transfer funds to the foundation.Moreover, the presence of an endowment has meant that JVOFI hasbeen viewed as a credible actor by other international donors and hasenabled it to leverage resources. In Indonesia, KEHATI’s sizableendowment (Chapter Seven) has enabled it to focus on developingstrong institutional systems and strategic programs without having tobe overly consumed by fundraising activities.

At the same time the chapters reveal three critical lessons. First, asthe case study on KEHATI argues, it may not always be easy to finddonors willing to give to an endowment, especially in developingcountries. It is difficult to convince donors that it is more prudent toinvest for tomorrow when there is still a significant poverty gap to filltoday. KEHATI has learned that communicating about its endow-ment needs to be fundamentally linked to the potential impact to begained by the foundation’s efforts. As Gonzales reminds the reader inChapter Five, “endowments will be measured not in financial or proj-ect terms but in terms of their impact on a society’s environment,health, poverty, and overall development."

On the flipside, the cases suggest that foundations need to decidehow much priority to give to building an endowment at a givenmoment in time. They have to consider the opportunity costsinvolved and recognize that it is likely to take many years before theendowment is large enough to cover a significant proportion of insti-tutional costs.

Finally, these chapters remind us that an endowment is not apanacea for everything financial. In fact, as these chapters demon-strate, fundraising is ongoing and a strategic plan needs to be in placeto not only manage the fund’s investment portfolio but also to bringin new funds. KEHATI withstood a fall in its investment portfolio of


7

Planning for financial

sustainability can

include sustaining

permanent assets

through the building of

an endowment

US $5 million in market value between 2000 and 2002. This experi-ence taught KEHATI staff that a broad interpretation of financialsustainability is important, as an endowment itself cannot necessarilyprovide for all existing or future needs.

3. Collaborating with Official Development Assistance

As argued by Winder in Chapter Two, in recent efforts to increase theimpact of bilateral aid on poverty, inequality, and injustice inSoutheast Asia, ODA agencies have sought ways to directly supportcommunity level initiatives. In part, this has been a result of dissatis-faction with the failure of many governments to effectively allocateODA. Winder describes the ODA-civil society collaborativeapproaches adopted in Southeast Asia as ranging “from ad hoc smallgrants programs directly managed by ODA agency staff in country tocarefully crafted strategies that seek to build strong civil society-managed funding institutions that are sustainable…” Based on caseshe explores, he argues that more impact has been achieved throughthe latter vehicle because it is under this scenario that the greatestlevel of decision-making and financial sustainability passes to a civilsociety organization (most commonly to a foundation via an endow-ment).

In early 2003, The Synergos Institute hired an outside evaluator toassess the impact of earlier work we had been doing to promoteincreased ODA flows to civil society in Southeast Asia. Among theresponses was one from an ODA agency official who argued thatsupporting indigenous foundations may not be an appropriate vehiclethrough which to channel ODA because it adds an additional layer ofadministration that in the end increases the costs of reaching commu-nities. As pointed out in a recent article in Alliance by Kingman (June2003), however, this may be the case if intermediary organizations likefoundations are only seen as adding value for the purpose of transfer-ring funds. If, however, they are seen as adding value in other areas,such as providing capacity building services to grassroots organiza-tions, speaking out on behalf of small NGOs and community basedorganizations, or engaging the private and public sectors in the workof civil society, then channeling funds to local foundations is not anunrewarding investment.


8

Channeling ODA

funds through local

foundations may be a

rewarding investment

for foreign governments

It is critical to ensure, however, that foundations have sufficientcapacity to absorb and channel these funds in the most strategic ways.The importance to development agencies and others of workingincreasingly with intermediary organizations that are able to bridgebetween the demand coming from initiatives on the ground and thesupply of development finance is increasingly a topic of internationaldevelopment fora (see, for example, the International Institute ofEnvironment and Development’s collection of essays prepared for theWorld Summit on Sustainable Development and UN Conference onFinancing for Development, both held in 2002).

While Chapters Three and Four present somewhat contrastingrealities of ODA-civil society collaboration in Thailand and thePhilippines, an underlying recommendation in both is that civil soci-ety (and I would argue foundations in particular) and ODA agenciesneed to be in an ongoing dialogue with the goal of creating strategicpartnerships. On the part of NGOs and foundations, this necessitatescreating a research capacity to demonstrate to recipient and donorcountry governments that endowed foundations serve the publicgood. In the case of potential debt swaps, one strategy is to form anNGO or civil society task force to explore debt swap or debt forgive-ness options and work with creditors and debtors to develop concreteproposals. International NGOs can play a helpful role in mobilizingpublic support for debt swaps and even raising the foreign exchangerequired for debt buy-back.4

As the first section argues, in order to pursue the debt swap optionsuccessfully or to work with ODA agencies in any capacity, the follow-ing areas of research and action are important to resolve: identifyinga high-priority field of interest to a donor government and ODAagency; ensuring a favorable policy environment (in both donor andcreditor countries); having “champions” on both sides to rally supportfor the idea; having a legal entity that can receive and manage fundsand is acceptable to the donor; and ensuring that there is a significantsource of funds available (either “one-off” funds or contributions overtime). In addition, a high-level mandate on the donor side needs toexist in order to channel funds to a particular issue. Often this mayhappen after an international treaty or declaration has been signed,such as the Tokyo Declaration, which set the scene for US-Japanintergovernmental cooperation on the environment in Indonesia (andin turn led to the formation of KEHATI’s endowment).


9

4 Both Indonesia and thePhilippines are on the listof 78 debtor countriesthat signed an agreementwith Paris Club creditors(www.parisclub.com). TheParis Club is an informalgroup of official creditorswhose role is to find co-ordinated and sustainablesolutions to the paymentdifficulties experienced bydebtor nations.

4. Earned Income Potential

Clearly, foundations that receive funds from a single donor, especiallywhen they’re not in the form of an endowment, can leave a founda-tion highly vulnerable. Foundations and NGOs are increasinglyrecognizing that earned income from the sale of products, services, orintellectual property can be an additional source of operational fund-ing that complements other fundraising tactics while helping to buildorganizational sustainability. Having discretionary funds from earnedincome allows a foundation to invest in programs for which it isotherwise difficult to raise donor funds. These may be activities thatpotential donors perceive to be higher risk.

The surveys referred to earlier reveal the following statistics onearned income revenues. In the Philippines, earned income accountedfor an average of 22 percent of all income from domestic sources in2000; in Thailand, it was approximately 10 percent; and in Indonesiait averaged about 33 percent. In the case of JVOFI (Chapter Six), thesale of training and consulting services to government agencies andNGOs generates earned income and the foundation charges amanagement fee for implementing projects for Benguet Corporation,the company that created the foundation.

Chapter Eight reveals the most on earned income, however, byproviding a case on Dian Desa’s experience in generating income forits own programs in Indonesia. One of its most successful projects todate has been the manufacture of leather goods made from the skinsof stingray fish, formerly considered a waste product. This caseprovides a glimpse of what is possible through social entrepreneur-ship. In recent years, Dian Desa has consistently raised 35 to 40percent of its US $1.3-1.4 million annual budget from earned incomeactivities. The social mission of the foundation is fundamentallyassisted and supported by its profit generating work as evidenced bythe fact that fishermen’s incomes have increased from selling stingrayskins to Dian Desa. What’s more, Dian Mandala, the for-profit entitycreated by Dian Desa to manage the business, now provides employ-ment to over 50 people and gives priority to hiring and trainingpeople with disabilities who might not be able to find employmentelsewhere.

Of course, foundations may be taking a gamble in trying to gener-ate earned income. A significant investment of capital, time, and effort


10

Foundations and NGOs

are increasingly

recognizing that earned

income from the sale of

products, services, or

intellectual property can

be an additional source

of operational funding

that complements other

fundraising tactics while

helping to build organi-

zational sustainability

must be made in order to identify an important market niche in whichan organization can be competitive. It requires drawing on private-sector expertise within the organization’s network of board, staff, andvolunteers in order to identify and implement an appropriate businessplan. At the same time, carrying out earned income activities can alsomean directing scarce resources away from the pressing social agendaof the organization. Moreover, simply earning income does not guar-antee financial sustainability for an organization. It is perhaps notsurprising then that few foundations around the world have takensignificant advantage of market approaches to earning income(Morales, Jr., 1997, provides an excellent overview of the considera-tions involved in practicing earned income as a fundraising strategy.)

In Dian Desa’s case, several critical elements were pursued by thefoundation in order to realize profits. These included: identifying anas yet untapped market niche for products made from stingray skins,a raw material that had been discarded as waste previously; fullyunderstanding how to market the products; maintaining two organi-zations, one for profit-generating activities and one for nonprofitactivities in order to avoid conflicts in business plans and remunera-tion scales; and investing the foundation’s savings in order to conductinitial experiments in skin-processing technology and product design.In great part, Dian Desa’s success in earned income is owed to the factthat these activities mirror the core competencies, or comparativeadvantage, of its nonprofit work, which are two-fold. First, it developscommunity development programs by working closely with targetpopulations in the process. Any income generating activity shouldhave a direct link to this process. Second, all activities should rely onthe application of “appropriate technology,” meaning technology thatis easy to develop, maintain, and replicate, both for Dian Desa’s staffand its target populations.

5. Leveraging Assets

A number of the chapters implicitly draw attention to the fact thatfoundations need to think more creatively about how to leverageadditional funds for projects and organizations they want to support.The case study on JVOFI (Chapter Six) and the endowment analysispaper (Chapter Five) suggest some strategies that other foundationsmay be able to apply in leveraging the assets of their current endow-


11

ment. In the Philippines, JVOFI officials believe that they have beenable to “virtually” leverage the value of the foundation’s endowmentby ten times over the course of the last ten years by establishing fund-ing partnerships with government, NGOs, other donors, and people’sorganizations. By putting some of its own savings on the table, JVOFIhas had the clout to approach other donors to form funding partner-ships. In Chapter Five, Eugene Gonzales argues that foundation staffneeds to focus on more than just increasing the size of endowments.Efforts need to be directed toward using existing funds as a lever tosecure other programmatic funds that can go directly to groups orprojects.

In cases of foundations with existing endowments, Chapters Fiveand Six speak to other options that foundations have to leverage theseassets. Loan programs, for example, can be used to support incomegeneration activities on a full cost-recovery basis in order to ensurethat interest payments can be an additional source of funds for anendowment. In JVOFI’s case, the transfer of some loan repaymentincome into the endowment doubled the fund and it jumped from US$220,000 in 1994 to US $520,000 in 1995. Initially, however, JVOFIhad a very poor rate of loan collections which staff attributes to beinga result of not focusing on this as a strategy to add to its permanentassets. An increasing number of foundations are looking to loanprograms as a way of increasing their impact and generating addi-tional income. As Lopa writes in Chapter 3, “Earlier funding mecha-nisms [from ODA agencies] focused on providing grant assistance,which limited the potential beneficiaries as well as the life of themechanism. Increasingly, there has been a real demand for loans,credit facilities, loan guarantees, equity investments, which canincrease the number of potential beneficiaries and even increase thevalue of the fund."

6. A Complex Reality

While the following chapters contain advice and examples for strate-gies to adopt and opportunities to take advantage of, they also high-light challenges to be aware of in developing a diverse and effectivefundraising strategy.

One challenge is that decisions made regarding the allocation ofODA funds, traditionally an important income source for foundations


12

Foundation staff can use

existing funds as a lever

to secure additional

programmatic funds

from other donors

in the region, are influenced by a range of considerations, only someof which pertain directly to the perceived capacity of an organizationto use ODA funds efficiently. Donor country policies factor in issuessuch as the status of current political relations with creditor countries,peace and security concerns, creditor government negotiation strate-gies on debt swaps, and global economic trends. Foundations seekingODA funds need to be fully aware of the range of interests and moti-vations affecting ODA aid policies.

A second challenge lies in the fact that while the enabling envi-ronment for giving has improved in some countries in Southeast Asiain recent years, a culture of giving to organizations beyond religiousinstitutions is little developed.5 What’s more, with tax avoidance stilla problem in some countries, tax incentives do little to influence thedecisions of the wealthy on their philanthropic contributions.

Third, NGOs and foundations are neither fully understood norentirely trusted by the government and business sectors in SoutheastAsia. In Chapter Three, Gary Suwannarat argues that there is a chal-lenge as yet unmet by Thai civil society to strengthen public under-standing and acceptance of NGOs (and by association, foundations)and their roles in society. A recent survey in Bangkok pointed out thelow opinion that society generally holds of NGOs, ranking as they didat the low end of the spectrum just above the police and media. Whilesome political manipulation to thwart the best intentions of NGOsmay be responsible for the survey’s results, Suwannarat argues thatthere is an undeniable pressure on civil society to demonstrate thatthey do not exist solely to advocate against government but in factdesire to create more economic opportunities for the masses, amongstother needed actions. She writes that, “the state of civil society inThailand appears less robust than it did during the same periodsurrounding the 1997 promulgation of the constitution.” She goes onto argue that most civil society efforts are addressing village levelneeds and not taking advantage of opportunities to bring aboutnational policy and regulatory change. In Indonesia, foundations arestill figuring out how best to position themselves given that the termyayasan (“foundation” in Indonesian) became somewhat tainted in thepublic’s eyes under the rule of former dictator, Suharto, who, alongwith his family and cronies, has been accused of using foundations tolaunder money.


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5 Despite the fact thatpoverty levels remain highin Indonesia (after hover-ing around 25 per cent ofthe population in 2001,following on the heels ofthe Asian financial crisis),there are organizationsmeeting with somesuccess in raising fundsfrom the public. DompetDhuafa (www.dompetd-huafa.or.id) is one suchorganization that raisesmoney via zakat (obliga-tory donations onmonthly earnings), directmail, media campaigns,and other means. In 2001,it raised nearly Rp18,000,000,000 (approxi-mately US $2.1 million).

Finally, in as much as foundations – and the NGOs they support –need the partnership and support of other sectors and internationaldonors to help build their financial sustainability, they also need toachieve strong organizational capacity. This includes enhancing skillsto reach out effectively to donors, manage funds well, communicatewith the public, and establish long term funding partnerships withdonors, including ODA agencies. Although there are many differentkinds of foundations now operating in Southeast Asia, most are quitesmall, with limited assets and little capacity to manage endowments.What is really critical is that foundations have opportunities as well assupport to engage in capacity building of their own systems and insti-tutions.

In the Philippines, the work of the Philippine Council on NGOCertification (PCNC) has been instrumental in setting NGO andfoundation professional standards, thus improving the capacity oflocal foundations’ ability to manage their business with prudence andgood judgment. To date, PCNC has evaluated 445 organizations; 357have been certified so far and a number are taking the necessary stepsto comply. With the flourishing of organized civil society in Indonesiain the wake of Suharto’s fall from power, efforts have now been devel-oped to build a similar set of rigorous standards for enhancedaccountability and transparency.

International donors can support capacity building by allocatingpart of their resources to institutional development of the foundationsthey’re seeking to support or channel funds through. McCarthy(2002) makes a plea for this in Indonesia, arguing for donors to“support the building of both management and delivery capacities ofcivil society organizations, but in a judicious and targeted manner.”He also argues for donors, particularly international donors, to coor-dinate their supportive efforts as much as is feasible.

The result of this complex reality is that emerging and existingindigenous foundations in developing countries will have to continueexploring new paths to building financial sustainability. While theoriginal intention of this book was to create a sourcebook of resourcemobilization techniques, the final output is, we hope, much richer. Asa set of stories and experiences, it is crafted to help spark dialogueamongst staff and peers within foundations, donor agencies, and othersupport organizations. The new thinking that we are confident willemerge from such dialogue will undoubtedly mean incurring some


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risks along the way, as the chapters within demonstrate. Ultimately,however, new ideas in the field will enable civil society in SoutheastAsia to tap into more innovative means for financing development.


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References

Association of Foundations and The Synergos Institute. NationalDirectory of Civil Socieyt Resource Organizations: The Philippines. TheSynergos Institute Series on Foundation Building, 2001. (Online atwww.synergos.org/globalphilanthropy/02/seasiacsrodirectories.htm)

Center for Philanthropy and Civil Society and The SynergosInstitute. National Directory of Civil Society Resource Organizations:Thailand. The Synergos Institute Series on Foundation Building,2002. (Online at www.synergos.org/globalphilanthropy/02/seasiacsrodirectories.htm)

Gaberman, Barry D. A Primer for Endowment Grantmakers:Endowment Strategies to Assist and Enhance the Work of NonprofitOrganizations. The Ford Foundation, 2001.

Ibrahim, Rustam. National Directory of Civil Society ResourceOrganizations: Indonesia. The Synergos Institute Series on FoundationBuilding, 2001. (Online at www.synergos.org/globalphilanthropy/02/seasiacsrodirectories.htm)

International Institute for Environment and Development (IIED).Financing for Sustainable Development. A report prepared for the WorldSummit on Sustainable Development and UN Conference onFinancing for Development. Stevenage, UK, January 2002.

Kingman, Andrew. “Grantmaking At A Distance: What Role forIntermediaries?” Alliance June 2003 (pp.17-20).


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McCarthy, Paul. A Thousand Flowers Blooming: Indonesian Civil Societyin the Post-New Order Era. Ottawa/Jakarta, 2002.

Morales, Jr. Horacio R. “Earning Income Through Trade andExchange” in Leslie M. Fox and S. Bruce Schearer (eds.), SustainingCivil Society: Strategies for Resource Mobilization, pp.21-44.Washington, DC: CIVICUS, 1997.

Schearer, S. Bruce. “Building Indigenous Foundations That SupportCivil Society” in Leslie M. Fox and S. Bruce Schearer (eds.),Sustaining Civil Society: Strategies for Resource Mobilization, pp.305-326.Washington, DC: CIVICUS, 1997.


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Chapter TwoOptions for Financial

Sustainability: CollaborationBetween Civil Society andDevelopment Agencies in

Southeast AsiaBy David Winder

C O L L A B O R A T I O N B E T W E E N C I V I L S O C I E T Y A N D D E V E L O P M E N T A G E N C I E S

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Introduction

In their recent efforts to increase the impact of bilateral aid onpoverty, inequality, and injustice, official development assistance(ODA) agencies have sought ways to directly support communitylevel initiatives. This search for more effective ways of deliveringfinancial and technical assistance has been driven by increasing dissat-isfaction with the failure of many governments to provide adequateopportunities for the poor. In some cases it has also been initiated inresponse to pressures from constituencies in the home countries,particularly from non-governmental organizations (NGOs). Theresult has been the creation of a diversity of new funding channels,many of them involving NGOs, both in the host and donor countries.

The approaches range from ad hoc small grants programs directlymanaged by ODA agency staff in country to carefully crafted strate-gies that seek to build strong civil society-managed funding institu-tions that are sustainable and act as a buttress against arbitrary andauthoritarian governments. As awareness of the complexities of deliv-ering resources directly to communities has increased, ODA agencieshave come to appreciate the role that local independent intermediaryorganizations in civil society can play. In their most advanced form,such organizations have been given endowments through debt swapsand other mechanisms and have become institutions with capacity tohave a lasting impact in a given field. Specifically, these are localorganizations that can successfully bridge between communities andresources (financial, intellectual, human, and other) and are thusdistinct from any NGO. As a bridging organization, they mobilizeand facilitate the transfer of financial resources to NGOs and othermore informal associations while also convening stakeholders aroundcritical issues and building the capacity of civil society.1


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1 Consensus over the termi-nology for such organiza-tions has not yet beenreached, though they areoften referred to as “foun-dations” or “communitydevelopment foundations”in recognition of the rolethey have in common withfoundations of the UnitedStates, Canada, and partsof Europe. In SoutheastAsia, the term “civil soci-ety resource organization”– or CSRO – has alsobeen used.

ODA agencies have learned much from these varying approachesto working with civil society. Little analysis has been conducted,however, of what worked, including the how and why, and fewattempts have been made to share the balance sheet more widely.2

This study addresses this lack of analysis by examining a range ofdifferent ways ODA agencies and civil society have collaborated inSoutheast Asia and specifically in Thailand, Indonesia, and thePhilippines. ODA agencies have been active in this region for morethan a decade. In the wake of the Asian economic crisis, severalincreased their commitments to these countries, established uniquepartnerships with emerging organizations, and some even seeded thestart of new organizations. For its analysis, Synergos selected six ODAprograms and assessed the degree of decision-making autonomy onfunding matters delegated to the NGO or NGO community by theODA agency as well as the sustainability of the funding mechanismsdeveloped between the ODA agency and NGO(s) involved.3 Out ofthis analysis, three broad categories – or options – emerged for howODA agencies and civil society can collaborate. In addition to layingout each option, the challenges and advantages of each are explored.Suggestions are made to ODA agencies and civil society to informcurrent dialogue on further strengthening the impact of aid programs.


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2 An exception has been theattempts by CODE-NGOin the Philippines toassess the effectiveness ofODA strategies forengaging the NGO sectorin aid delivery. TheSynergos Institute alsocommissioned a study in1999 (unpublished) byDraimin and Smillie ofthe effectiveness of coop-eration between ODAagencies and Southernfoundations. It drew onsix case studies ofSouthern grantmakingfoundations and question-naire responses from 49foundations.

3 We are grateful to thefollowing agencies fortheir cooperation inagreeing to the prepara-tion of the cases: theCanadian InternationalDevelopment Agency, theJapanese Ministry ofForeign Affairs, the JapanInternational CooperationAgency, the United StatesAgency for InternationalDevelopment, and theSwiss Agency forDevelopment andCooperation.

Three Policy Options

The collaborative processes between ODA agencies and civil societyanalyzed for this study fall into three broad policy options, each ofwhich can be seen along a spectrum of degrees of engagement andcollaboration. Options one and two possess a number of variants.

Option 1 resides at one end of the spectrum representing a policyin which funds are delivered to civil society organizations throughmechanisms controlled by the ODA agency and are characterized byshort-term funding arrangements.

Option 2 occupies an intermediary position in which a significantdegree of sharing of decision-making with civil society organizationsover the allocation of resources occurs. Some sustainability in theform of permanent organizations may be achieved but these stopshort of creating endowments.

Option 3 results in the creation of autonomous endowed organi-zations and therefore the maximum amount of delegation of decision-making control to civil society and the greatest degree of financialsustainability.

Following a brief overview of the three options, short case studieswith conclusions are provided.

Option 1 – Creation of a Small Grants Program Managed by theODA agency

This is the most common approach used to channel ODA funds tocivil society organizations in the three countries studied. These smallgrants programs seek to respond to local needs and usually fundmicro-projects within specific regional and thematic priority areasdetermined by the ODA agency. Some of these programs include


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mechanisms for consultation with civil society representatives on thechoice of priorities and selection of beneficiaries.

The first variant of this option is one in which the program ismanaged directly by ODA staff but where, on a selective basis, localorganizations are involved in selecting the beneficiary NGOs andproviding technical assistance. This variant is represented by theJapanese Embassy Grassroots Grants Program in the Philippines.

A second variant is where an advisory board, with a majority of itsmembers drawn from civil society and with regional representation,selects grantees and recommends them for approval. This variant isrepresented by the Philippine Australia Community AssistanceProgram funded by AusAID.

The third variant involves some delegation of decision-making tolocal NGOs. The ODA agency passes funds to one or more largeNGOs that manage the resources and together implement a mutuallyagreed program that can include sub-granting to smaller NGOs andcommunity-based organizations. An example of this approach is theCommunity Empowerment Program funded by JICA (JapanInternational Cooperation Agency) in Indonesia.

Option 2 – Creation of an NGO-managed funding mechanism

Under this option, a development assistance program is implementedin partnership with a local NGO or consortium of NGOs. Over time,it may result in the creation of an endowed organization with thecapacity to continue to pursue the goals of the original program inperpetuity, although this may not be the initial design for the initia-tive. This approach is represented by the two Canadian InternationalDevelopment Agency (CIDA) cases – PDAP (The PhilippineDevelopment Assistance Program) and LDI (Local DevelopmentInstitute) in Thailand. A similar case is Yayasan Penguatan PartisipasiInisiatif dan Kemitraan Masyarakat Indonesia (YAPPIKA –Foundation for Strengthening People’s Participation, Partnership andInitiatives). It began as a CIDA-supported NGO-managed fundingmechanism and became a permanent organization, though without anendowment.

Other cases fitting this option that have not yet evolved intopermanent independent institutions are CACEDI (Canada Assisted


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Community Enterprise Development, Inc. – now Community Artsand Crafts Enterprise Development), also funded by CIDA, andNIPA (NGO for Protected Areas, Inc.) funded by the World Bank’sGlobal Environment Facility.

A variant of Option 2 involves the creation of a new national fundto which ODA agencies contribute on a multi-year basis. TheCommunity Recovery Program (CRP) or Program PemulihanKeberdayaan Masyarakat (PKM) in Indonesia is the one case that fallsinto this category. Under this option, funds from four ODA agencies– the UK Department for International Development and thegovernments of the Netherlands, Sweden, and New Zealand – aremanaged by the United Nations Development Programme throughthe mechanism of a trust fund. Disbursement of these funds is madein accordance with guidelines established by the donors in consulta-tion with the NGO sector and government. Beneficiaries are selectedby a board whose members are drawn in their majority from civil soci-ety.

Option 3 – Creation of an Independent, Endowed Organization

Under this option, a donor government decides to negotiate thecreation of a new permanent endowed fund in a beneficiary countryin order to channel grants or loans to civil society organizations inpursuit of specific program goals. This usually occurs as part of a debtswap or debt forgiveness program between the two countries. Theendowment fund is invested, and only the earnings are used to fundgrants and loans and cover core institutional costs. This is distinctfrom Option 2 in that the decision is made upfront that this form ofendowed organization will be created.

This option is represented by the Foundation for the PhilippineEnvironment (FPE), created with support of the US Agency forInternational Development (USAID), and the Foundation for aSustainable Society, Inc. (FSSI) in the Philippines, created with fundsfrom the Swiss government.


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Case Studies of Policy Option 1

Case 1A: Grant Assistance for Grassroots Projects in thePhilippines4

Background

The Grant Assistance for Grassroots Projects (GAGRP) was createdin 1989 to enable the Japanese Ministry of Foreign Affairs to respondto requests for support to small-scale initiatives at the local level. Thisdecision reflected the government’s recognition of the increased rolethat NGOs in Japan and other countries were coming to play indevelopment assistance. This decision was also influenced by thesuccess of small-scale grant assistance schemes operated by donorcountries such as Canada and the UK.

Each diplomatic mission was given full autonomy in handlingGAGRP resources and deciding on program priorities, grantees, andsize of grants. Responsibility was usually vested with a career diplomatwho handled this program in addition to other responsibilities. It wasrare to have anyone with development expertise managing theprogram on a full-time basis.

The case of the Philippines is particularly worthy of analysis as theprogram has evolved from one with limited visibility to one that isnow recognized by civil society leaders as playing an important role insupporting grassroots initiatives. In great part, this is a consequenceof hiring the right person to run the program – a specialist with astrong background in the nonprofit sector and international develop-ment as well as prior knowledge of the country and its NGO sector.

Since 1999, when program priority areas were agreed on with thePhilippines government, grants have focused on poverty alleviation,human resource development, disaster management, environmental


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4 This summary is derivedfrom a case study onJapan’s Grant Assistancefor Grass Roots Projectsin the Philippines, writtenby Angelita Gregorio-Medel.

conservation, and on issues particular to Mindanao in the southernPhilippines. Between 1998 and 2001, the percentage of grants madeto NGOs increased from 53.6 percent of all grants made to 90 percentof all grants made. Demand for small grants (up to US $60,000 each)far exceeds the resources available. (In 1999, for example, 700 appli-cations were received and only 36 approved.)

GAGRP officials in the Philippines have supported very practicalprojects involving infrastructure development, small-scale construc-tion, and the acquisition of equipment. Grants are usually designed tocomplement larger funding from other donors including JICA andJBIC (Japan Bank for International Cooperation). In a few cases,GAGRP actually worked in partnership with Filipino organizations inorder to identify projects and provide assistance.

Impact

GAGRP has channeled US $5.5 million to 173 projects in the pastfive years. While this only constitutes .01 percent of Japanese ODA tothe Philippines, responses from 20 NGO leaders interviewed indicatethat this has been a good investment. They said that the programprovides important counterpart or supplemental funding for NGOs,often enabling them to leverage other resources. They also expressedthe view that the GAGRP coordinator for the past few years has giventhe Embassy of Japan a “human face” and inspired trust and confi-dence.

Synergos was especially interested in identifying cases whereGAGRP staff had used a local intermediary organization to identifyprojects and provide support in project implementation. We wantedto test the assumption that these intermediaries could enhance theeffectiveness of the program. Other ODA agencies we have inter-viewed have realized how difficult and expensive it is to give smallgrants directly to grassroots organizations and have come to relyheavily on such intermediaries or created new intermediaries to assistin this task. Two cases of this nature were examined.

Philippine Business for Social Progress Philippine Business for Social Progress (PBSP), one of the oldestfoundations in the country with a strong track record, channelscontributions from more than 150 companies to community self-help


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programs and directly manages community development programs.PBSP staff also helps link community organizations with which theywork to complementary funding. In the case selected, PBSP officialshad recommended that a rural cooperative it supported (KAMA-HARI) apply to GAGRP for a grant to purchase a farm tractor andimplements. GAGRP approved the proposal largely on the basis ofPBSP’s endorsement.

For GAGRP, the fact that KAMAHARI was receiving PBSP’ssupport was a guarantee that their resources would be well-managed,that the financial reporting would be in order, and that systems wouldbe in place to ensure that equipment was properly used and main-tained. (GAGRP also knew that the grant would have a positiveimpact because it was part of a long-term program with a strong train-ing component.) PBSP and GAGRP agreed that the KAMAHARIstaff would deal directly with GAGRP staff in order to strengthen theorganization’s feeling of ownership of and responsibility for this rela-tionship.

Foundation for a Sustainable Society, Inc.The Foundation for a Sustainable Society, Inc. (FSSI) is an endowedprivate organization created with the support of Swiss ODA. Itprovides loans and grants to ecologically sound community enter-prises. It also links its partners to other sources of funding and tech-nical advice.

In the case we looked at, FSSI was supporting the NGO IDEAS(Institute for the Development of Ecological and EducationalAlternatives, Inc.) to develop a municipal waste management programfor the town of Silang. It involved the creation of a corporation jointlyowned by IDEAS, FSSI, and local stakeholders. FSSI suggested thatIDEAS apply to GAGRP for complementary funds to build a ware-house and purchase additional equipment. According to GAGRP, thefact that IDEAS was already receiving support from FSSI weighedheavily in GAGRP’s decision to approve the project. As the casewriter argues, FSSI’s reputation for selecting and working with part-ners very rigorously, including close monitoring and technicalsupport, meant that IDEAS immediately received a “stamp ofapproval.” GAGRP figured that because their grant was also part of amuch larger whole, its potential impact was greater.


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Working in partnership

with a strong local inter-

mediary organization

such as a foundation can

significantly enhance the

efficiency and impact of

an ODA agency’s small

grants program

Lessons Learned from GAGRP in the Philippines

A responsive small grants program can be tailored to meet local needs and fillcritical funding gaps.The experience in the Philippines demonstrates that the small grantsprogram can play a very useful role in complementing other donorprograms in critical areas such as infrastructure development. It canalso assist NGOs in leveraging other resources.

By working in partnership with a strong local intermediary organ-ization to identify grassroots projects, the efficiency and impact of theprogram can be enhanced in the following ways:

• A local intermediary organization can identify grassrootsgroups and assist them in designing project proposals thatoptimize ODA funds.

• A local intermediary organization can ensure that necessarytechnical assistance and training inputs are provided in order toensure maximum impact.

• A local intermediary organization can ensure that the smallgrant complements other funds appropriately.

• A local intermediary organization is able to help mobilize addi-tional support from other sectors.

• A local intermediary organization can assist with project moni-toring and evaluation.

Case 1B: The Community Empowerment Program in Indonesia5

Background

In the early 1990s as Japan’s economy began to stumble, Japanesevoters and its small NGO community increasingly demanded moretransparency and accountability in ODA spending. At the same time,ODA agencies from other countries were recommending that Japanreview its long-accepted policies that emphasized the construction ofinfrastructure projects funded by loans largely.

The combination of domestic and international pressure led to are-examination of Japan’s ODA and resulted in a decision by theMinistry of Foreign Affairs to develop new policy guidelines thatwould increase aid efficiency and impact. The policy included agreater emphasis on the implementation of projects through NGOs.


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5 This summary is derivedfrom a case study onJICA’s CommunityEmpowerment Programin Indonesia by SarahMaxim.

JICA responded to the new ODA policies by giving attention to“people-centered development” and self-help approaches to meetingbasic needs. As a reflection of this new emphasis, JICA developed itsCommunity Empowerment Program (CEP) in 1997.

In Indonesia, CEP was launched in 1999 and grew out of workJICA had undertaken with NGOs as part of an emergency humani-tarian assistance program designed to respond to the economic crisisin 1998. The aim of CEP is to provide support for long-term devel-opment, including institutional development and capacity building. Akey strategy to achieve this is to develop partnerships with NGOintermediaries. All programs should emphasize community empower-ment and poverty reduction. As of 2001, CEP had partnerships withthree local NGOs and plans to expand to 20 NGOs.

Impact

At this time, the initiatives of CEP are still new enough that impactscan only be surmised. A decision was made at the outset to focus onsupport for projects in Eastern Indonesia. This reflected theIndonesian government’s regional priority and enabled JICA to buildon the contacts and information generated in its emergency reliefwork. By concentrating on training, technical assistance, and small-scale infrastructure development, CEP was designed to complementother JICA programs in the region.

CEP established three NGO partners in the region, each of whichredistributes resources and technical assistance to other civil societyorganizations. As partners, they offer CEP useful information on localneeds and access to a wide range of community based organizationsand small NGOs in remote areas not reached by other programs.

The case study indicates that the relationship of these partners toJICA is more like that of a program contractor rather than a grantee.Partners agree to a technical assistance program with clear goals andactivities and a detailed set of procedures for monitoring and evalua-tion.

Under current leadership, CEP has incorporated two broadergoals beyond community empowerment in the selected localities. Thefirst is opening up better communication between CEP partners andlocal and provincial governments for the exchange of information andexperience with an aim to have a more participatory planning system.


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The second is documenting the CEP experience and sharing thelearning with government and other ODA agencies.

Lessons Learned from the Community Empowerment Program in Indonesia

The strategy of partnering with large intermediary organizations in thedelivery of the program offers a number of benefits.Such organizations can provide JICA staff with reliable informationon local needs and how community based organizations and localNGOs address those needs. It can save JICA staff the time and cost ofvisiting remote areas. It is important, however, to select strong inter-mediaries with sufficient vision and management skills. Given thecomplexity of bringing about change at the local level, CEP couldconsider how it might delegate more decision-making power to localintermediary organizations and allow for greater flexibility needed torespond to changing situations. This necessitates the agency having ahigh level of trust in the intermediary selected.

The skills and experience of local JICA staff are critical in achieving success.Between 1998 and 2002, the Indonesia program benefited fromhaving a director with experience in working with NGOs, locallanguage skills, commitment, and vision for the program. Hesucceeded in gaining the trust and confidence of Indonesian NGOsand helped build bridges between NGOs and the government.


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Case 2A: The Local Development Assistance Project of Thailand6

Background

CIDA has had a presence in Thailand since 1981. With a strong inter-est in community development and poverty alleviation and an aware-ness of the limitations of government agencies, CIDA officials madeefforts in the early 1980s to reach out to the NGO community.Officials at the time became convinced that NGOs had significant,though untapped, potential to engage in effective work at thecommunity level. One outstanding local NGO leader, AnekNakabatura, was able to capitalize on this interest and craft a proposalto create a Thai organization with broad representation from a rangeof stakeholders, to channel grants to community level initiatives. Thisproposal was the starting point for a negotiation involving theCanadian and Thailand governments that resulted in the creation ofthe Local Development Assistance Project (LDAP).

Phase 1 (1985-90) – The Local Development Assistance Project LDAP was launched in 1985 as a five-year program to channel smallgrants to local development initiatives. It contained the followinginnovative features:

• a Project Review Committee (PRC) representative of majorstakeholders that reviewed project proposals and gave generalguidance and direction to the program

• revolving loan funds and collateral for commercial bank loansfor the poor, in addition to grants


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6 This summary is derivedfrom a case study on theLocal DevelopmentInstitute in Thailand,written by Dr. PimjaiSurintaraseree.

• use of 15 monitoring and evaluation teams from academicinstitutions and NGOs that assisted grantees in project imple-mentation and promoted learning among stakeholders.

An evaluation of LDAP in 1990 demonstrated a number of gains as aresult of the program, including an increase in NGO capacity in proj-ect management and the creation of NGO coordinating committeesat regional and national levels to engage in dialogue with government.

Faced with strong requests from the Thai NGO community for acontinuation of LDAP, CIDA staff entered into negotiations with thePRC. A limitation of LDAP recognized by the group was its insuffi-cient attention paid to NGO sustainability. The negotiations resultedin the creation of two joint organizations that would have the capac-ity to develop long-term programs to strengthen the role of the NGOsector, not only in supporting micro-projects at the grassroots levelbut also in helping to shape government social policies.

Phase 2 (1991-98) – Creation of the Local Development Foundation andLocal Development Institute Due to laws in Thailand that don’t permit operating NGOs to also actas grant- or loan-making organizations, two entities were created in1991 with the financial support of CIDA. The Local DevelopmentFoundation (LDF) is the legal entity receiving funds. It is a registeredThai foundation under the patronage of Her Royal Highness PrincessSirindhorn. Royal patronage helped the organization gain credibilitywithin all sectors of society. All funds raised by LDF are managed byits sister organization called the Local Development Institute. LDI isan operating and grantmaking nonprofit organization with its ownboard of directors, executive board, and professional staff. WhileCIDA could not legally grant an endowment to either organization, itallowed LDI to retain approximately US $660,000 from the repay-ment of loans to small-scale enterprises as a “quasi” endowment. Inaddition to handling the small grants program, LDI was givenresponsibility for conducting policy research related to participatorysocial development, provision of support to NGO networks (bothregional and thematic), and development of links between communityand commercial enterprises.

A review carried out soon after the start of Phase Two led to anumber of organizational changes. The principal one was the delega-tion of responsibility for the approval of grants and loans to regional


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committees. As a condition for the change in grant approval proce-dures, each regional committee was required to produce a regionalplan identifying priorities for which grants were to be given. Thisresulted in a sharper focus on specific local needs and the provision ofadditional opportunities for learning between grantees. Anotherchange was the decision that LDI, in addition to grants and loans,would provide NGOs with increased support for capacity building byestablishing partnerships with specialized training institutions. It wasalso decided that LDI would provide financial support to 13 thematicNGO networks (including children, women, hill tribes, and humanrights). This was seen as a way of sharing, learning, and increasingcoordination in dialogue with the government.

Impact

An evaluation showed that CIDA’s investment of US $6 millionbetween 1991 and 1998 achieved significant impact on a number oflevels. Overall, a total of US $3 million was channeled in grants to 117community projects at the grassroots level. The final project evalua-tion concluded that the regional grant approval mechanism proved tobe a strong model for distributing and managing project grants.Evidence of this is the fact that other donors such as the CanadaFund, UNICEF, and the Danish Cooperation for Environment andDevelopment now channel funds through these regional committees.

LDI used CIDA funds and leveraged other resources to conductgroundbreaking research into the underlying causes of poverty andhas been successful in ensuring that research results influence theformulation of new national policies. LDI also played an importantconvening role around public policy issues affecting rural and urbancommunities. It also ensured community rights over resourcemanagement made its way into the country’s Eighth NationalEconomic and Social Development Plan. In addition, LDI played animportant role in strengthening links between NGOs on regional andthematic levels as well as increasing civil society’s ability to identifyand learn from best practices.

Internal and external evaluations conclude that CIDA’s strategy ofsupporting LDAP and LDF/LDI has had a positive impact on thedevelopment of civil society organizations, contributed to buildingbridges between civil society and government, and resulted in public


33

policies that are more responsive to the needs of the poor. What ismore, the program wisely invested in building a strong professionalorganization and regional infrastructure with the capacity to continuesupporting micro projects, policy research, and public dialogue foryears to come.

With the onset of the Asian economic crisis and no significantendowment, LDI has been unable to continue its small grantsprogram and forced to seek other revenue to cover its core costs. Ithas managed to do this through a combination of selling publications,rental income, using donated office space, and acting as a secretariatfor projects implemented by other agencies. Thanks to its solid trackrecord for program management, it has succeeded in attracting suffi-cient funding from a range of sources including Thai governmentagencies, other ODA bilateral and multilateral agencies, and organi-zations such as the ASIA University Network. Its major challengenow is to raise an endowment and more immediate program funds.

Case 2B: The Philippine Development Assistance Program7

Background

CIDA has had a presence in the Philippines since the early 1980s. Inthe last years of the Marcos dictatorship, CIDA entered into discus-sions with Canadian and Philippine NGOs in order to create a mech-anism for channeling aid funds from its Partnership Branch directlyto Philippine NGOs. The main purpose was to tackle the issue ofincreasing poverty, particularly in rural areas.

These discussions were successful in many ways. First, a numberof leaders of key NGO consortia were willing to work together toprepare a funding proposal to CIDA. Second, the most prestigiousbusiness school (the Asian Institute of Management) and a leadingauditing firm were prepared to be involved in the program andprovide support for capacity-building activities for Philippine NGOs.Third, many Canadian NGOs were willing to raise counterpart fundsfor programs in the Philippines (a requirement of the CIDAPartnership Branch).

Before negotiations were concluded, Marcos was removed frompower and Corazon Aquino became President. With the return todemocracy, CIDA saw an opportunity to bring the government into


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7 This summary is derivedfrom research conductedby Milo Casals.

the negotiations. The outcome was the creation of PDAP, which overthe past 14 years has constituted CIDA’s main effort to reduce povertyand inequity in the Philippines. The program has evolved throughthree phases.

Phase 1 (1986-89) – PDAPThe purpose of the program was to assist the Filipino poor in theirefforts to address poverty, inequity, and structural injustice. This wasto be achieved by providing small grants to NGOs and POs (people’sorganizations) for community-based projects, capacity building, anddevelopment education. CIDA provided CAD $5 million in grantfunds.

PDAP’s Philippines Secretariat, which played a facilitating role inthe project, had 5 founding members: the Philippine Business forSocial Progress; the Association of Foundations (representing over100 NGOs and grantmaking foundations); Assisi (a large privatefoundation); ANGOC (a regional support organization for NGOsbased in the Philippines); and PhilDHRRA, a NGO network. Thesemembers had the responsibility of endorsing and forwarding propos-als for support by Canadian NGO partners. Overall responsibility forgoverning PDAP was vested in two boards: PDAP Philippines andPDAP Canada. A Joint Philippines-Canada Program Committeeannually reviewed the program and undertook strategic planning.CIDA had observer status on the Joint Committee.

The externally conducted evaluation of Phase 1 indicated thatwhile PDAP was extremely successful in linking Philippine andCanadian organizations, it acknowledged that given the wide diversityof micro-projects supported, it had proven difficult to develop a cohe-sive and comprehensive program and measure overall impact. Theoutcome of this evaluation and a CIDA partners’ meeting led to thedecision to move to a more proactive and focused strategy in Phase 2.

Phase 2 (1989-96)Officials decided to focus on a limited number of program areas inorder to increase impact under the theme of agricultural sustainabil-ity. To complement the project grants, a Technical Support Groupwas created to promote and train PDAP NGO partners in organicagricultural practices. Institutions were also set up with the capacityto support micro-economic projects following the end of CIDA fund-


35

ing. This program resulted in the creation of a Marketing AssistanceProgram in 1991 and a Central Loan Fund Program in 1994,managed by PDAP.

External evaluations for Phase 2 indicated that the move towardsa greater focus on sustainable agriculture and the creation of a CentralLoan Fund proved an effective strategy. It helped to build the capac-ity of NGOs, strengthened community self-help initiatives, and builton the strengths of PDAP partners.

Other indicators of positive program impact were:• PDAP enhanced the capacities of Philippine organizations to

act as networks for policy advocacy and service providers.• PDAP was well managed and enjoyed high credibility among

its members, NGO partners, and participating communities.• Case study research showed measurable economic impact, both

on direct beneficiaries and the larger community.• PDAP provided a training ground for NGO leadership devel-

opment.• PDAP proved an efficient way of administering ODA funds.

The presence of the PDAP secretariat reduced CIDA adminis-trative costs.

Phase 3 (1996-present)In designing the third and final phase of PDAP, CIDA introduced anew programmatic focus in response to changing priorities at CIDAHeadquarters and the outcome of both the Country Program Reviewand external program evaluations. The main change was to sharpenthe sectoral and geographic focus of the program under the titlePromoting Participation through Sustainable Enterprises. While theemphasis continued to be on poverty reduction through sustainableagriculture, the focus shifted to be on the creation of sustainableenterprises for the rural poor with credit, rather than grants, playingan important role.

Instead of responding to project proposals from around the coun-try, CIDA decided PDAP would concentrate on ten pre-selected sites.In each site, PDAP facilitated the creation of an Area DevelopmentPlan by all stakeholders. Continuing effort was placed on capacitybuilding for NGOs and POs.

A mid-term program review recorded achievements at three levels.At the household level, the program noted modest increases in


36

productivity, a decrease in production costs, and a diversification ofincome sources. The evaluation also noted that the program hadsucceeded in transforming agricultural workers into owner-cultiva-tors.

At the organizational level, participating organizations improvedtheir operations, established contacts with other institutions, andincreased women’s participation in leadership positions and projectimplementation.

At the policy level, Area Development Coordinating Committeeswere formed to coordinate policy advocacy and the networking ofPDAP, NGOs, POs, and other local stakeholders at each site throughthe organization of development forums.

One indication of success is that PDAP has been able to generateadditional resources from other ODA sources to increase programreach and impact.

Impact

The PDAP case is an excellent example of how aid programs mightneed to change over time. It is also a good example of how a focus oninstitutional development does not mean that expertise in grantmak-ing and lending has to be lost. As early as the second phase, CIDA andprogram partners were considering strategies to ensure programcontinuity on completion of program funding. As a result, PDAPcontinues to be a valuable resource for the management of CIDAfunds and other ODA and government funds. Moreover, CIDA wasable to leverage additional resources for the program by engagingCanadian NGOs with Filipino NGOs.

CIDA selected strong partners in the Philippines with the abilityto develop an efficient PDAP Secretariat. CIDA had the vision toinvest in the institutional development of the Secretariat to the pointthat it became a strong permanent intermediary with the capacity tomanage projects for other ODA agencies and government depart-ments. The investment in the development of operations and systemsfor monitoring and auditing projects generated confidence in PDAPand made it attractive to other donors.

CIDA’s strategy of moving towards increasing thematic andgeographical focus enabled it to increase its impact at both the microand policy levels. For example, the focus on sustainable agriculture


37

Through CIDA’s support

for building local

foundations, the agency

has demonstrated a

capacity to learn from

experience, to work

closely with partners in

both countries, and to

adapt to changing

realities over time to

achieve greater impact

produced results that influenced policies of the Department ofAgriculture (DAR). The DAR has adopted the PDAP approach tosustainable development, thereby greatly increasing the impact ofCIDA’s investment. PDAP has also proven to be an effective partnerfor CIDA in working in areas of conflict in Mindanao where govern-ment institutions are weak.

CIDA showed a capacity to learn from experience, to work in closeconsultation with partners in both countries, and to modify thestrategies of the initiative in order to achieve greater impact.

Lessons Learned from the CIDA Experience with LDI and PDAP

In designing a program to strengthen civil society and impact on poverty, itis important to build on the leadership and experience of existing NGOs inthe country.In both cases, CIDA staff based in the country developed relation-ships with the leaders of key NGOs. In the case of PDAP, the bi-national consortium of NGOs could have been unwieldy, but byselecting strong partners at the outset they avoided complications.CIDA then consulted at length with them in designing the programto ensure it responded to the needs of civil society and built institu-tional capacity for the long term.

In creating a new organization to manage ODA funds, priority has to begiven to the following aspects of organizational development:

• Well-qualified professional and administrative staff should berecruited.

• Respected leaders for the board and program committeesshould be recruited (where there is close involvement of NGOsin both the donor and host countries parallel boards could becreated). In cases where the program seeks to build bridgesbetween civil society and government (as in the case ofThailand) government representatives can serve on governingbodies.

• Reasonable overhead rates need to be determined in order toensure that a professional but lean operation is maintained andODA funds used in a cost-effective manner.


38

Periodic participatory program evaluations permit the adjustment of prior-ities, goals, and objectives.Initial program priorities were determined in consultation with NGOpartners and other stakeholders such as the government. Theprograms established clear goals and targets related to the volume ofgrants or loans to be disbursed and the expected impact on the reduc-tion of poverty.

Both cases incorporated periodic program reviews involving allstakeholders; sometimes they involved external evaluation teams.These strategic reviews proved invaluable in guiding the programstowards greater programmatic focus and ensuring the input of partic-ipant NGOs. It also meant that it was possible to incorporate chang-ing concerns in ODA policy at the headquarters or the country level.In the case of the Philippines, the program incorporated new regionalpriorities such as conflict-torn Mindanao.

These reviews provide guidance to ODA agencies interested in phasing outfunding while ensuring that the critical work of supporting civil society inthe fight against poverty continues.In the case of Thailand, the review after the first phase of the programhelped to clarify the need for a permanent funding mechanism toensure that work could continue beyond the current funding cycle. Inthe Philippines, it led to the proposal for PDAP to create a CentralLoan Fund to provide micro loans. This organization was eventuallyspun off as a new permanent organization, the Federation of People’sSustainable Development Cooperative, and has proven to be a veryeffective institution in leveraging additional resources.

In both cases, learning from experience led to increasing emphasisbeing placed on providing support for NGO capacity building. In thePhilippines, this led to the creation of a Technical Support Group totrain grantee-NGOs in organic agricultural practices. In Thailand,LDI provided increasing support for capacity building through thedevelopment of partnerships with existing specialized training insti-tutes.

The organizations created with ODA funds play a critical role in buildingpartnerships between civil society and government, and enable citizens toinfluence public policy.In Thailand, LDI has given increasing emphasis to research on theimpact of public policy on the poor and the design of new policies to


39

support initiatives of the poor. This work has enabled the program tobuild on the experience learnt through the small grants activity andsignificantly increases its impact on poverty at the national level. Itssupport for thematic NGO networks has helped to articulate and clar-ify the need for national policy changes. Thus, we find that CIDA’sinvestment in building the capacity of LDI and supporting its policyresearch and convening agenda has produced handsome dividends.

In the Philippines, the encouragement of partnerships betweenPDAP and the Departments of Agriculture and Agrarian Reformmeant that a number of the innovations developed at the micro-leveland through NGO training programs were scaled up. For example,the Department of Agriculture took the sustainable agriculture strat-egy, tested by PDAP, and adopted it on the national level.

Support for the creation of a permanent organization produces long-termimpact on a number of levels.The creation of a permanent national funding mechanism (in the caseof Thailand with active committees at the regional level) constitutes apermanent institutional resource for the efficient transfer of funds andexpertise to the community level. With the financial support ofCIDA, the two organizations in question, LDI and PDAP, have beenable to achieve a transition to permanent legal organizations. Theyhave developed expertise in grantmaking and lending at the commu-nity level, in policy research and the convening of interested parties toinfluence policy, and in the building of bridges between civil societyand government. Evidence of this is their continuing ability to lever-age funds from government departments and other bilateral donorsthat are looking for trusted and tried intermediaries.


40


Case 3A: The Foundation for the Philippine Environment8

Background

The socio-political situation in the Philippines following CorazonAquino’s rise to power in 1986 provided an excellent enabling envi-ronment for ODA involvement with the NGO sector. At that time,USAID provided resources to endow a new organization dedicated tosupporting sustainable development. This was the birth of theFoundation for the Philippine Environment (FPE).

At this time, USAID Manila staff was open to discussing a rangeof options for managing funds assigned to the Philippines under aglobal Natural Resource Management Program. The PhilippineDevelopment Forum, a Washington-based organization of USNGOs, assisted by Green Forum, an environmental NGO in thePhilippines, lobbied the US Congress for ODA to be allocateddirectly to Philippine NGOs for environmental protection activities.The Aquino administration was open to this arrangement therebyopening the door for negotiations with USAID.

Of critical importance was the presence of senior officials in thePhilippine Department of Energy and Natural Resources and USAIDManila Office committed to creating a permanent funding mecha-nism for environmental programs that would be free from politicalinterference and that would draw on existing talents in the NGOsector. Together, they devised a strategy whereby USAID grantmoney was to be used to purchase Philippine debt in the secondarymarket, to be redeemed at favorable rates at the Central Bank of thePhilippines. The resulting capital was to be managed by a privatePhilippine foundation. Until the foundation was created, the fund wasentrusted to a US-based NGO – the World Wildlife Fund – which


41

8 This summary is derivedfrom a case study on theFoundation forPhilippine Environment,written by AntonioQuizon.

was selected because of its long presence in the Philippines, experi-ence in working with NGOs, strong track record, and influence inWashington. Senior officials of the agencies hired a well-respectedPhilippine NGO to facilitate the creation of the new foundation andto create the necessary administrative and grantmaking systems. Oncea professional staff was in place and an active board elected, USAIDstaff transferred funds to the new foundation.

Impact

Endowment ManagementFPE staff and board have sought to increase the value of the endow-ment while maintaining low risk. After two years in which theendowment was invested solely in Central Bank treasury bills withlow returns, the board decided to invest 20 percent of the endowmentin equities. This improved earnings. In 1996 the board recommendedtaking the entire endowment out of the Central Bank and investing itin higher-yielding instruments. USAID agreed to turn over themanagement of the endowment to three local fund managers and anoffshore bank, provided there were strict guidelines to reduce risk. Inpreparing the guidelines, the foundation was careful to avoid conflictof interest. The Trust Agreement between FPE and fund managersforbade investment in securities of a company owned or managed byan FPE board member or officer or his/her relative unless FPE wasinformed in advance.

In early 1997, just before the Asian currency crisis, the boarddecided to invest half of the endowment in Swiss bonds earning 14percent interest. A general policy of the board investment committeeto keep investments, “conservative, diversified and multi-currency,” inthe words of former chairperson Fr. Lucas, helped prevent a precipi-tous decline in the endowment’s earnings during the crisis. Not allinvestments are thoroughly screened, however, to ensure investmentsare socially and environmentally sound.

As of 2002, foundation officials have not yet secured new endow-ment contributions, but they have been able to increase the size oftheir grant portfolio by co-financing projects with other donors,including the Ford and MacArthur Foundations in the US and theNature Conservation Fund of Keidanren (Japan Federation ofEconomic Organizations) in Japan. They also signed memoranda of


42

understanding with FSSI, the Global Environment Facility’s SmallGrants Program, CIDA, NGOs for Integrated Protected Areas, Inc.,and the Asian Institute of Management for joint investments inspecific sites. As the foundation establishes a record in sound financialmanagement and effective grantmaking, more opportunities for co-financing are expected.

Impact of Grant Program One of the usual concerns of an environmental trust is how to strikea balance between its defined priorities and responsiveness to NGOproposals. FPE has countered this by designating four different typesof grants – site-focus, proactive, responsive, and action grants.Currently, about 80 percent of FPE’s annual volume of grants (repre-senting the combined amounts of site-focus and proactive grants) isallocated for projects developed or sought out by FPE, rather thanbased on proposals it receives. Since its inception, FPE has taken aclear stance in support of site-focused interventions, founded on acommunity-based natural resources management approach. FPE seesits role as complementary to that of the government’s in designatedprotected areas.

Looking back, board and staff members have acknowledged thatFPE’s main concern in its early years was to move funds, eager toestablish a track record. They also mention that FPE had mainlyemphasized its role as grantmaker, which overshadowed its other rolesas catalyst for cooperation and fund-facilitator. Feedback from FPE’ssite-focused projects and project partners has yielded valuableinsights, however, for reshaping FPE’s future operations and assis-tance approach.

Building the Capacity of Community OrganizationsBy running training courses for local NGO staff and providing one-on-one technical assistance to local NGOs and community organiza-tions, FPE has recognized the capacity of local organizations toimplement and manage biodiversity conservation and sustainabledevelopment programs in their own communities. In the words of Fr.Lucas, “We are working to ensure that communities with which thefoundation partners will be able to run the programs and projectssustainably, even after FPE has pulled out. We fund [the communi-


43

ties], empower them, and then we withdraw and watch the communi-ties bloom.”

Supporting the Efforts of Partner Grantees in Environmental Advocacy While FPE has made a conscious decision not to play a direct advo-cacy role, it makes grants to organizations engaged in policy advocacywork. For example, it has given grants to organizations engaged inenvironmental legal defense.

Case 3B: The Foundation for a Sustainable Society, Inc. of thePhilippines9

Background

The experience of the Philippine NGO community in engaging incollaborative efforts with ODA agencies proved valuable when itcame to negotiating a debt swap between the Swiss and Philippinegovernments in order to establish FSSI.

In Switzerland, the Swiss Coalition of DevelopmentOrganizations, which is a very active group of development NGOswith a long history of solidarity and funding relationships withPhilippine NGOs, initiated a campaign for debt relief. It organized apetition, signed by 250,000 citizens, requesting a program of creativedebt relief.

In response, the Swiss parliament approved a bill establishing theSwiss Debt Reduction Facility. The success can be attributed to thestrong unity of the NGO sector, the high level of informed politicaldiscussion among the population, and the strength of the Swiss econ-omy. The bill gave responsibility for implementation to the SwissFederal Office of Foreign Economic Affairs (FOFEA) and the SwissAgency for Development and Cooperation (SDC). NGOs were givenrepresentation in an extra-parliamentary consultative commission toadvise the government on implementation issues. Importantly, theSwiss Coalition was formally commissioned by the government toaddress and operationalize the “creative” dimension of the debt reliefinitiative including the detailed preparation of the pre-negotiationphase.

The coalition formed a Debt for Development Unit (DDU) toassess experiences on previous debt swaps and counterpart funds;


44

9 This summary is derivedfrom the case study on theFoundation for aSustainable Society, Inc.,written by Alan Alegre.

conduct fact-finding missions to identify partners, programs, andprojects; and serve as partners in preparing, monitoring, and evaluat-ing programs.

Establishing CooperationThe process leading to the creation of the organization was essentiallydriven by NGOs in both countries. SDC pushed its government toaccept the Philippines in the debt swap program and then selectedCODE-NGO (Caucus of Development NGO Networks) in thePhilippines as its partner to move the initiative forward.

CODE-NGO was commissioned to do the background researchnecessary for negotiating the debt swap and creating a counterpartfund. CODE-NGO requested Eugene Gonzales undertake this workgiven his experience in development finance, high credibility withPhilippine NGOs, and previous involvement with two other ODAfunded mechanisms, including FPE.

Following background research into the Philippine debt policyand other NGO-managed funding mechanisms, CODE-NGOconvened a series of consultations with major civil society and NGOnetworks and coalitions. These consultations produced a set ofrecommendations useful in informing the negotiation process. Theseincluded:

• that the fund be in the form of an endowment, with interest onthe income to be used to fund multi-year projects via grantsand loans

• suggested criteria for project selection (e.g. environmentallysound, economically strategic and viable, gender-based)

• that the fund have proactive and responsive elements and someinitial funding policies

• that a Program Committee be formed to define the scope,criteria, and structure for fund management in more detail.

Building on these consultations, a DDU delegation visited thePhilippines and prepared its own recommendations, includingconfirming the readiness of the debtor government to provide localcurrency for debt relief and the expected size of the fund.

To maintain momentum, CODE-NGO was given a new consul-tancy to build on the earlier consultations and prepare more detailedproposals for the proposed funding mechanism. A working group wascreated that decided to form a program committee to manage the


45

initiative during a transition period. After initially discussing thepossibility of an existing organization, FPE, being the legal holder ofthe fund, the group decided to create an entirely new organization.The proposals of the program committee became the basis for talkswith the Swiss Government.

Government-NGO Negotiations The DDU presented its proposal on the funding mechanism to theSwiss Federal Economic Office of Foreign Affairs, which had beenappointed the lead agency for the Swiss Government in negotiations(SDC did not have a program in the Philippines). The DDUpersuaded FOFEA that the proposed mechanism would meet bothfinancial and development goals, and the DDU endorsed the proposalwith only minor modifications.

The negotiations in the Philippines were more protracted. Thegovernment had reservations to handing over the proceeds from debtforgiveness to a civil society-managed foundation. Some of the offi-cials in the Department of Finance would have preferred to see thesefunds channeled directly to a government department as had been thecase with recent French and German debt swaps. The PhilippineNGOs eventually won the government over to their proposals. Thisprepared the ground for brief formal negotiations and a final agree-ment.

Formal bilateral negotiations agreed that the Philippine govern-ment would have an ex-officio non-voting seat while the Swissgovernment would have observer status. The Philippine Governmentalso requested that the endowment income be used for economicactivities and not for advocacy activities. The government officialssigned the agreement in August 1995 and legally incorporated FSSIin September of that year. After a short build-up phase, it commencedoperations in April 1996.

Impact

Particularly innovative features of this organization include thefollowing:

• It invests in sustainable production activities that provide socialand economic benefits for poor urban and rural communities.


46

• It is primarily a lending institution. This enables FSSI toprovide support to more organizations than if only grants wereused. In the first four years of operation, FSSI supported 65organizations. The foundation staff takes great care to identifyviable projects and ensure they have the necessary financial andtechnical assistance to be successful.

• FSSI has realized the need to be more proactive, both in iden-tifying viable industries and sectors and then in selecting part-ners. In the words of the former Executive Director:

[Many] thought that [FSSI] would just passively be

involved in financing. But we have gone into joint

ventures – a major unanticipated consequence – and we

are now offering very specific services apart from financ-

ing. Enterprise development services have to be provided– technology, markets…We have to tap outside resources,

experienced individuals, and link them with our project

proponents.

• FSSI identifies specific sectors and industries that offer signifi-cant prospects for community enterprises. It is then activelyinvolved in working with a strategic partner to prepare a busi-ness plan and identify business partners.

• Less than five percent of its “payout” is in the form of grantsfor activities such as technical assistance, feasibility studies, andmarket research that complement the loan facility. In the firstfour years of operation, 155 small grants were made.

• By providing a combination of loans and small grants, FSSIensures that organizations are efficient in their use ofresources. The emphasis on institutional development andlinking partners to technical assistance and information has ledto the development of sustainable organizations.

• FSSI primarily adopts a proactive strategy whereby it identifiespotential eco-enterprises in four major ecosystems. These areenterprises that are ecologically sound, financially viable, andcommunity-rooted.

• FSSI identifies other organizations and entrepreneurs who canprovide technical assistance to community enterprises in areas


47

such as marketing. This reduces overhead costs and makes fulluse of existing resources.

• FSSI aims to keep its operating expenses at less than 15 percentof total income.

• FSSI has created a number of policies to ensure the careful andprudent investment of its endowment. These policies include:a bidding system to select the fund manager, a list of companiesin which it will not invest, and, most interestingly, a develop-ment portfolio of investments in local development financialinstitutions which are often supporting the very individuals andsmall enterprises that FSSI itself wants to see become success-ful.

• FSSI has an active board consisting of a wide range of leadersfrom the NGO sector with links to the private sector and thecooperative movement. It exercises close monitoring to ensurethat financial targets are reached.

• FSSI has shown a capacity to engage in strategic thinking inorder to adapt the organization to the demands of the externalenvironment. The organization’s emphasis on research anddocumentation has contributed to the development of thisstrategic planning.

• FSSI has developed strong systems of monitoring and evalua-tion to ensure that recipients of funds are accountable. Theseinclude quarterly reports, staff monitoring visits, and annualexternal audits of each project.

Lessons Learned from the USAID and SDC Experience with FPE and FSSI

A prerequisite to considering this option is that the debtor and creditorcountries are open to the possibility of debt swaps that benefit of civil society.In the case of the Philippine, US, and Swiss governments, all saw thisoption as being in their own interests. The policy environment inWashington was supportive of the initiative, in part because ofsuccessful lobbying by US NGOs. The US Congress endorsed theidea and USAID staff in Manila was looking for highly visible actionsto demonstrate the clear commitment of their government to thePhilippines.

The Philippine government at the time had recently returned tothe fold of democratic regimes and was interested in working with


48

NGOs. Former NGO leaders who had moved into government posi-tions were keen to support civil society organizations by creating anorganization independent of government that could represent thepublic interest.

The Swiss NGO community had persuaded the Swiss governmentthat a debt swap initiative in a number of countries would be a popu-lar gesture, especially because it would coincide with commemora-tions of the country’s 600th anniversary of independence.

It is an advantage to have active NGO involvement on both sides of thenegotiations to lobby their respective governments to support a debt swapand to hand over the management of the resulting funds to a privateorganization. In the United States and Switzerland, NGO coalitions were veryinterested in mobilizing additional resources for Philippine civil society organizations. Public support played an important role inensuring a positive outcome to the negotiations. They had able coun-terparts in the strong Philippine NGO community too. In the case ofthe Swiss negotiations, DDU’s counterpart was CODE-NGO, astrong consortium of Philippine NGO networks that could draw onthe previous experience of the creation of FPE. Together they spearheaded all the preparatory work for the official negotiations,including the drafting of a final proposal. This involved preparatoryconsultations and the organization of a working group and programcommittee to refine the recommendations for government consider-ation.

In the case of the DDU, their lobbying was so successful that theSwiss government contracted them to conduct all the bilateral discus-sions and prepare a proposal for its consideration. The heavy involve-ment by networks representing the two NGO communities meantthat the recommendations they made for the structure, aims, andobjectives of the new organization were widely endorsed and provedworkable.

Key committed individuals in the respective government and NGO sectorscan play a critical role in ensuring successful negotiations.In the case of FPE, senior officials in both USAID and the PhilippineDepartment of Environment and Natural Resources were committedto creating a permanent funding mechanism for environmental


49

Where open, the debt

swap window may be an

effective means for

foreign governments to

participate in financing

development in

Southeast Asia

programs that would be free from political interference and draw onthe skills and experience of environment and development NGOs.Highly respected and experienced civil society leaders facilitated thenegotiations.

In the case of negotiations between the Swiss and Philippinegovernments, the Swiss were fortunate to have Alfred Gugler as headof the DDU. He was committed to the process and had the trust ofCODE-NGO.

It is helpful to have a planning grant in order to ensure the serious involve-ment of civil society representatives in the design of the organization thatwill be the beneficiary of the debt swap.Given the existence of an active and articulate NGO sector in thePhilippines, it was important to include them in the process of design-ing the foundations’ vision, mission, and program guidelines.

In the case of FSSI, the DDU, with SDC funds, was able to hirein-country consultants to conduct consultations with the PhilippineNGO sector; research the debt conversion policies, procedures, andprevious experiences; and prepare the articles and by-laws of the neworganization. This preparatory work proved essential in enabling it tostart activities almost immediately after the two-year negotiationswere completed.

In addition, Helvetas (a Swiss NGO) and PBSP, a local grantmak-ing organization supported by the corporate sector, advanced funds tocover administrative expenses and meetings of the prospective boardin order to advance the process and ensure that the basic systemswould be in place by the time formal negotiations were concluded.

Experienced civil society leaders need to assist in training the staff andboard of the new organization and put in place administrative, accounting,and grant management systems.In the case of FPE, USAID contracted with PBSP to provide all thenecessary institutional development support in the start-up phase.FSSI had the advantage of having as its first Executive Director,Eugene Gonzales, who was closely involved in the start-up of FPEand was able to draw on that experience. He had the full support ofCODE-NGO that had also been involved in creating the system ofgovernance and by-laws for FPE.


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During the negotiation phase, it is important to reach consensus on theprogram priorities of the new organization, criteria for fund disburse-ments, and broad institutional policies such as overhead costs.This negotiation stage provides the ODA agency with the opportu-nity to shape the agenda of the new organization. Once the funds areformally transferred, the donor has little further direct influence.Critical issues to be resolved are: the balance between proactive andresponsive grantmaking, balance between loans and grants, size ofgrants and loans, length of grant period, and guidelines regardingoverhead in order to ensure that the organization does not spend toomuch in this area.

It is critically important to put in place clear guidelines for the managementof the endowment before the funds are entrusted to the new organization.A major concern of both donor and host governments is the prudentmanagement of resources under a wise and active board. It requireseffective oversight from a board committee whose members haveconsiderable prior experience in asset management.

In both cases, it has proven effective to entrust the funds to anumber of the best fund managers available in the country under acompetitive process. These fund managers are then given clear guide-lines on portfolio management and their performance is closely moni-tored.

Ideally, organizations concerned with environmental protectionand poverty alleviation should ensure that investments are withcompanies that are environmentally and socially responsible. FSSIattempts to do this by issuing fund managers with a “blacklist,” butthe necessary information on which to make sound judgments cansometimes be difficult to obtain.

One option worth considering is to entrust part of the portfolio tothe organizations’ own professional staff to invest in viable commu-nity enterprises. This has been attempted by FSSI with some success;this strategy has increased the value of its portfolio by producing posi-tive returns and at the same time contributed to achieving its socialmission.


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Conclusions Drawn from the Cases

Option 1 – Creation of a Small Grants Program Managed by theODA agency

These cases demonstrate that ODA-managed small grants programscan play a useful complementary role to other aid programs thatconcentrate on effecting change at other levels, such as policy. Grantprograms that provide support for capacity building of staff of NGOsand funds for organizational development, in addition to infrastruc-ture development, will contribute to building social capital andproducing lasting change. Programs that have a clear focus, aremanaged by development specialists, and draw on local expertise inproject selection and evaluation are most likely to have the greatestimpact.

An effective means to accomplish this is in supporting theexchange of experiences between grantees in specific thematic areas,which can disseminate successful strategies for attacking poverty atthe community level. Through the small grants program, agenciescan encourage partnerships and cooperation between NGOs andlocal government units.

Option 2 – Creation of an NGO-managed Funding Mechanism

CIDA’s parallel experience in Thailand and the Philippines from themid-1980s to the present provides useful insights into the option ofchanneling ODA funds to local development through an NGO-managed intermediary and assisting this organization in becoming anindependent funding organization. As CIDA was legally unable to


52

provide endowment grants to organizations, it was forced to developcreative ways of providing start-up funds to each organization to setthem on the pathway to independence. Fortunately, key CIDA staffinvolved in both these initiatives has understood the need for flexibil-ity. The lack of a permanent endowment fund has obliged each organ-ization to seek funds from a variety of sources in order to continue toimpact on problems of poverty in their respective societies. Both havebeen successful in doing so thanks in large part to the track recordthey have been able to build up with CIDA funds. As a result, LDI inThailand and PDAP in the Philippines are continuing to mobilize anddeliver financial resources and other services to a range of NGOsfifteen years after the initial receipt of ODA funds.

While this option does require a significant investment ofresources over a long period (15 years in the case of LDI and PDAP)and a commitment to the development of a strong local civil societyorganization, this option provides an ODA agency with a cost-effec-tive and efficient way of supporting a number of complementaryprograms at different levels from the micro to the macro. If the rightkind of intermediary is created and resources put into building astrong board and professional staff, it can manage a small but stronggrants program, thus freeing the ODA agency of the labor-intensiveprocess of reviewing proposals. It can also manage a capacity buildingprogram for NGOs, build bridges between sectors, and convenesectors to develop new national policies. The impact of thesecombined programs can outlive the funding cycle of the program andcontribute to the creation of social and human capital in the country.

Option 3 – Creation of an Independent Endowed Organization

The experience of USAID and the Swiss Government in the two casesprovide insights into the benefits of creating endowed organizationsto help achieve some of the objectives of their bilateral aid programs.It also sheds light on the conditions that need to be satisfied toproduce a successful debt swap agreement and the challenges posed inthe negotiation process. Both FSSI and FPE have been successful indeveloping grantmaking and lending programs that are having animpact on peoples’ lives in poor communities. Equally importantly,they have both succeeded in increasing the value of their endowments


53

despite the financial crisis in the late 1990s. All three governments candemonstrate, at least on the evidence available to date, that their trustin transferring significant resources to private organizationscontrolled principally by civil society leaders has been justified.

This approach clearly carries risk for the ODA agency as it isentrusting the control of sizable resources to a new organization withno track record. The Philippines had the advantage of having a strongNGO sector led by CODE-NGO and its experienced ExecutiveDirector prepared to invest time and human resources into develop-ing a strong system of governance for both organizations that guar-anteed accountability and effective leadership. High priority wasgiven to creating safe and prudent financial instruments for fundmanagement. Indeed, time has shown that FPE and FSSI have beencompetently managed, applying clear standards of performance,transparency, and accountability to their work. What’s more, assis-tance has reached groups and communities that have not traditionallyhad access to credit and other funds.

Both USAID and SDC have undoubtedly received a good returnon their investment. It can be considered a win-win situation for boththe creditor and debtor countries. The viability of this option,however, depends to some extent on the value of debt papers. Whenthe debt swap to create FSSI was negotiated, the debt papers were at50 percent of the value of the debt. By allowing both organizations toexperiment with the use of loans, loan guarantees, and partnershipswith other financial intermediaries, in addition to the provision ofgrants, the ODA agencies ensured that benefits from their endow-ment grants were multiplied.

This is clearly the policy option that is going to produce the mostlasting impact by the sustainability it promotes. The model could beadapted to enable ODA funds resulting from debt swaps or debtforgiveness agreements to support the creation of local organizations.They could also support community foundations that could poten-tially leverage more resources from the private sector and localgovernment.

The author recommends that all ODA agencies explore the possi-bility of creating financially sustainable organizations able to continueimplementing their mandate in perpetuity. In most countries, theproblems that governments are seeking to address are increasing, asare the demands for their services. Many of them are unable to effec-


54

More ODA agencies

should explore the possi-

bility of creating finan-

cially sustainable organi-

zations able to continue

implementing their

mandate in perpetuity.

tively manage the ODA funds committed. With professional staff inplace and guaranteed resources which they can use to leverage otherfunds, independent organizations are able to focus on developinginnovative solutions to those problems and on building social capital.

This option of endowing local organizations is attractive to ODAagencies wishing to support lasting change through strengtheningcivil society. These case studies show that the organizations createdare having an impact beyond the simple transfer of funds to civil soci-ety organizations. They play critical roles in building strategicalliances between sectors, strengthening civil society’s institutionaland financial capacity, and influencing government policy.


55

References

Alegre, Alan. A Case Study of the Foundation for a Sustainable Society,Inc. New York: The Synergos Institute, 2001.

Gregorio-Medel, Angelita. Optimizing Japanese ODA: The GAGRPPartnership with Philippine CSROs. New York: The SynergosInstitute, 2001.

Maxim, Sarah. A Case Study on Optimizing ODA Funding in SoutheastAsia: The Japan International Cooperation Agency’s CommunityEmpowerment Program (Indonesia). New York: The SynergosInstitute, 2001.

Quizon, Antonio. A Case Study on the Foundation for the PhilippineEnvironment. New York: The Synergos Institute, 2001.

Surintaraseree, Pimjai. A Case Study on Optimizing ODA Funding inSoutheast Asia: The Local Development Institute and Foundation(Thailand). New York: The Synergos Institute, 2001.


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Chapter ThreeUnfinished Business: ODA-Civil

Society Partnerships inThailand

By Gary Suwannarat

O D A - C I V I L S O C I E T Y P A R T N E R S H I P S I N T H A I L A N D

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Introduction

This chapter examines the experience of foreign donor phase-out inThailand and explores the possible role of official development assis-tance (ODA) in providing lasting support for civil society throughendowments or other funding mechanisms.1 The views of three Thaigrantmaking and operating foundations and various bilateral andmultilateral agencies were solicited as background research to thisstudy. The foundations examined in this chapter work at the interme-diary level and mobilize domestic and international resources in orderto make grants or other financing mechanisms available to civil soci-ety groups.2 Although ODA agency representatives acknowledge theimportance of civil society, a number of constraints limit the extent ofODA support at this time. In particular, the Thai government isfocused on accelerating government restructuring and addressing thelingering impacts of the 1997 economic and financial crisis as well asthe general global economic slowdown. It has thus assigned low prior-ity to supporting civil society other than for instrumental uses, such ashealth campaigns. Faced with these constraints, Thai civil societyorganizations therefore need to articulate clear and compelling plansfor the future in order to generate support from the Thai govern-ment, ODA partners, and the Thai public.

Thailand preceded a number of its Southeast Asian neighbors ingraduating from external donor funding. As the economy boomed inthe late 1980s, a number of ODA agencies instituted discussions andplans to phase out official assistance programs, including somearrangements that left permanent funding for ongoing civil societyinitiatives. Although some donors put phase-out plans on hold inresponse to the 1997 financial and economic crisis, most donors lefttheir exit strategies in place. Before reviewing the history of ODA-civil society partnerships in Thailand, the first section examines


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1 This paper builds onfollows on the generaloverview of ODA-NGOcollaboration in SoutheastAsia presented in Winder(2003).

2 The Synergos Institutehas previously character-ized these organizations as“civil society resourceorganizations,” orCSROs. They are notunlike the “foundations”of North America.

current challenges to Thai civil society. The final section examinescurrent prospects for further partnerships between ODA agencies andcivil society, and implications for the future of Thai civil society.

The Rise of Thai Civil Society

The rise of the middle class and civil society – defined broadly toinclude NGOs, foundations, people’s organizations (POs), laborunions, and the media – are among the most fundamental recent shiftsin Thai society (Girling 1996). During the 1990s, NGOs gainedincreasing prominence in shaping the social agenda, including that ofthe government. The most important cases that illustrated this areNGO involvement in developing Thailand’s Eighth NationalEconomic and Social Development Plan and the drafting of the 1997Constitution.3 A number of NGOs and social visionaries have focusedon linking civil society to the defense of human rights, grassroots poli-tics, people’s participation, and enhancing the self-reliance of commu-nities.

The peak of civil society’s influence thus far was perhaps its role inseeing through the country’s 1997 “People’s Constitution,” whichallowed for structural changes that enhance the position of non-elitesin Thai society. A number of NGOs played central roles in conceptu-alizing and implementing a process to develop a national consensusregarding Thailand’s goals. The resulting “People’s Constitution” wasa revolutionary document enshrining both unprecedented human,social, and economic rights (including universal access to educationand quality health care) and community rights to manage naturalresources. The 1997 Constitution provides for the establishment of anumber of independent organizations, including the Human RightsCommission, Election Commission, Office of the Ombudsman, arevamped National Counter Corruption Commission, NationalAudit Commission, and an independent telecommunications regula-tory body. The importance of these bodies in redressing historicalpatterns of corruption, abuse of power, and official disregard of thepublic is best illustrated by the lengths to which politicians go toundermine them. Politicians, including current Prime MinisterTaksin Shinawatra, have called for a rollback in powers of independ-ent organizations. (After running on a platform of corruption busting,


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3 Subsequent civil societyinvolvement in preparingThailand's Ninth Planwas much less broad-based due to budgetaryand time constraints.

Shinawatra was himself subsequently cleared by the ConstitutionalCourt of a National Counter Corruption Commission indictment, adecision shrouded in controversy.)

Significantly, a number of these independent organizations seecivil society as critical to accomplishing their mandates. The chair ofThailand’s Human Rights Commission states the challenge as how tocreate a “mutual sense of belonging …between itself and the public atlarge.” The commission also outlined a multi-tiered system involvingcivil society in the protection and promotion of human rights(Chamarik 2002). Creating public demand for transparency, account-ability, straightforward government procurement, open information,and protection of human rights is fundamental to the principlesunderlying the independent organizations.

Civil society was also greatly responsible for gains – protected bythe 1997 Constitution – regarding women’s issues and communityrights (particularly regarding management of local natural resources,consumer rights, and AIDS).

Decentralization, enshrined in the 1997 Constitution, is an inte-gral part of political changes occurring in Thailand. New localresponsibilities and capacity supported by a complex system of trans-fers from central budgets to local Tambon AdministrativeOrganizations (Por Tor in Thai) considerably alter relationships withnational government agencies. These local administrations nowreceive some 25 percent of national budgets, an amount scheduled toreach 35 percent by 2006. A recent study indicates that some 140government funds provide loans or grants for which civil society cancompete, amounting to a total of US $575 million (LocalDevelopment Administration 2000).

At the same time, in a variety of thematic areas, organizations andnetworks of groups are institutionalizing themselves to differingdegrees. Women’s groups have relied to a large extent on university-based women’s studies centers and on linkages with the old-lineNational Commission on Women. Some networks of women leaders,however, are demonstrating capacity for action on their own, as exem-plified by the Women’s Paralegal Volunteers Network (a largelyNorthern Thai network of village women who work to create a betterunderstanding of the Constitution and rights issues at the local level).

The Consumer Protection Association prints a high-qualitymonthly magazine, boasts strong nationwide readership, seeks redress


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of violation of individual consumer rights, and, by networking withother NGOs, addresses structural issues such as universal health care.

Health-related NGOs have played crucial roles, not only inachieving universal health care but in unmasking extensive corruptionin the Ministry of Public Health procurement procedures. NGOs andgroups of people living with HIV/AIDS have established strongregional and national networks and work closely with public healthofficials to address AIDS prevention, reduce stigmatization, ensureequitable access to care, and promote home and community-basedcare. Over 100 NGOs and several hundred informal groups networkthrough the Thai NGO Coalition on AIDS and the Thai Network ofPeople Living with HIV and AIDS.

Environmental NGOs appear to have the least institutionalizedlinkages of these issue-oriented groups. No single national coordinat-ing body represents environmental groups and their diverse agendasand perspectives of urban versus rural groups and preservation versussustainable human development approaches. Despite this, significantnetworking among the numerous organizations addressing environ-mental concerns throughout Thailand is occurring. Many aremembers of the NGO Coordinating Committee on Developmentwhose environmental arm is large and active, having hosted annualreviews of the environment during the 1990s. Environmental NGOshave actively protested dam and power plant construction and haveworked at the local level to promote environmentally sustainable agri-culture in a number of settings, from mountains to rice fields tomangrove forests.

Nonetheless, certain weaknesses – including factionalism, gaps incoordination, limited funding and capacity, and incomplete institu-tionalization of linkages between the largely urban middle class andother, often rural and poor, communities – continue to hamper civilsociety’s progress. Although important gains have been achieved indeveloping such linkages, NGO activists rate them as relatively weakand therefore deserving of support. Some argue that the supportneeded is largely non-monetary and press for greater voluntarism inThai society (Nakabatura 2002).

In a period of declining external support, domestic Thai NGOshave found themselves increasingly under pressure to work at theSoutheast Asian regional level as a survival strategy. While this shiftmay provide new opportunities to network at increasingly broader


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levels on issues with regional and global dimensions, in some cases itis clear that NGOs are simply following the money. As a consequence,Thai NGOs have fewer resources to devote to local needs and issues.

The Shape of Thai Civil Society Organizations

Until recent years, those intermediary NGOs in a position to mobi-lize and transfer resources have been dominated by government-established and government-funded institutions, such as the NationalCouncil of Social Welfare, the National Council of Women, and theThai Red Cross.4 Although the 1960s brought a wave of activism andthe emergence of independent nonprofit organizations, the mid- tolate-1970s conservative backlash and severe restrictions on any organ-ization not supported by government resulted in a period of stagna-tion for civil society. It was not until the mid-1980s that nonprofits re-emerged as a social force. It is largely the organizations and leadershipthat emerged during that period which continue to shape Thai civilsociety today.

Given declining external funding for civil society, many organiza-tions that have played key roles in promoting civil society have turnedto the Thai government for support. In the government’s view,however, civil society is often seen as a means to a short-term end,such as improved community health or reduced drug use, rather thanas a worthwhile goal itself which might encourage communities tobecome more self-reliant and develop local solutions. At the sametime, NGOs are becoming increasingly compartmentalized inresponse to declining funds. The institutionalization of civil society isneglected and perhaps even eroded as civil society is exploited for itsinstrumental value.

As a result, the promise of the 1997 constitution of increasedcommunity control and self-determination remains at best onlypartially fulfilled. Aside from some notable exceptions, communityactivities look very much the same as they did a decade ago: theyrespond narrowly to mandates established in Bangkok and are shapedby the constraints of annual government budget cycles. At the sametime, the media faces heavy pressure to report only what the govern-ment wants. All told, the state of civil society in Thailand appears lessrobust than it did during the period surrounding the 1997 promulga-tion of the constitution.


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4 Such organizations aredetailed more in theNational Directory ofCivil Society ResourceOrganizations: Thailand,2002, by the Center forPhilanthropy and CivilSociety and the SynergosInstitute.

Outstanding Challenges

Thailand’s principal local funding organizations tend to have a devel-opment focus that is lodged in a framework challenging underlyingstructural issues, which allow for great disparities in income and inaccess to the rights of citizenship, including education and othersocial services. While this framework remains relevant, their fundingfocuses on addressing these challenges at the lowest level – the village– rather than fully exploiting opportunities to effect national policyand regulatory change consistent with the constitution.

The absence of broader-based aims which would support humanrights watchdog organizations as well as organizations monitoring theprocess of government and constitutional reforms has resulted in anad hoc funding process and contributed to periodic disruptions inactivity. In a sense, civil society has not kept up with the changeswhich civil society itself fostered in the development of the 1997“People’s Constitution.”

Thai decentralization and presumed increase in local controlprovide an opportunity for a major shift in the roles of NGOs (manyof which have in the past characterized their relationship to commu-nities as one of pii liang, or “nanny”), in anticipation of the day whencommunities might have more power. That day has now come. Thechallenge is to develop a new sense of direction and an enhanced senseof the nature of the relationship between NGOs and communitieswhich takes into account new local powers.

In this context, several outstanding challenges to civil societydeserve reiteration. These include:

• Institutionalization of civil society linkages from the local tonational levels and across sectoral lines. Such linkages couldsupport the efforts of Thailand’s new independent organiza-tions by creating public awareness and strengthening localcapacities for effective communication with these agencies, aswell as the broader range of government institutions.

• Broadening civil society development in communities yetuntouched by prior efforts and developing new ways of work-ing to advance constitutional guarantees which remain limitedby existing laws.5


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5 In a quixotic legal twist,existing regulationsremain in force regardlessof inconsistency with theconstitution until success-fully challenged in a courtof law.

• Support for key provisions of the 1997 constitution includingcommunity resource management, human rights, and free-doms of speech and the press.

• Strengthening public understanding and acceptance of NGOsand their roles in society.

Regarding the latter challenge, an earlier study of Thailand’snonprofit sector found the private sector unlikely to support civilsociety because of trust issues (Pongsapich 1997). These relate both toconcerns regarding perceived radicalism of NGOs, Bangkok frustra-tion with street protests (resulting in snarled traffic) seen as linked toNGO activism, and the lack of social accountability of many NGOs –a factor conceded by NGOs themselves. A recent survey by the KingPrajadhipok Institute confirms the low opinion society holds ofNGOs, ranking them at the low end of the spectrum just above thepolice and media. Public sentiment toward NGOs has also beenshaped by larger political events: driven by fears of Communism,right wing government officials of the 1970s banned organizationssuch as NGOs because they were not created by the government. Asthe ban was relaxed during the 1980s, politicians allegedly manipu-lated civil society – particularly labor unions – for their own purposes.Subsequent government interest in maintaining a favorable climatefor foreign direct investment, presumably buttressed by concernsregarding political manipulation of labor, led to the AnandGovernment’s action to ban labor unions in the early 1990s. Althoughthis ban has been rescinded recently, many government officials stillperceive NGOs to be supported by a “Third Hand” of ominousoutsiders, intent on destroying Thailand. Thai civil society thereforeneeds to improve public understanding of and sustained support foritself. This aim might be of potential relevance to the donor commu-nity.

The Road Once Traveled

As Thailand’s boom began in the late 1980s, several major ODA play-ers developed plans for the phase-out of their development assistance.As those plans were implemented during the 1990s, the countrysuffered a major economic and financial crisis starting in 1997.


64

Thailand went from a model of successful development to one of whatcan go wrong.

While the collaboration between Thai ODA and civil societyduring this phase-out planning period had some successes, the expe-rience reveals several common problems in developing sustainablefunding arrangements. These problems provide clear entry points forboth the international community and Thai public looking to supportcivil society. Four organizations are detailed in the appendix; becauseseveral raise important issues for sustainable financing, three of themare discussed briefly here.

Local Development InstituteForemost among ODA-civil society partnerships is the work of theCanadian International Development Agency (CIDA) with the LocalDevelopment Institute (LDI) and its funding arm, the LocalDevelopment Foundation. This partnership is synonymous with theThai NGO movement having fostered nation-wide action and capac-ity through both resources and a focus on process that created stronglinkages between local communities and development issues. Owingto a legal framework in Thailand that does not permit an operatingorganization to also extend grants or loans, two institutions were setup: the foundation which holds and transfers the monies accrued andthe institute which operates programs and projects. For the purposesof this chapter, the name LDI will be the name used. LDI was nevertechnically endowed by CIDA owing to regulations not allowingCIDA to participate in such an arrangement. The agency did,however, transfer loan savings to LDI in the amount of approximatelyUS $660,000 when it terminated its project funding in 1998.6

Development Cooperation FoundationA one-time injection of Thai counterpart funds from US governmentoperations in Thailand, managed by the Thai Department ofTechnical and Economic Cooperation and complemented by a grantof Canadian funds channeled through CIDA, established a secondinstitution, the Development Cooperation Foundation (DCF).7 Thecombined inputs established an endowment of US $952,000. Duringits early years, interest earned on this endowment enabled DCF tosupport a number of activities that fostered one of its principal aims:to promote Thailand’s philanthropic and civil society movement.


65

6 All conversions are at therate of Baht 40 = US $1.

7 Counterpart funds refer tothose that come from alocal proponent (often thegovernment) in the coun-try where the project isoccurring and is usuallycontributed in localcurrency.

DCF has utilized its permanent funding base and linkages of promi-nent Thai Board members to mobilize international and Thai privatesector support for its agricultural water shortages project.

Kenan Institute AsiaA third foundation needs mention in this context. The KenanInstitute Asia (KIAsia), registered in 1996 as a private Thai nonprofitfoundation, aims to continue a Thai-US development partnershipfollowing termination of the bilateral US Agency for InternationalDevelopment (USAID) program in Thailand. USAID, the RoyalThai Government, and the William R. Kenan Charitable Trust(including the Frank Hawkins Kenan Institute of Private Enterprise)contributed to the KIAsia endowment. The original partnerscontinue to support the foundation through funding projects and byboard membership.

While KIAsia focuses largely on business practices, environmentalmanagement, human resource development, and information andcommunications technology, it emphasizes the importance of civilsociety in all its work. KIAsia also funds NGO and community proj-ects that contribute to improved understanding and monitoring ofenvironmental issues at the community level and better environmen-tal management practices.8

Kenan views its US $12.1 million endowment as conferring finan-cial stability and funding flexibility, which Kenan has successfully usedto attract additional funding. KIAsia continues to draw new USAIDfunding and has actively and successfully sought US and Thai privatesector contributions, the latter amounting to near US $0.5 million foractivities (largely in skills training and general education) during 2001to 2004.

Constrained Financial Capacity

As bank interest rates plummeted in the late 1990s, both LDI andDCF faced a choice: continue grantmaking at the expense of person-nel cuts or meet operating expenses by cutting grantmaking. Bothchose the latter route. The inadequacy of their endowments forsustained grant support to civil society is buttressed by a recent studythat indicates an endowment in the billions of Baht would be requiredto meet current development needs (Pongsapich 2001). While one


66

8 Funds come from the US-Asia EnvironmentalPartnership (US-AEP)Community ParticipationInitiative.

can argue about the assumptions used in estimating need, thecombined assets of DCF and LDI amount to less than one tenth ofthis estimate.

This situation contrasts with that of KIAsia’s assertive and success-ful efforts to maintain continued donor support and generate newsources of funding to continue its grantmaking. While DCF and LDIhave also successfully attracted additional funding, that funding haslargely been used for direct project implementation and the instru-mental use of civil society as a mechanism to achieve governmentgoals. Indeed, LDI in particular has received monies from the govern-ment. This has meant a shift in priorities and approaches from earliergrantmaking roles played by these organizations. The critical impor-tance of developing an adequate endowment and having diverse fund-ing sources is highlighted by the different experiences of KIAsiaversus the less generously endowed DCF and LDI. Nonetheless,KIAsia’s favorable financial position has not guaranteed it a coherentand consistent programming approach, relying as it does on externalfunding to cover the majority of its projects’ costs.

Fund Management

With Thai bank interest rates hovering between one and two percent,some NGOs took advantage of a mid-2002 issue of governmentbonds offering returns of five percent and more, depending uponbond maturity. Neither DCF nor LDI purchased these bonds. In thecase of one of these organizations, the penalty on breaking a longer-term certificate of deposit would have resulted in a financial loss for aswitch to bonds. In the other case, the organization’s managementdidn’t realize the opportunity. Counterpart funds held in the name ofKIAsia are restricted by the initial agreement to certificates of depositin a government-linked bank; their low yields are offset to someextent by the dollar portion of the KIAsia endowment. KIAsia’s USfund manager is credited by KIAsia management with having main-tained the value of the fund in a difficult financial environment.

Thailand’s experience to date with ODA-civil society collabora-tion demonstrates the importance of addressing financial sustainabil-ity issues, namely: having an endowment sizable enough to withstanddrops in interest or other income; management alacrity and flexibilityin financial management; and consistent board and management


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focus on the organization’s aims, including exploring innovative waysof sustaining those in the face of changing conditions.

Institutional Issues

While an extensive evaluation of institution building within the threeorganizations highlighted is beyond the scope of this review, thecontrasting experiences of the three raise interesting issues forfunders and others interested in the fate of civil society in Thailand.

The two smaller, and still struggling, organizations are fully Thaioperations, largely overseen by boards drawn from academia, retiredand current government officers, and activists. It is perhaps not coin-cidental that KIAsia, the largest of the three (whose endowment issignificantly larger than the funds of the other two), draws its boardfrom the highest levels of Thai and US government and businessechelons, and includes a decidedly bicultural staff allowing it access toUS funds much more readily. The role of boards in providing strate-gic guidance, engaging with potential partners, and providing focus tooperations appears to be critical.

KIAsia also differs from DCF and LDI in the technical focus ofmuch of its work, though it also emphasizes civil society in many ofits efforts. For example, KIAsia’s endowment enables it to providelonger term program funding to organizations and issues in the healthsector relative to LDI at this time. Longer term funding offers thepotential for deeper and more permanent engagement than an annualfundraising plan.

Not unlike the experience of many new organizations in their earlystages, by the time Canadian funding was terminated LDI’s evaluatorsconcluded that the organization had focused too much on internalmanagement issues and not enough on its own strategic institutionbuilding. Although comparable evaluations have not been conductedfor the other two organizations reviewed above, the phrase resonatesas one with considerable implications for Thai civil society.

ODA Exit Strategies

Several bilateral assistance agencies developed their plans for phase-out of Thailand during the late 1980s. Australia, Canada, Japan, and


68

the United States all entered discussions with the Thai Department ofTechnical and Economic Co-operation, as the government aid coor-dination agency, regarding future support. These discussions led tothe emergence of the three Thai organizations referred to above.

Assuming that Thailand’s economic growth was strong, Canadasignaled changes in its priorities and plans for phase-out of assistanceby the mid-1990s (Posgate 1998). The new strategy, aiming to estab-lish more commercially oriented partnerships, prioritized assistanceto the commercial and industrial sectors, including human resourceand technology transfer.

The Canadian assessment reflected a view common amongBangkok’s diplomatic corps that things were going well on all frontsin Thailand. It also responded to increasing pressure, emanating fromthe capitals of the respective bilateral agencies, to harness ODA inorder to facilitate home country commercial interests taking advan-tage of Thailand’s high-growth opportunities.

Thailand’s 1991 coup d’état and the deadly clashes of May 1992(preutsapa phmin, or “Black May,” as it is referred to) may have joltedODA agencies, but there is scant evidence that these events materiallychanged plans already in place for phase-out of development assis-tance. The 1997 financial and economic crisis, however, did result inthe continuation of assistance from several bilateral donors, some ofwhich are now again focused on terminating their programming inThailand.

Transition Plans

Canada and Australia have substantially redirected their focus towardprivate sector programs, as had the United States prior to its closureof the USAID Mission to Thailand in 1995. USAID has nonethelessprogrammed substantial funding through KIAsia and is preparing toopen a Bangkok-based USAID Regional Mission in 2003. TheDelegation of the European Commission has a regional mandate, anda number of EU member countries including Belgium and theNetherlands are no longer actively providing development assistanceto Thailand.

Although both the importance of civil society and the opportuni-ties created by the 1997 constitution are generally acknowledged bydonors, none indicates a strong interest in permanent unrestricted


69

funding for civil society efforts. Some embassies, such as that of theNetherlands, indicate that their governments have no policy tosupport such funding arrangements. Others, including the AustralianEmbassy, express interest and indicate that the constraints faced areneither policy nor home-country law but having sufficient human andfinancial resources to develop plans for such alternatives as debt swapsor use of counterpart funds to permanently support organizations. Asone ODA representative indicated, counterpart funds managed by theThai government are generally used for training and scholarshipsconsistent with the original program objectives. Any request for otheruses must originate with the Thai government.

In several cases, while ODA focus has shifted to the use ofThailand as a base for regional activities and support of regional workby Thai institutions, foreign donors indicate that they are continuingto provide considerable support for Thai activities. They perceivetheir programming to be satisfactorily engaged with Thai civil soci-ety, and hence see little reason to consider debt swaps or otherarrangements to permanently endow Thai organizations.

Table 1 summarizes the status of assistance transition plans ofseveral of Thailand’s development partners. The table is based oninformation from agency websites augmented by discussions withofficials of the relevant funding agencies, reflecting the status as oflate 2002. Annual assistance levels reflect a mix of the most recentyear or of average annual funding levels for a program cycle. The finaltwo columns in the table indicate the status of consideration of thetypes of innovative funding options which are the focus of this studyand include additional comments that are intended to provide furtherinsight into the prospects for the development of endowmentsthrough either the use of counterpart funds or debt swap arrange-ments.

AustraliaAlthough Australia developed plans in the 1990s to phase out its bilat-eral assistance to Thailand by 2001 because it characterizedThailand’s economic growth through 1996 as rapid and sustained, itno longer has a deadline for “graduation” of Thailand. FollowingThailand’s 1997 economic crisis, Australia agreed to extend the dura-tion of its support.9 Post-crisis assistance focused on governmentcapacity building, specifically regarding good governance, economic


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9 See the Thailand Countryinformation sheet onlineat www.ausaid.gov.au/country/country.cfm?CountryId=32 for more infor-mation.

and financial reform, and mitigating economic crisis impacts on thepoor, amounting to US $9.5 million annually.

Thailand’s relatively high level of development and its importantposition in the Mekong sub-region, both geographically and econom-ically, provide the basis for the evolution of the aid relationship from


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Country

Australia

Canada

European Union

Japan

Netherlands

New Zealand

United States

AnnualAssistance(US$)

$9.6 m

$15 m

Modest

Modest

$25 m

Program Components

· Enabling Thailand’s effective regionalengagement through strengtheningof foreign affairs, trade and financecapacities

· Limited community focus to developskills to communicate with govern-ment

· Linkages with Australian counterparts

· Trilateral cooperation with Thailand inneighboring countries

· Continuation of on-going communitydevelopment, good governance, andpoverty reduction programming

· Environmental protection, stimulatingrural economy, HIV/AIDS, refugeeand migrant issues

· Small grants to grassroots organiza-tions

· Private sector

· Currently reviewing strategies· Graduate scholarships and small

projects funds (principally NGOs andcommunity organizations) available

· Other traditional bilateral aid hasended

· Regional issues, including HIV/AIDS,human trafficking, migrants, goodgovernance, economic reform

PlannedExit Date

None

2006

RegionalDelegation

Contingenton outcomeof plannedreview

Missionclosed in1995;regional toopen 2003

Counterpart FundOption

Possible, butconstrained byfunding and personnel limits

Counterpart fundsused to create DCFbut similar arrange-ments not underconsideration

Not applicable

No informationavailable

Not applicable

Not applicable

Counterpart fundsjointly created DCFand KIAsia but simi-lar arrangementsnot under consider-ation

Debt Swap Option

Possible, butconstrained by fundingand personnel limits

Not considered, norlikely to be

No outstanding loans tothe Thai government.

No policy in support ofdebt swaps and nooutstanding loans

No outstanding loans

Attempted forestry-related debt forgive-ness; abandonedbecause of complexity

Availability of Non-Grant Funding

TABLE 1ODA Exit Strategies (as of 2002)

donor/recipient to development partnership in the region. Under arecently agreed trilateral aid partnership, Australia and Thailand willjointly undertake activities that benefit third countries in the region.A three-year strategy is currently being developed that would focus oncapacity building to position Thailand to better engage in the Asianregion. Indeed, Australia’s current assistance is primarily focused onbuilding Thailand’s capacity to address economic and public sectorgovernance issues. The new Thailand-Australia Government SectorLinkages Program will promote institutional strengthening andcapacity building in Thai Government agencies. The program utilizesa partnership approach, with joint activities planned and implementedby Australian and Thai Government agencies. Direct assistance to thepoor and disadvantaged will continue through grants to local NGOs,available in the past as the Australian Community Assistance Scheme,a quick-disbursing grants mechanism managed by the Embassy andfocusing on five areas: environment, sustainable agriculture, health,education, and good governance.

The Australian government also provides some A $11 million (US$6.8 million) over a three-year period for the development ofimproved skills at the community level to communicate with govern-ment. While acknowledging the importance of civil society supportand the theoretical possibility of innovative financing to provide suchsupport, budget and staff realities combined with the political climateare not conducive to such efforts.

CanadaCanada is currently embarking on a transition plan that would end itsbilateral program in March 2006. During the transition period, CIDAwill continue to work with the Department of Technical andEconomic Co-operation in support of Thai training and educationneeds, research programs of the Thailand Development ResearchInstitute pursuant to the Canadian emphasis on poverty reduction,and good governance programming with DCF. Through the founda-tion, CIDA has been helping to strengthen the Office of theOmbudsman, Administrative Court, Human Rights Commission,Secretariat of Parliament, and Office of Official Information. In addi-tion, DCF funding will support the Parliament Secretariat, the Thaichapter of Transparency International, and the King PrajadhipokInstitute, a research institute focused on politics and democracy.


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As part of its transition plan, Canada will also reduce support levelsfor the Canada Fund, although the extent of that reduction has yet tobe determined. The Canada Fund is designed to be responsive toproposals relevant to its focus on poverty reduction and sustainabledevelopment. The fund currently supports the Thai FundFoundation, profiled in the appendix. Generally, it makes one to two-year grants to both registered and non-registered development organ-izations and grassroots groups, but not individuals. Grants averageUS $5,900 to $8,300 annually. CIDA sources indicate that theoutlines of the transition are well in place, and that debt swaps, coun-terpart funding, or other alternatives to provide long-term fundingsupport through NGOs has not been considered and nor is theirfuture consideration likely.

European UnionAt the time of Thailand’s rapid development in the mid-nineties,Thailand and the European Community agreed to re-focus coopera-tion activities on increasing their economic links in order to buildcloser relations in the long-term between the EU and Thailand.10 EUsupport focuses on strengthening the cooperation framework and onmaking an effective contribution, through institutional dialogue,economic and financial cooperation, to sustainable development,social and economic stability, and democracy. Activities are developedand funded on a project basis under the framework of the EUCommission, focusing on trade and investment and public healthreform (EC-Thailand Country Strategy Paper).

A number of bilateral EC-supported projects/programs operate inThailand in sectors such as energy, public health, environment, ruraldevelopment, narcotics, and humanitarian assistance. Ongoingprograms are valued at some US $60 million, and include support tocivil society efforts to address HIV/AIDS and migrant/refugeeconcerns (see Table 2 on the following page).

JapanThe Japanese International Cooperation Agency (JICA) administers atechnical assistance program within the broad JICA framework oftransfer of technology and knowledge, as part of its nation-buildingobjective. JICA provides five broad categories of assistance (socialdevelopment, health and medical care, agricultural development,


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10 For more information,see the Delegation of theEuropean Commissionto Thailand website atwww.deltha.cec.eu.int/en/index.htm.

forest and nature conservation, and development of mining andmanufacturing industries), although not all are represented inThailand. The program is explicitly bilateral – therefore workingprincipally with government agencies – and viewed as technical assis-tance rather than as a funding resource.

Japan stands as Thailand’s main creditor, having pledged morethan US $2 billion under the regional Miyazawa Initiative. Even priorto the 1997 crisis, Japan’s bilateral program was the largest one inThailand, at about US $1 billion annually (principally loans). Japaneseassistance focuses on export finance, agricultural credit, industrialtraining, central markets and co-operatives, the environment, andsocial development. Those close to the JICA program indicate thatwhile JICA in principle supports the strengthening of civil society,existing financial regulations are not NGO-friendly, even for JapaneseNGOs. Assistance to civil society largely takes the form of smallgrants for grassroots organizations, provided both by JICA and theEmbassy of Japan.


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Country

United Kingdom

Germany

Denmark

Finland

Sweden

Program Components

· Education, human rights, good governance, HIV/AIDS,peacekeeping, health, refugees, landmines.

· Economic reform and development of a market economyand specifically the strengthening of Thai small/mediumenterprise competitiveness.

· Private-public partnerships, advisory services for indus-try, cooperation with German political foundations andscholarships.

· Gives to Mekong River Commission and Asian Institute ofTechnology in Bangkok.

· Mixed credit schemes are being explored.

· Mostly regional programs funded.· Poverty alleviation and improvement of environment in

the Mekong River Region.· Some support for small-scale projects, especially through

local NGOs.· A financial technical assistance program for industrial

joint ventures exists through FInnfund, a Finnish invest-ment company.

· Burmese refugee concerns.· Contributes to Asian Institute of Technology, Mekong

River Commission, and UN Environmental Programme forThailand.

· Awards soft loans for technical cooperation and 50 Thaisparticipate annually in training courses in Sweden.

Annual Assistance (US $)

$2.5 million

$5 to 7 million

$8 million

$1.7 to $3.4 million

$ 2.2 million

Table 2EU Member States:

Assistance to Thailand(as of 2002)

The countries included here

are the main sources of

foreign development

assistance to Thailand.

Source: EC-Thailand Country

Strategy Paper, 2002-2006.

United StatesAnticipating the 1995 closure of USAID’s Thailand mission, theagency and the Thai government agreed to the release of counterpartfunds to support the DCF and KIAsia. Since that time, USAID hassupported the regional work of organizations based in Thailand.Regional funding now amounts to some US $30 to $25 million annu-ally. While a large share of this amount is spent in Thailand, officialsemphasize there is no intent to re-launch a bilateral program. The USis currently developing a strategy to work through the Thai govern-ment as part of the 2003 opening of a Regional Mission, based inBangkok. Tentative plans include support for the Office of the CivilService Commission and Ministry of Public Health as well as trainingand scholarships. USAID works with a few key civil society partners:The Asia Foundation, KIAsia, and the American Center forInternational Labor Solidarity.

USAID sources indicate that funding from counterpart funds isnot currently on the table, but that any such request would have to beinitiated by the Thai government, which now uses remaining coun-terpart funds principally for training consistent with earlier USAIDbilateral programming. USAID and the Thai government recentlyworked to develop a forestry-related debt forgiveness scheme butfound it to be so complicated that the effort was terminated, accord-ing to US sources. One such complication was the development of thedebt swap plans with limited indigenous input, resulting in NGOprotests shortly before the agreement was finalized.

What’s Next?

The 1997 constitution set in place reforms of fundamental impor-tance to Thailand’s ability to achieve equitable and sustainable devel-opment. Ensuring that the promise of the constitution is realizedrequires sustained public attention; civil society, including NGOs,labor unions, business groups, the media, and POs all have importantroles to play in this process. Neither the process nor the outcomes areinconsequential to Thailand’s international partners.

The development planning process varies in complexity and dura-tion among the ODA agencies surveyed in connection with thisreport. In most, it involves three- to five-year lead times, political


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priorities of the home government, some weighing of the relativeurgency of need in Thailand versus other countries, and an attempt tobalance the relative importance of various sectors in Thailand. Asresources become increasingly scarce among Thailand’s developmentassistance partners, the challenge to civil society becomes moreintense, especially as the case for long-term support really has to bemade to politicians in a distant capital. Clearly, it is easier for ODAagencies to continue established project modes than to seek outsupport of distant bureaucrats and politicians to support a strategy ofbuilding endowments.

For civil society organizations, the development officers withinembassies or assistance agencies along with the ambassadors representthe points of entry in any effort to secure long-term support. Giventhe bilateral nature of development assistance, the importance ofsecuring political support from Thai leadership is crucial to any effort.Perhaps the greatest challenge for Thai civil society in obtainingpermanent financial support from development agencies lies withinThailand’s own bureaucracy, including, but not limited to, theDepartment of Technical and Economic Co-operation. While thisdepartment has historically looked upon official development assis-tance as a resource for public agencies, there are precedents ofsupport being extended to civil society, both through time-boundgrants and in permanent arrangements such as those referred to above– LDI, DCF, and KIAsia. Funding arrangements involving debt swapsor debt forgiveness would involve other actors, including the Ministryof Finance and possibly the central bank. Nonetheless, currentgovernment reforms intended to reduce the role of central govern-ment agencies may offer civil society organizations a rare opportunityto make the case that they produce important public goods anddeserve consideration in programming of ever-scarcer developmentassistance budgets (or through the less conventional alternatives ofdebt swaps and debt forgiveness schemes).

While it is not the intent of this chapter to paint a gloomy pictureof the prospects for ODA-civil society partnerships in Thailand, therealities are clear:

• Most ODA programs have already embarked on transitionplans, as outlined previously.


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The progressively

smaller and more

narrowly targeted pool

of external funding

requires that Thai

organizations become

increasingly resourceful

in how they tap resources

• No ODA programs canvassed in connection with this chapterhave plans to augment its support for civil society throughpermanent unrestricted funding in the form of an endowment.

• Thai civil society faces major public education challenges toovercome public antipathy toward the sector.

Maintaining civil society programming appears likely to become agreater financial challenge in Thailand, requiring increasingresourcefulness on the part of Thai organizations to access theprogressively smaller and more narrowly targeted pool of externalfunding and tap domestic resources. Should civil society becomemore reliant on government as a funding source, maintaining an inde-pendent, critical voice will require great political acumen to avoidsimply being cast as service providers.

While no ODA agencies indicated specific plans to augment theirsupport to civil society, it is perhaps premature to rule out this possi-bility. To date, civil society organizations have not come together todevelop and present a strong rationale for more ODA support. Givengeneral donor acknowledgment of the importance of continueddevelopment of civil society, a concerted joint effort on the part ofcivil society leaders might yet meet with donor support.


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References

Publications

Saneh Chamarik. The Role of the National Human Rights Commission,Thailand. 2002. (Presented at the Conference on National andRegional Systems for the Promotion and Protection of Human Rightsorganized by the Friedrich Neumann Stiftung, France, October 7-11,2002.)

The EC-Thailand Country Strategy Paper. 2002-2006. Online at:europa.eu.int/comm/external_relations/thailand/csp/index.htm

Girling, J.L.S. Interpreting Development: Capitalism, Democracy and theMiddle Class in Thailand. New York: Cornell University Press, 1996.

Local Development Administration. Mechanisms and Administrationfor Civil Society Development Fund. Supported by the World Bank,2000.

Pongsapich, Amara and Nitaya Kataleeradabhan. Rabob lae golgai puagan borihan gong toon pua gan pattana. Bangkok: ChulalongkornUniversity Social Research Institute, 2001.

––––. Thailand Nonprofit Sector and Social Development. Bangkok:Chulalongkorn University Printing House, 1997.

Posgate, Dale and Paul A. Turcot. Local Development Foundation Project(906/14437): End of Project Report. Submitted to the Canadian


78

International Development Agency, September 1998 (includingMarch 1999 addendum).

Center for Philanthropy and Civil Society and The SynergosInstitute. National Directory of Civil Society Resource Organizations:Thailand. New York: The Synergos Institute, 2002. Online at:www.synergos.org/globalphilanthropy/02/seasiacsrodirectories.htm

Winder, David. Options for Financial Sustainability: Collaborationbetween Civil Society and Development Agencies in Southeast Asia. NewYork: The Synergos Institute, 2003.

Interviews

Personal interview with Anek Nakabatura, November 2002.


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Chapter FourThe Rise of Philippine NGOs

in Managing DevelopmentAssistance

By Consuelo Katrina A. Lopa

T H E R I S E O F P H I L I P P I N E N G O S I N M A N A G I N G D E V E L O P M E N T A S S I S T A N C E

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Introduction

In recent years, official development assistance (ODA) agencies havebeen increasingly exploring avenues for supporting community devel-opment initiatives more directly. The result has been the creation ofa diversity of new funding channels, many of them involving NGOs,both in the host and donor countries. Little analysis has beenconducted, however, of what has been working, including the howand why, and few attempts have been made to share examples morewidely. This chapter seeks to address this gap by looking at the case ofthe Philippines in detail and follows on the general overview of ODA-NGO collaboration presented by David Winder in Chapter Two.

Various stakeholders in the Philippine development communityhave warmly received the practice of NGO management of ODA.NGO management of ODA funds transfers traditional decision-making powers over allocation and use of funds, from donor repre-sentatives and host government agencies to collegial bodiescomprised of or influenced by NGO representatives. This chapterexplores this rise of Philippine NGOs in managing ODA, looking atthe different forms of NGO-managed mechanisms and challengesand opportunities for NGOs and ODA agencies moving forward.

Background

NGO management of ODA has existed since Corazon Aquino’sassumption of power in 1986. In fact, policy direction for this isoutlined in the National Economic Development Authority’s(NEDA) 1989 guidelines for government-NGO collaboration. Theguidelines state that NGOs may directly negotiate with foreigngovernments for ODA.


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Aside from the policy directive issued under the Aquino govern-ment, several factors have contributed to an environment conduciveto NGO management of ODA:

• Due to the fifteen-year imposition of Martial Law between1972 and 1986 by President Marcos, the Philippine govern-ment has a history of graft, corruption, mismanagement, and insome cases, participation in the suppression or violation ofcivil, political, and human rights. In areas where the govern-ment bureaucracy could not deliver necessary social services,other development stakeholders had to step into that role.

• Philippine NGOs have successfully advocated for a greater rolein the delivery of social services as well as in attaining assetreform. They stress their strong relationships in local, poorcommunities, a commitment which grew out of working withpoor communities under the Marcos dictatorship.

• The impacts of development NGOs in community develop-ment and community economic development have demon-strated the capacity of these NGOs to be flexible, adaptable,and capable of innovative approaches to development chal-lenges.

• NGOs have typically incurred lower costs under less bureau-cratic project implementation measures than government hastypically due to government graft and bureaucratic misman-agement.

NGOs thus presented another means by which ODA could bedirected towards the poorest communities at a time when foreigngovernments wished to demonstrate their support and commitmentto the newly installed democratic government.

On the other hand, government performance in the area ofmanaging ODA has also been sadly lacking. A report by thePresidential Task Force on the 20/20 Initiative entitled, “ODAPerformance within the 20/20 Initiative Framework,” came to thefollowing conclusions:

• Only 8-11 percent of the Philippines ODA portfolio has beenallocated to basic social services between about 1994 and 2001.Over 50 percent has been devoted to infrastructure support.

• Within ODA spending on basic social services, extendedimplementation periods have happened due to delays in right-of-way acquisitions, relocation issues with squatter families,


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peace and order problems, social acceptability, and access tofinancing.

• The rate of utilization of ODA for basic social services by thePhilippine government has been decreasing – from 76.2percent in 1995, to 74.3 percent in 1997, to 62 percent in 1999.Declining numbers in requests have also reflected a lack ofabsorptive capacity by the government. The sectors showingserious declines have been basic education, basic health proj-ects, water, and sanitation.1

Thus, while NGO management of ODA has shown promisingresults on one hand, government performance has been somewhatdismal on the other.

Types of NGO-managed mechanisms

From 1986 to the present, there have been several different types ofNGO-managed mechanisms involving ODA arrangements. Amongthese mechanisms are:

NGO-managed Mechanisms whose Principal Funding Source is a Co-financed

Project Grant by a Foreign NGO and Its Government

Examples of these would be the now closed PhinCORD (PhilippineNGO Consortium for Rural Development) co-financed by a Dutchchurch organization and the Dutch government; PHILGERFUND(Philippine-German Development Foundation) co-financed by theDeutsche Welthungerhilfe/German Agro Action and the Germangovernment; and SEDCOP, funded by the CCA/CanadianCooperative Association with the Développement InternationalDesjardins (DID) and the Canadian government. WhilePHINCORD’s project grant was run out of an existing PhilippineNGO, the Philippine Peasant Institute, and managed by an NGOboard representing different Philippine NGOs, both PHILGER-FUND and SEDCOP set up institutions managed by a professionalstaff and governed by a mixed board of donors and Philippine NGOrepresentatives.


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1 The 20/20 Initiative is acompact between develop-ing and developed coun-tries that calls for the allo-cation of, on average, 20percent of the budget indeveloping countries and20 percent of officialdevelopment assistance tobasic social services.

Donor-funded and -managed NGO assistance program

A shining example of the donor-funded and donor-managed NGOprogram is PACAP (Philippine Australian Community AssistanceProgram). Though PACAP is a continuing NGO program run by aforeign government agency, the Australian Agency for InternationalDevelopment, a majority of PACAP’s Program Advisory Board aremembers of civil society, academia, and cooperatives.

NGO-managed Mechanisms Set Up for Specific ODA Programs with a Specific

Time Frame

Examples of these mechanisms in the early stages would be PDAP(Philippine Development Assistance Program), PCHRD (PhilippinesCanada Human Resource Development Program), and the Diwatagender and development facility, all supported by the CanadianInternational Development Agency (CIDA). The United StatesAgency for International Development (USAID) similarly supportedthe establishment of Project Shelter. Current examples of this typewould be the Community Arts & Crafts Enterprise Development(CACEDI) and the World Bank’s NGOs for Protected Areas (NIPA).At the outset, all the mechanisms mentioned did set up institutions –whether as foundations or NGO facilities – to manage the ODAprograms. The lifelines of a number of these mechanisms corre-sponded with the duration of project assistance only, but later oneshave either evolved into or continue to function as independent insti-tutions, having successfully diversified their funding sources.

NGO-managed Mechanisms Endowed through Debt-for-Development Swaps

The Foundation for the Philippine Environment (FPE), endowedwith a debt-for-environment swap facilitated by USAID and the US-based Philippine Development Forum, and the Foundation for aSustainable Society, Inc. (FSSI), endowed with a debt-for-develop-ment swap facilitated by the Swiss government and Swiss develop-ment NGOs, are examples of this mechanism. Both mechanismsimmediately incorporated as foundations in order to manage theendowments and specific development programs supported with thefunds.


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NGO management of

ODA funds has shown

promising results at the

same time that govern-

ment performance has

been relatively weak

All four configurations, examples of which have been set up overthe last 15 years, have sought to include direct NGO participation inthe management or co-management of ODA. These mechanisms allillustrate varying degrees of: control and commitment practiced bydifferent donor governments; financial sustainability enabled; andimpact potential.

A dominant trend among most NGO facilities – whether theystarted out as co-financed projects, one-time ODA projects, or debtswap facilities – has been the transformation of NGO-managed fundfacilities into financially sustainable institutions with the capacity tocontinue their mandates.

Important Venues for Strategizing on ODA Options

While ODA options are being examined for future country interven-tions, ODA options for the Philippines have also been discussed in thefollowing fora:

In 1999, a strategic sharing and planning workshop of PhilippineNGO fund facilities took place at the invitation of CODE-NGO(Caucus of Development NGO Networks). It represented the culmi-nation of a series of sharing sessions among various fund facilities –both NGO-managed and donor-managed – and became an opportu-nity to gain an overall picture of NGO fund facility programs, mapout commonalities and gaps, and explore ways of working together,including planning for policy change advocacy with the Philippinegovernment.

As a result of the 1999 workshop, periodic meetings of donor-managed NGO programs have also been taking place to explorebetter ways of doing things, including sharing information (databases)on partners, projects, formats, and procedures, and actually embark-ing on joint cooperation/complementation projects. Hosted on arotating basis and with NEDA’s participation, the meetings have beenjoined by the United Nations Development Programme and govern-ments of Australia, Japan, Canada, Germany, France, Switzerland,and the European Community (the United States, World Bank, andAsian Development Bank have yet to join these meetings).

The Consultative Group, composed of all donor agencies operat-ing in the Philippines and chaired by the World Bank Resident


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Mission in the Philippines, convenes annual meetings with thePhilippine Government in the hope of reaching a consensus on devel-opment assistance priorities.

The International NGO Consortium represents the gathering ofinternational NGOs operating in the Philippines. Most, if not all,members of the Consortium are receiving funding support for theirprojects from their respective governments and thus would fall underthe mechanism of co-financed projects. The Consortium comestogether for information and resource sharing on strategic concernsas well.

Challenges and Lessons Learned

Over the last 15 years during which the Philippines has witnessed theformation of various NGO-managed mechanisms of developmentassistant, a number of challenges, dilemmas, and innovations havebeen experienced. These are described below:

Defining Thematic and Geographic Priorities

At the outset, an NGO-managed mechanism must clearly define itsstrategic and programmatic priorities and focus its resources appro-priately. Based on experience, having broad mandates can make itunwieldy for the mechanism to manage effectively and achieve long-lasting impact.

Varying the Forms of Assistance

Earlier funding mechanisms focused on providing grant assistance,which limited the potential beneficiaries as well as the life of themechanism. Increasingly, there has been a real demand for loans,credit facilities, loan guarantees, equity investments, which canincrease the number of potential beneficiaries and even increase thevalue of the fund. These have been made possible, in part, throughpartnerships with other financial intermediaries such as rural banks,commercial banks, cooperatives, and savings and loan associations,among others. In setting project assistance ceilings, it has also beenhelpful to keep in mind the absorptive capacities demonstrated by


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proponents, as well as possibilities for funding programmatic initia-tives as opposed to activity or project-focused initiatives.

Strategic Partnerships

In the case of USAID’s Project Shelter, the project departed from theusual pilot area approach where a single project is implemented in onearea with a single partner and later possibly replicated. Instead,Project Shelter sought to establish strategic partnerships with threeregional-based coalitions of NGOs and people’s organizations (POs)in order to simultaneously implement a set of common programs andachieve a scaling-up effect.

Importance of Birthing Processes

Earlier Philippine NGO-managed mechanisms experienced a host ofproblems relating to representation and operationalization. Amongthese were difficulties of working with NGOs with definite politicalagendas; strategically defining the thematic mandate of the mecha-nism as well as its sectoral and geographical priorities; developing astrong representative board; and hiring professional staff. LaterNGO-managed mechanisms have experienced birthing processes thatspecifically tried to avoid these problems. Independent bodies orreference groups, such as CODE-NGO, have been important in thisprocess. Such groups help brainstorm on the specifics of the structureof the mechanism from a neutral position.

Governing Boards

A variety of arrangements have been implemented to ensure repre-sentation of POs, member organizations, individuals, and regionaland political affiliations. Some have resulted in tokenism – whenmembers are not adequately prepared to meaningfully participate inboard discussions. Some have arrived at conflict-of-interest situations– when members only represent their own institutions or politicalaffiliations. Having learned from the experiences of earlier NGO-managed mechanisms, a combination of carefully selected individualsrepresenting various perspectives and competencies, with clear termsof service, has worked for most NGO-managed mechanisms.


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Empowering Local/Regional Entities and Marginal Groups

Institutionalizing decision-making by local/regional entities andmarginal groups helps jumpstart capacity and skills building amongpeople and entities that would otherwise have no opportunity to honethese. In the experience of PCHRD, FPE, and Project Shelter, exer-cises in democratic governance, decision-making, and allocatingresources are critical skills areas because they help empower groups(not to mention help prevent tokenism).

Professional Staff/Secretariat

Staff of NGO-managed mechanisms needs to be professional, withappropriate technological knowledge and skills. As much as possible,they need to be shielded from unhealthy political dynamics. On a day-to-day level, the staff needs to be empowered and not micro-managedby their boards.

Defining Measurable Impacts

At the outset, a challenge for an NGO-managed mechanism is todefine the measurable impacts it wishes to address. While an organi-zation should carve out its niche, it needs to be open to changes in theenvironment that possibly demand new approaches.

Management Information Systems and Monitoring and Evaluation Processes

Management information systems with corresponding training andinformation kits must be available for developing learning databasesas well as feeding into project monitoring and evaluation. Thesystems must also reflect accountability measures adopted.

Relationships with Donor Publics

Donor publics are NGOs, churches, communities, and lobby groupsin the foreign donor country. In the negotiation phase of grantingODA funding to NGO-managed mechanisms, a strong role for donorpublics needs to be emphasized because they have a role to play ininfluencing their government on ODA policy and priorities.


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Throughout the life of an NGO-managed mechanism, there needs tobe congruence in the direction of stakeholders and donor publics; thatensures full support can be given to the mechanism and unnecessarytensions avoided. In the experience of PCHRD, for example, differ-ing views between Canadian and Philippine NGOs on the necessityof engagement with government led to major differences in gaugingand appreciating the success of the program.

Convergence of Stakeholder Agendas

The convergence of political agendas among stakeholders is vital tothe process of setting up a successful NGO-managed mechanism.The donor needs to consider its government’s foreign policy, priori-ties of the ODA agency, and their embassy in the host country. To betaken into consideration as well are lobby groups, NGOs, and thepublic in their country. To be taken into consideration in the hostcountry are the Philippine government, NEDA (tasked with oversee-ing all ODA), and the support of Philippine civil society.

Financial Sustainability of NGO-managed Fund Mechanisms

Dependence on a single donor or single grant leaves an NGO-managed mechanism and its beneficiaries vulnerable to foreign policyshifts. Thus the need to diversify sources, as has been concluded andacted upon by PDAP and CACEDI. In some cases, building anendowment has been essential in helping NGOs achieve a significantdegree of independence. Various other financial sustainability meas-ures must be addressed at the outset, including the use of safe andprudent financial instruments for fund management, government-private sector revenue sharing, and government-NGO co-manage-ment funding schemes.

ODA Options and OpportunitiesFor Co-financed Projects

An option available for co-financed projects is to set up organizationsthat function as NGO-managed mechanisms whose principal fundingsource is a co-financed project grant or an endowment by a foreign


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NGO and its government. Such an arrangement makes it possible forproject appraisals and approvals to be devolved from the donor coun-try to the Philippine organization. The arrangement frees the donorfrom project concerns, allowing it to focus on more strategic concernssuch as the program’s strategic direction, complementary advocacyconcerns, development education, and the donor publics in the donorcountry. This was the option adopted by PHILGERFUND, theGerman church agency Brot fur die Welt together with ConsultingTeam, Inc., and the Dutch NGO Novib with Asset (the Germanchurch agency Misereor has been aiming for such an arrangement inthe Philippines).

For Donor-funded and -managed NGO Assistance Programs

An option for donors that requires greater control and management,either at the embassy or ODA level, is to institute significant partici-pation by civil society at the program advisory board level. As in thecase of PACAP, direct participation has been ensured at theisland/regional level and civil society representation via NGOs,academia, and cooperatives. There has also been experimentationwith other mechanisms involving direct participation on boards byrepresentatives of POs.

For NGO-managed Mechanisms for Specific ODA Programs

An option for NGO-managed mechanisms set up for specific ODAprograms with limited time frames and limited funding assistance is toprovide assistance for an end-program evolutionary phase thatincludes 1) ensuring a legal/institutional entity for the mechanism and2) diversification of funding sources through a resource mobilizationcampaign for the mechanism. PDAP has taken this track with success,and CACEDI has just begun to do this as well.

For NGO-managed Mechanisms Endowed through Debt Swaps

Of all possible options, that of an endowment through a debt swaparrangement can go a long ways to ensuring the financial sustainabil-ity of the funding mechanism. Earlier mechanisms that failed toaddress their own financial sustainability could only respond to devel-


91

opment needs momentarily and contributed to the donors’ feeling ofdevelopment fatigue. This option is the most sustainable of allmodels.

On Thematic Areas

Based on the planning workshop of Philippines-based NGO fundfacilities, it was observed that the following thematic areas have so farremained unsupported by ODA: land tenure access (both agriculturaland urban); indigenous peoples and their claims for ancestral domain;the urban poor and delivery of social services; environmental rehabil-itation; entrepreneurship and enterprise development; and integratedarea planning and development in cooperation with local govern-ments. It was further suggested that investment and co-financingschemes could be explored among different NGO-managed facilitiesfor joint ventures with the private sector, civil society, and govern-ment.

On Geographical Areas

Geographical areas that have so far remained underserved are thefollowing: generally, the island provinces; politically unstableprovinces such as those in Mindanao; very low income-classed munic-ipalities (classed by the national statistics bureau); and regions II inLuzon, VIII in the Visayas, and CARAGA in Mindanao (regions arealso categorically ranked). In the case of Mindanao where the consor-tium approach was adopted by several donor agencies, it wassuggested that this could be replicated in areas that have so far beenunderserved and could entail the joining of different mechanisms onthe basis of integrated area development or joint economic ventures.

On the Debt Swap/Debt Forgiveness Options

Does debt swap or debt forgiveness remain an option in thePhilippine context and, if so, under what conditions?

According to economist Maitet Diokno-Pascual, President of theFreedom from Debt Coalition, the debt-for-development swapremains a viable option for the Philippine government as it wouldhave no inflationary impact and would result in debt reduction for the


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government. As of the first quarter of 2001, the Bangko Sentral ngPilipinas has reported the Philippine foreign debt at US $49.949billion, with the public sector accounting for two-thirds or US$37.461 billion, and the balance of US $12.487 billion by the privatesector.

The strategy of debt-for-development swaps could also be a way ofenhancing the Philippine government’s capacity to comply with inter-national standards for social sector spending. While the PhilippineGovernment devotes a significant share of its budget to debt servic-ing, the social sector and asset reform share of the budget doesapproximate the United Nations standard of 40 percent of thenational budget for the social sector. Philippine compliance to the20/20 compact, however, only approximates 50 percent of the setstandard.

The 1997 Asian crisis (compounded by the September 11, 2001terrorist attacks on the United States and ensuing bombings inAfghanistan) and the economic downturn which ensued in thePhilippines, caused the government to face questions regarding itscapacity to provide counterpart funding to ODA and counterpartPeso proceeds for debt swaps. Significant political will on the part ofthe Philippine government will be needed for further debt swap ordebt forgiveness schemes.2

An additional and yet untapped resource is contributions fromoverseas Filipino workers as well as Philippine migrants. Counterpartmonies mobilized for regional development from these populationsthrough internet technology may well be used by the Philippinegovernment to leverage debt-for-development swaps.

On the part of donors, those wishing to make long lasting contri-butions to Philippine development look to the establishment ofendowed organizations as the most concrete manifestation of theircountry’s long-term commitment to and faith in the Philippines. Anendowment to an organization sourced from debt swaps or debtforgiveness enables a donor country to make a permanent and contin-uing contribution to the Philippines. The endowment is assureddespite shifts in foreign policy in the home country, downturns andeconomic recessions on the national, regional, or global levels, andchanges in political regimes.

Such arrangements do entail openness to entrusting these sizableresources to a private organization rather than the government. The


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2 As mentioned in the nextchapter, a debt-for-natureswap worth US $8.24million was signedbetween the US andPhilippine governments inSeptember 2002 under theUS Tropical ForestConservation Act. Ed.

experience of the last 15 years has demonstrated the competent andaccountable management of such organizations. Moreover, endowedorganizations have succeeded in reaching those groups and commu-nities that have traditionally not had access to credit. On the part ofNGOs and POs, they have appreciated the value of endowed founda-tions, have met the challenge of managing such organizations, andhope to replicate such models on various levels.

This may be an option that may be taken by donor countries thathave figured prominently in prior ODA funding for NGOs and devel-opment in the Philippines, including the Netherlands, the EuropeanUnion, Australia, the United States, and Canada.

If meaningful development assistance is to be pursued in thePhilippines, the establishment of localized NGO-managed facilitieswould be a step in the right direction. Local NGO-managed facilities,if established initially on the level of the three main island groups ofLuzon, Visayas, and Mindanao – and jointly managed by local NGOsand POs, representatives of local governments, and the private sector– could pave the way for genuine and sustainable area-focused inte-grated development. In addition, there are many communities andareas for development that are yet not served in a strategic way andcan be the focus of new organizations that become established.

Recommendations

In view of the above ODA options and opportunities, the followinggeneral recommendations made by CODE-NGO to the donorcommunity need to be seriously considered:

Pursuit of a continuing dialogue between NGOs and donors, the subjectof which should be the following: identification of strategic partner-ships with competent and trustworthy Philippine NGOs; advocacyfor increased allocations of ODA funds for social services; and nego-tiation for increased allocations of ODA funds for Philippine NGOs.

Prioritization by donors for NGO capacity building and building of socialcapital that can come in the form of support for NGO initiatives ontransparency and accountability. Examples of initiatives that could besupported include the Philippine Council for NGO Certification,which certifies NGOs that meet established minimum criteria forfinancial management and accountability; the Successor Generation


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project, which seeks to ensure the future human resource of thePhilippine NGO community; endowment building opportunities;debt conversion facilities; and the replication of the PEACE Bondsinitiative, which used the capital market to sell bonds, the profits onwhich are being used to issue grants for poverty alleviation and erad-ication. In addition to this, donors could also help enhance the capac-ity of NGOs through training opportunities in areas such as resourcemobilization.

Support for research, documentation, and monitoring activities pertain-ing to key NGO concerns, such as subcontracting relationships withgovernments, the “demand and supply” of development funds forpoverty-reduction programs, and the monitoring of ongoing projectsfunded by the World Bank, ADB, and others.


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References

Publications

Community Arts & Crafts Enterprise Development, Inc. Informationbrochure and accomplishment reports.

CODE-NGO. Increasing Results. Maximizing NGO Fund FacilityResources. A Strategic Sharing and Planning Workshop of Philippine NGOFund Facilities. Quezon City: Caucus of Development NGONetworks/CODE-NGO, 1999.

–––––. NGOs in a New Arena: Initial Reflections on Managing FundMechanisms for Development. Quezon City: Caucus of DevelopmentNGO Networks/ CODE-NGO, 1997.

CODE-NGO, Helvetas, Swiss Coalition of DevelopmentOrganizations. Building the Foundations of a Sustainable Society – ThePhilippine Experience at Creative Debt Relief. Quezon City: Caucus ofDevelopment NGO Networks/CODE-NGO, 1996.

Gonzales, Raul. Official Development Assistance in the Philippines (1986-1996). Quezon City: Caucus of Development NGONetworks/CODE-NGO, 1998.

–––––. Trends in Official Development Assistance (ODA) for PhilippineNGOs: A Follow-Up Study. Quezon City: Caucus of DevelopmentNGO Networks/CODE-NGO, 2000.


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Igaya, Gregorio Luis. ODA Performance within the 20/20 InitiativeFramework. Presidential Task Force on the 20/20 Initiative, May2001. (Draft presented to the Multi-Sectoral Committee onInternational Human Development Commitments, NEDA.)

PACAP. Sustaining Strong Partnership Toward a Better Future –Accomplishment Report. Makati: Philippine Australian CommunityAssistance Program, AusAID, 2001.

–––––. Sustaining Strong Partnership Toward a Better Future – TwelveCase Studies. Makati: Philippine Australian Community AssistanceProgram, AusAID, 2001.

PCHRD. PCHRD Accountability Exposition. Quezon City: Philippines-Canada Human Resource Development Program/PCHRD, 1996.

PHILSSA. Project Shelter Summing-Up Activity. Quezon City:Partnership of Philippine Support Service Agencies/ PHILSSA, 2000.

PHILSSA. Terminal Report on Project Shelter (1998-2000). QuezonCity: Partnership of Philippine Support Service Agencies/ PHILSSA.2000.

Racelis, Mary. From Struggle and Consolidation to New Visions: CivilSociety and Civil Society Assistance in the Philippines. 1999. (Presented atthe Carnegie Endowment for International Peace Workshop onRethinking Civil Society Assistance, March 1999, Virginia, UnitedStates.)

SEDCOP, Information Sheet.

Winder, David. Options for Financial Sustainability: Collaborationbetween Civil Society and Development Assistance in Southeast Asia. NewYork: The Synergos Institute. 2003.

World Bank. Poverty to Rise in Wake of Terrorist Attacks in US. NewsRelease No. 2002/093/S, 2001.


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Interviews

Ana Teresa de Leon-Yuson, Secretary General, PHILSSA/Partnership of Philippine Support Service Agencies, a partner inUSAID/Mondragon Foundation’s Project Shelter, 8 October 2001.

Mercy Montales, Project Coordinator, CACEDI, Community Artsand Crafts Enterprise Development, Inc., 8 October 2001.

Maria Anna de Rosas-Ignacio, former Secretary General, PHILSSA,and member of PCHRD/Philippines-Canada Human ResourceDevelopment Program Executive Trustee, 9 October 2001.

Milo Casals, Project Coordinator, SEDCOP, Socio-EconomicDevelopment through Cooperatives in the Philippines, 9 October2001.

Patricia Georgina Domingo, Program Director, PACAP, PhilippineAustralian Community Assistance Program, 11 October 2001.

Ma. Teresa Diokno-Pascual, President, Freedom from DebtCoalition, 24 October 2001, via e-mail.


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Chapter FiveBuilding and Managing

Endowments: Lessons from Southeast Asia

By Eugenio M. Gonzales

B U I L D I N G A N D M A N A G I N G E N D O W M E N T S

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Introduction

This chapter provides an analysis of the experiences of organizationsin Southeast Asia in creating, building, and managing endowments asmechanisms for their financial sustainability. The organizations stud-ied are:

• Foundation for the Philippine Environment (FPE)• Foundation for a Sustainable Society, Inc. (FSSI), Philippines• Jaime V. Ongpin Foundation, Inc. (JVOFI), Philippines• Yayasan Keanekaragaman Hayati Indonesia (KEHATI), the

Indonesian Biodiversity Foundation. The basis for this chapter’s analysis comes from case studies writ-

ten on each organization as well as interviews with staff and trusteesof each foundation. While each case study presents details on thehistory, mandate, and programs of the foundations studied, this chap-ter draws lessons on the financial policy and strategic aspects ofendowment building across all four cases. It also makes recommenda-tions useful for organizations and official and private donors in simi-lar circumstances. This study does not intend to compare and assessthe performance of the four foundations’ endowments.

In the first section, endowments are generally described, defined,and illustrated according to the basic flow of funds and components.Summary information on the four case studies is then presented in thesecond section. The main body of the study analyzes the basicrequirements as well as the influencing factors involved in setting upan endowment. Lessons and insights are drawn from the analysis,particularly those related to success factors and challenges. Finally,the chapter makes recommendations and conclusions on the potentialrole of private and government donors in building the financialsustainability of such organizations.


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Endowments for Financial Sustainability

With the decrease in worldwide official development assistance(ODA) starting in 1993-94 and the Asian financial crisis in 1997,Asian nongovernmental organizations (NGOs) have had to look formore creative ways of generating resources to sustain their mission.While governments and donors recognize civil society’s increasingimportance in development, this has not been matched by a commen-surate increase in financial support for civil society organizations.Endowment building is a strategy that more and more organizationshave thus been exploring as a long-term financing strategy.

Winder (1998) defines endowments as “permanent assets – money,securities, or property – that are invested to earn income that is usedto support an organization’s activities.” Horkan and Jordan (1996)clarify that the terms “trust,” “capital fund,” “sinking fund,” and“endowment” describe similar financial arrangements. For thepurposes of this paper, an endowment refers to a capital fundmanaged by an organization for the purpose of supporting activitiesthat help achieve its mandate.

In 1997, The Synergos Institute conducted a survey of 77 organi-zations from Indonesia, Singapore, Malaysia, and the Philippines.This survey demonstrated that about half of the respondents havecreated endowments. Sixty-four percent of the endowments were lessthan US $1 million in size. The largest of these were established bygrants from ODA agencies and are among the cases discussed in thispaper: KEHATI, FPE, and FSSI.

Endowments have historically been set up to provide a continuingstream of funding for a specific purpose or activity. In universities,professorial chairs are supported by individual or corporate donors tohonor selected professors or to enable them to conduct academicwork in a specified field. Research endowments provide grants forapplicants to conduct specific studies. Some of the largest privategrantmaking institutions have their own endowments that providefunds for their grants and operating expenses.

In an endowment, a definite amount of funds (or assets) is investedfor the purpose of generating income that is later given to a recipient.The recipient may be a grantee (such as an NGO, or people’s organ-ization, PO), an honoree, an awardee, or, in some cases, a borrower.The approval and release of funds to a recipient are usually governed


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by guidelines or programs adopted by a body, often a Board ofTrustees, to whom the endowment is legally entrusted. Laws, rules,and regulations governing endowments may differ from country tocountry. In most cases, however, the board is legally responsible forthe endowment.

Part of the income from an endowment is also used for adminis-trative activities to ensure that programs and guidelines are imple-mented properly and that the endowment’s finances are accountedfor. Sometimes, the income can fund program activities implementedby an endowed organization’s own staff. This is the case with operat-ing organizations that provide services in addition to grants or credit.

The initial contribution that establishes an endowment usuallycomes from external sources. Bilateral donors, private foundations,corporations, wealthy individuals, and the general public can donateto endowments (Winder 2000). ODA donors can potentially get morelong-term public relations mileage from contributing to an endow-ment than to a finite project. Not only are the donors forever a partof the endowment’s history but they are also contributing to everyproject that the endowment supports, in effect. While these externalsources are often emphasized in the literature on endowments, inter-nally generated savings and repayments from previously disbursedloans to beneficiaries may also serve as initial capital for an endow-ment. For organizations engaged in investing and lending, especiallythrough microfinance programs, these repayments can be substantial.In this paper, repayments will be called reflows.

Figure 1 is a simplified diagram of the flow of funds in an endowedorganization:


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ExternalDonors

Endowment

InternalSavings andReflows

Grants,Programs, orServices

Administration

Figure 1Fund Flow in

an Endowment

Beyond Sustainability

In addition to enabling grantmaking, an endowment allows for:• autonomy: an endowment can increase an organization’s inde-

pendence from funding trends outside of its control• leveraging: an endowment can be used as a basis for acquiring

additional funding (Winder 2000).The empowerment that an organization feels as a result of these

realities springs from the fact that an endowment serves as a substan-tial and tangible financial asset from which additional resources canbe generated.

Organizations in Southeast Asia have historically been funded bygrants specifically for delivering services to their beneficiaries. Thismeant that they were not allowed to set aside any funds to start build-ing their own reserve of financial assets. Moreover, when the grantsdry up, the organizations may be forced to shut down. With a prop-erly managed endowment, however, organizations can sustain theirservices even after their donors stop funding them. In the context ofdeclining ODA, the four cases demonstrate how their endowmentscan carry them through hard times and even increase funds availableto their beneficiaries through leveraging. This would have beenimpossible if they did not have such a financial asset. They havebecome legitimate co-financiers through the income created by theirendowment assets.

Dependence on grants can also threaten the autonomy of anyorganization as grants are not reliable long-term sources of funding.All four foundations studied in this paper can deal with donors froma strong and independent position precisely because they have anendowment. One changed its long-standing investment advisor thatits donor had selected, for example. Another stipulated that itsendowment donors cannot hold voting positions on their board.Because they have an asset to fall back on, these organizations are notforced to give up their autonomy to donors just to access funds. Ofcourse, dealing with the original donors required more skill andcaution during the negotiations.

Weatherly emphasizes that endowments are empowering even asthey build local capacity (1996). Through them, stakeholders areprovided a means to participate in the management and decision-making over significant funds intended for their society’s develop-


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ment. He also envisions strategic roles for organizations with endow-ments; acting as conveners of participatory dialogue on critical prior-ities and as policy advocates at the national level. This is consistentwith what we shall see later as the long-term nature and mandate ofendowments. The performance of these roles, however, depends ulti-mately on the financial, technical, and social resources that an endow-ment is able to marshal.

The Four Foundations

All four foundations analyzed in this paper set up their endowmentsin the first half of the 1990s. The context of their establishment wasthe first major decline in global ODA that occurred in 1993-94,including in Southeast Asia. It can be said that the endowments wereestablished at least partly in response to that decline.

Foundation for the Philippine Environment

In 1992-93, FPE was created and endowed through debt-for-natureswaps that raised US $21.8 million in local currency. Of the totalamount, the United States Agency for International Development(USAID) contributed US $21.7 million while the Bank of Tokyocontributed US $119,590. These amounts have since declinedsubstantially because the bulk of the endowment was invested in localcurrency, the Philippine Peso (PHP), which lost half of its valueagainst that of the US dollar.

According to it Articles of Incorporation, FPE’s stated purpose is“to contribute, encourage, assist, and provide technical, managerial,and financial support to non-governmental organizations, people’sorganizations, communities, and others for environmental protection,natural resource conservation and management, and sustainabledevelopment.” It provides grants to NGO and POs to strengthentheir capacities for natural resource management in general andbiodiversity conservation in particular.

Thirty-four percent of its endowment is now invested in foreigncurrency and the remainder in Philippine pesos. While its endow-ment’s peso value has steadily increased since its inception, growth hasnot been enough to offset inflation. From 1994 to 2001, the endow-


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ment grew from PHP 566 million (US $10.67 million) to PHP 719million (US $13.56 million) for an average annual growth rate of 3.86percent.

Given these constraints, the foundation officials decided to lever-age the endowment to raise around US $400,000 in additional fundsfor its grantees.

Foundation for a Sustainable Society, Inc.

FSSI was created and endowed in August 1995 through a bilateraldebt conversion agreement between the Swiss and Philippine govern-ments. Approximately US $17 million in local currency was depositedby the Philippine government into the foundation. In exchange, theSwiss government cancelled US $34 million worth of Philippinegovernment debt. Similar to FPE’s case, the US dollar equivalent ofFSSI’s endowment in Philippine pesos has declined due to devalua-tion.

The organization provides loans, equity, grants, special deposits,and guarantees to NGOs, POs, and small entrepreneurs engaged insustainable enterprise – ecologically sound, economically viable,community-oriented projects. Special deposits are made into cooper-atives or small banks to enable them to lend out more funds.Guarantees are given to organizations to enable them to borrow fromcommercial banks, even if they have limited collateral. Around 90percent of FSSI’s assistance is in the form of loans. This has enabledit to increase its endowment more than if it provides grants alone. Ithas also leveraged more than US$ 300,000 worth of grants from otherdonors.

From August 1995 to December 2001, the foundation’s endow-ment grew from PHP 454 million (US $8.56 million) to PHP 622million (US $11.73 million) for an average growth rate of 7 percentper year. This was barely enough to offset inflation, which was atroughly the same level then. Around 18 percent of FSSI’s endowmentis invested in foreign currency.

Jaime V. Ongpin Foundation, Inc.

The Benguetcorp Foundation, Inc. was established in December 1980as the corporate foundation of the Benguet Corporation – one of the


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Experience shows that

while endowments

enable grantmaking,

they can also increase

funding autonomy

and act as a leverage to

acquire additional

funding

largest mining companies in the Philippines. In 1987, it was renamedthe Jaime V. Ongpin Foundation, Inc. in honor of the first Filipinopresident of the mining company. In the 1980s, JVOFI mainly servedthe communities surrounding the mine sites of the mother company.In the 1990s, the foundation gradually became independent of thecorporation. Now, all of its projects are in communities that are notrelated to Benguet’s mining activities.

Consistent with its original vision to build “self-reliant communi-ties capable of harnessing resources for equitable development”(Garilao and Tuparan 2003), JVOFI implements microfinance andenvironmental projects and provides training and consultancy servicesto communities and local governments in the northern regions of thePhilippines.

The organization established its endowment in 1991 by settingaside PHP 3.4 million (US $64,150) in savings to a restricted account.Through interest earnings, annual transfers of savings and reflowsfrom earlier loan projects, the account grew to a peak of PHP 17.1million (US $322,641) in 1997. In that same year, however, JVOFI’smajor grants (from USAID, the Philippine Department of Health,and Benguet Corporation) ended. This necessitated withdrawals fromthe endowment to cover program expenses bringing it to its lowestvalue in 2000 at PHP 12.1 million (US $228,301). As of October2002, the fund had grown back to PHP 13.4 million (US $252,830),all of which is in local currency.

From 1991 to 2000, JVOFI leveraged PHP 140.6 million (US$2.65 million) from local and foreign donors. This is more than tentimes the value of its endowment.

KEHATI, the Indonesian Biodiversity Foundation

KEHATI was established in 1994 and endowed in 1995 through a US$16.5 million grant from USAID. In addition to the endowmentgrant, USAID also pledged an additional US $2.5 million to cover thefoundation’s operating costs and any technical assistance or consul-tancies needed to help it establish effective operations between 1995and 2000 (Maxim et al. 2003). While in its early years KEHATIfocused on funding research on biodiversity, it now emphasizes fund-ing community groups and NGOs that conserve and use localresources in a sustainable manner. It has adopted a long-term vision


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that emphasizes multi-stakeholders and multi-year budgeting, and afocus that integrates community with conservation. Communityempowerment is at the core of this approach.

The entire endowment fund is in foreign currency and managedby financial institutions in the United States. In this case, because ofthe devaluation of the Indonesian Rupiah, the endowment’s value inlocal monies has increased by more than three times. From 1995 to1999, the endowment’s US Dollar value grew at 12.8 percent per yearpeaking at around US $25 million in 1999. It has since decreased,however, to settle at approximately US $19 million in late 2002.

KEHATI has launched a fundraising strategy to meet its commit-ment to contribute US $4.7 million to the endowment by 2005. It hasalso leveraged a significant amount of funds from philanthropic,corporate, and government donors. At present, it is exploring thepossibility of using debt-for-nature swaps to augment its endowment.

Endowment Creation: Basic Requirements and InfluencingFactors

In this section, the basic requirements needed to establish and growan endowment are assessed based on the experience of the four caseendowments and writings by Weatherly (1996) and Horkan (1996).Factors that affect the final shape and form of the endowment are alsoidentified.

Basic Requirements

Five requirements for establishing and growing an endowment maybe identified:

Long-Term Purpose Endowments are meant to last because they serve a long-termpurpose. There are no such things as short-term endowments.Environmental rehabilitation, curing AIDS, or poverty reduction areall long-term goals that require long-term financial support. All fourendowments studied in this paper have goals that are long-term innature.


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High-Priority ItemGiven a particular society’s (or donor’s) many concerns, an organiza-tion needs to determine priorities and allocate its resources accord-ingly. Ideally, endowments begin with a large initial contribution; thisisn’t possible if its purpose is not a high priority item in the donor’s orrecipient’s agenda, of course. The three foundations that received alarge initial contribution – FPE, FSSI, and KEHATI – have beenaddressing environmental concerns; two – FPE and KEHATI – havebeen focusing on biodiversity conservation. These are high priorityissues for donors and countries in Southeast Asia especially.

Policy Openness Policy that is conducive, or at least not averse, to building an endow-ment is another important prerequisite. The programs of USAID andthe Swiss government did not specifically intend to establish endow-ments for FPE, KEHATI, and FSSI. But they did not prevent themeither. USAID commissioned a number of studies in the 1990s thatwere supportive of endowments, some of which are cited in this paper.In JVOFI, even though the mother company did not explicitly makea donation to set up an endowment, the company (which was repre-sented in the foundation’s board) did not object to the establishmentof the fund.

Legal Vehicle If there is a donor, there must be an entity that is legally accountableand politically acceptable to the donor to receive and manage thefunds. In three of the four cases, the donor was a member of the boardof trustees, albeit with varying levels of power. In the fourth case, eventhough USAID is not on KEHATI’s board, the terms of theCooperative Agreement state that all funds selected for investment beformally registered with the US Securities & Exchange Commission.

Fund Availability A significant amount of funds needs to be available to establish anendowment. In the three relatively large endowments studied (FPE,FSSI, and KEHATI) at least US $16.5 million had to be available as asingle grant. Of course, this need not always be the case. JVOFIneeded only PHP 3.4 million (US $64,150) to start up its endowment.


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Significant annual contributions were necessary, however, to increasethis to PHP 17.1 million (US $322,641) over six years.

The above items are by no means mutually exclusive. Funds arenot usually available if a program is not high in the priorities of thedonor. It is the appropriate combination of all of the above require-ments that makes the creation of an endowment feasible.

Influencing Factors

In addition to these requirements, there are a number of influencingfactors that can help create appropriate conditions for realizing anendowment. Not all of the above requirements may be in place whenthe creation of an endowment is being sought. In such contexts,however, there are a number of influencing factors that may be real-ized to create the conditions conducive to attaining these require-ments.

Socio-Political Pressure from the Recipient SideDonors (usually government bureaucrats) are constantly under pres-sure from social groups, politicians, NGOs, and others to deliverassistance in a high-profile, high priority area (for example, the envi-ronment, AIDS, or poverty). This was the context behind the creationof FPE, FSSI, and KEHATI. In FPE’s case, both the PhilippineDepartment of Environment & Natural Resources and Philippineenvironmental NGOs were lobbying the US Congress and USAID toset up an environmental endowment from 1989 to 91. In Indonesia,Emil Salim (who had just stepped down as Minister of the StateMinistry of Population & the Environment) and a group of promi-nent citizens from business and civil society set up KEHATI andnegotiated with USAID for its endowment. In FSSI’s case, thePhilippine’s largest NGO coalition, CODE-NGO, facilitated theconsultations that resulted in the proposal to the Swiss and Philippinegovernments to set up the endowment.

Socio-Political Pressure from the Donor Side In the case of FPE and FSSI, an NGO coalition in the donor countrysupported the NGO constituencies that campaigned for the endow-ments in the recipient country. The Philippine Development Forum,based in Washington, DC, provided crucial support to the environ-


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mental NGOs lobbying the US Congress. Similarly, the SwissCoalition of Development Organizations backed CODE-NGO’sendowment proposal for FSSI through representations and commu-nications with the Swiss Federal Office of Foreign Economic Affairs.

High-Level Mandate from the Donor Side KEHATI’s endowment was a direct result of the Tokyo Declarationsigned by US President George H.W. Bush and Japanese PrimeMinister Kiichi Miyazawa in 1992. Indonesia was chosen as a pilot sitefor US-Japan intergovernmental cooperation on the environment andKEHATI was selected to receive a USAID endowment for biodiver-sity conservation. The mandate for FPE’s endowment had its originsin the 1988 Philippine Assistance Plan supported by the United Statesand other donors in order to bolster the fledgling Aquino governmentin its transition from dictatorship to democracy. Part of its plan wasthe Natural Resource Management Program that was later fundedwith US $125 million by USAID in 1990. FSSI’s endowment camefrom the Swiss Debt Relief Facility of 1991. Swiss churches andNGOs and their partners from the global south campaigned for thepassage of this measure starting in 1989. The Swiss government allo-cated US $300 million to it.

A similar set of influencing factors was present in JVOFI’s case.The foundation’s board included both donor and recipient interests,both of which agreed to the proposal for an endowment. The topmanagement of the corporation was active on the board and backedthe foundation’s efforts with corporate support.

Collectively, these influencing factors help tip the scales in favor ofan endowment.

The Endowment Process

Once the proponents have succeeded in using such influencing factorsto put the basic requirements in place, three distinct stages follow:

• creating the endowment• endowment-building: growth• endowment-building: use and reflows.


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Creating the Endowment

Endowments are established through one major donation or severaldonations. Three of the four cases – FPE, FSSI, and KEHATI – wereset up with one major donation from a bilateral donor (USAID) toFPE and KEHATI and the Swiss and Philippine governments toFSSI. JVOFI built its endowment over time from internal sources.

In the three cases in which bilateral donors funded the endow-ments, local NGOs and coalitions were involved in convincing theirgovernments and donors that the endowments would serve the publicgood. All three conduct grantmaking, although FSSI is a largely lend-ing institution. The NGOs and coalitions who worked for their estab-lishment did not necessarily directly benefit from them afterward,although some have participated in their governance.

The amounts involved were quite significant and due diligencewas therefore required. Studies, planning missions, and consultationswere conducted. Intense negotiations involving NGO coalitions andrecipient and donor governments on the legal documents to governthe three endowments preceded the actual provision of funds. ForFPE and FSSI, negotiations on debt redemption discounts werefurther required. In all cases, donors needed to be convinced that theendowments would not dissipate. Systems of reporting, transparency,accounting, and accountability were incorporated into the founda-tions' by-laws and agreements covering the donations. Although theboards are dominated by NGO personalities, a few governmentrepresentatives and independent individuals are included.

Building the Endowment: Growth

Although the initial donations establishing the endowments weresignificant in the case of three foundations studied here, these casesand JVOFI nevertheless emphasize that efforts must be made toensure the fund’s continued growth. Given the enormous need forfunding environmental conservation and management, FPE andKEHATI are actively trying to increase their endowments. KEHATIis also fundraising from the corporate sector. While both are havingsome success in leveraging funds from private foundations andgovernment donors to increase the resources available to theirgrantees, staff indicate that it is generally difficult for them to get


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donations to increase their endowment. Donors usually want to makea direct contribution to, and have a direct impact on, a specific proj-ect.

As a lending institution, FSSI expects repayments from its borrow-ers. Its continuing challenge is to move an increasing portion of itscorpus directly into sustainable enterprises rather than having it in thehands of its fund managers. It has not specifically raised funds to buildits endowment. The foundation has leveraged funds, however, fromprivate foundations interested in co-financing some FSSI projects.

JVOFI staff is focused on improving its delivery of services andencouraging its beneficiaries and partners to raise counterpart funds.They are not actively asking for contributions to their endowment.With the effective delivery of services, however, the organization iscontributing to building its track record and attracting more funders.In each year of the 1990s, JVOFI generated program and operatingfunds equal to the amount of its endowment, on average. They prob-ably would not have attracted the same amount if they had simplyasked donors to contribute to their endowment.

Efficiency in operations also generates savings that JVOFI is thenable to channel into the endowment. Projects with repayments, suchas microfinance, are another important contributor. Interestingly,JVOFI’s microfinance projects have a higher rate of return than theirinvestments in banks. For JVOFI, focus, good management, andeffective delivery of services form its endowment-building strategy.

Each of the four foundations has appointed external fundmanagers to manage their endowment assets; in each case these aremainly in cash or cash equivalents. They all have committees or indi-viduals, however, who monitor the performance of the fundmanagers. In each case, the fund managers make decisions on thedetailed investment of the foundation’s assets based on the investmentpolicy laid out by the Board of Trustees. Usually, the foundation staffdirectly invests only a small portion of their assets in short-terminstruments.

JVOFI maintains a restricted fund that is mainly invested by itslone fund manager. A small portion is for cash flow and is managed bystaff. The foundation also relies on experienced and respected finan-cial experts that sit on its Board of Trustees.

KEHATI, FPE, and FSSI have Investment Committees that areadvisory in nature. Their boards ultimately make the major invest-


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ment decisions at the policy level (e.g. investment mix) and opera-tional level (e.g. choice of fund managers and advisors). WhileKEHATI was initially linked by USAID to a US-based investmentadvisor, its Investment Committee is now recommending workingwith an advisor who is based in Asia and therefore able to be moreresponsive to market changes. Neither KEHATI’s board norInvestment Committee can change the stipulation in the cooperativeagreement, however, that the endowment should be invested in fundsregistered with the US Securities & Exchange Commission. This hasenabled KEHATI to maintain the highest foreign currency valuationof its endowment among the four cases. FPE, FSSI, and JVOFI havelocal fund managers handling mainly local currency investments;devaluation has decreased the dollar value of their endowments.

The four foundations are growing their endowments (at least inlocal currency terms) using fund managers who are seen as relativelylarge financial institutions in the local and international context.Investment policies, particularly those regarding asset allocationamong fixed income instruments and equities, are well documentedand strictly followed. Only a very small, if any, portion of the endow-ments was put into real estate. There is very little room for specula-tion in the foundations' investment policy.

None of the foundations have been able to obtain donations tosignificantly augment their endowments yet. They have been moresuccessful in leveraging their endowment funds to attract moreprogram and operating resources for grantees and beneficiaries.Leveraging can have a larger and more immediate financial impact ongrantees/beneficiaries, however, than trying to directly augment theendowment. Leveraging is an important point to consider in evaluat-ing an endowment’s performance and will be discussed in a latersection.

Indeed, KEHATI’s strong fundraising efforts demonstrate that anendowment is not a complete answer to having financial sustainabil-ity. KEHATI is seeking to diversify its donors while also developingalternative and innovative funding mechanisms. The organization’sstaff is also considering how funding instruments can be modified tohelp build its endowment.

After establishment, endowments need to grow to keep up withinflation and the demands of grantees and beneficiaries. Sound


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management, focus, and building a track record of effective deliveryof grants or services are key to attracting more donors and co-funders.

Building the Endowment: Use and Reflows

FPE and KEHATI use their endowments by making grants to NGOsand community organizations. FSSI and JVOFI are mainly lendinginstitutions that require significant counterpart funds or equity fromtheir partners. This assures the latter two organizations of reflowsthat are an additional source of funds for their respective endow-ments. Both are also involved in microfinance projects that areproducing returns that are sometimes better than those on the invest-ments made by their fund managers. FSSI and JVOFI are still prudentenough, though, to work with fund managers to invest their endow-ment assets.

FPE has co-financed one FSSI loan. FPE hoped to fund moreprojects in a lending mode, but appropriate projects were difficult tofind. According to KEHATI’s fundraising strategy, the organizationseeks to “develop non-grant instruments and a social entrepreneur-ship approach in program planning and implementation.” Anotherdirection is “to promote income generation through the sale of goodsand services, program-related investments, and through establishingbusinesses related to KEHATI’s specific mission.” Like FPE,however, it prefers to work with and through organizations that aremore familiar with enterprise-type projects where financial returnsneed to be monitored more closely than in environmental conserva-tion projects.

For FPE and KEHATI, directly managing financial risk instead ofleaving it to fund managers is a new challenge. Grantmaking andinvesting require different skills and mindsets that are important tolearn before a foundation decides to be involved in both.

Insights

Following are various insights drawn from the case studies on thecreation and building stages associated with endowments.


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Creation

In all the cases studied, the primary motivation to create the endow-ments came from within the foundations or NGO constituenciesupon which the foundations were built. There was a consciousprocess of convincing donors and, fortunately, an availability of fundsand policy openness to the establishment of these endowments.NGOs can always try to convince funders to set up endowments, butif the funds are simply not there or if donor policies do not allow themto set up endowments, these efforts will not succeed.

It must be emphasized that large, one-time endowment grants arerare. Rarer still are donors who will donate directly to augment anexisting endowment.

The possibility of setting up endowments exists when the follow-ing factors are present:

Funding Opportunity Funds may be suddenly available in large or small but consistentlyflowing amounts from donors. In the cases studied here, funds wereavailable around the time the endowments were set up. In the cases ofFPE, FSSI, and KEHATI, funds were available only for a limitedamount of time. Had the NGO constituencies not worked hard forthese funds when they were available, they would have lost the oppor-tunity completely. The donors – USAID and the Swiss government –ended their related programs a few years after providing funds for thethree foundations.

It is also important to note that debt swaps played a major role insetting up two of the endowments: FPE and FSSI. Although there wasno similar debt swap in the Philippines from 1996 to 2001, there arenew opportunities now. A debt-for-nature swap worth US $8.24million was signed between the US and Philippine governments onSeptember 19, 2002 under the provisions of the US Tropical ForestryConservation Act. FPE and KEHATI are also currently activelyexploring debt swap opportunities.

In the case of JVOFI, the corporation provided an annual grant tothe foundation until 1997 and the foundation’s Board of Trusteesmade the decision to allocate a portion of these funds into a restrictedaccount which effectively became the endowment.


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Champions Champions for establishing and building an endowment are neededon both the recipient and donor sides. These champions need aconstituency to support the difficult task. The KEHATI Chair, hiscolleagues on the board, and sympathetic individuals in USAID werethe champions for KEHATI at the time of negotiations. Philippineenvironment and development NGO coalitions and their counter-parts in the United States relentlessly campaigned for FPE to be born.The outgoing Philippine Secretary for the Environment and theUSAID Country Director were the champions on the governmentside. In JVOFI, the foundation president, who was also an officer inBenguet Corporation, made the strategic decision to actually set asidefunds for an endowment. For FSSI, the partnership and coordinationbetween the Philippine and Swiss NGO Coalitions were crucial inconvincing their governments to agree to an endowment.

Endowment Management

As emphasized earlier, donors put funds into an endowment notbecause they want to support the endowment but because they wantto support the beneficiaries of the endowment fund (most often, thegrantees or recipients of credit). The more an endowment providesbenefits to its grantees the more donors will be willing to support it.This support can be in the form of co-financing of projects, programfunds, or direct contributions to the endowment. The last type ofsupport is the most difficult to get from ODA agencies possiblybecause of the diminishing supply of aid funds combined with anincreasing need to show immediate and significant results from aidprograms.

To attract support from donors, organizations need to focus ontwo inter-related areas of management: program and financialmanagement. Program management deals with strategy, planning,monitoring, and evaluation. Financial management encompassesaccounting, accountability, controls, financial analysis, and soundinvestment policies and practices.

The four cases demonstrate the importance of strategic programmanagement. Substantial board and staff time are devoted to strate-gizing, planning, monitoring, and evaluating outputs and impact.Significant resources are also devoted to communicating accomplish-


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ments. Without these, it is doubtful that the foundations can maintaintheir credibility and leverage additional funds. Achieving targetedoutputs and impacts depend on a foundation’s capacity to manage itsresources efficiently and effectively. Beneficiaries, donors, and thepublic as a whole will judge the endowment’s ability to deliver on itsmandate. Strong program management is needed to deliver and toprove that the organization is delivering.

Regular, externally audited financial reports are a basic require-ment of endowments. These reports should reflect high quality infinancial management. Perhaps more basic is the investment strategy.There is nothing worse than an endowment that is wasted because ofpoor investment decisions. Fortunately, the four foundations haveclear investment policies that prevented the dissipation of their fundseven with the occurrence of the Asian financial crisis that hit in 1997to 1998 and the meltdown of the US economy in the last couple ofyears.

Leveraging as Strategy

As was discussed earlier, a common strategy used by the four founda-tions to maximize their resources is to leverage their funds. This oftenmeans using their endowment or its income as counterpart funds toobtain grants from donors. This has enabled them to increase theirgrantmaking and implement more programs than if they dependedsolely on their endowments’ income. Donors usually prefer to givegrants to or through foundations that have counterpart funds. Someprivate donors, especially those in Europe, are able to access and passon government funds if they can produce matching or co-financingfunds. Organizations with endowments are in a good position toreceive these additional donor funds and conduct leveraging.

The value of leveraging is often underestimated. In reality, lever-aged funds can have a more immediate impact on beneficiaries thandonations to an endowment. For example, if we assume 10 percent asa reasonable return on an endowment, getting US $10,000 in lever-aged funds is like getting an additional US $100,000 into the endow-ment. Although it is desirable to build up endowments for the longterm, the ability to leverage funds should be recognized as an impor-tant achievement of these foundations. This is especially true when


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there are other donors who are only too willing to co-finance certainprojects.

In addition, leveraging can occur through international or foreigndonors that are seeking to pass through funds to local foundations todo grantmaking on their behalf or who can co-finance projects withthem. It is simply an easier, cheaper, and more effective means toaccomplish their goals. Examples are already in place: the GlobalEnvironment Facility is a major potential source of leveraged funds,especially in biodiversity conservation. Novib (Oxfam Netherlandsand a Dutch NGO), set up a US $100,000 co-financing fund withinFSSI in 2001.

It is important to define the organization’s specific role within theleveraging strategy. As KEHATI begins to explore supportingcommunity enterprise development, it is discovering that there areNGOs that have more expertise in this area and that there are manyfunds available from government corporations and programs.KEHATI is thus focusing more on business incubation – linkinggrantees with technical experts and financial institutions. Eventhough the funds of the government programs do not pass throughthe foundation, the linkage they provide virtually leverages funds fortheir grantees.

Leveraging can also be done at the level of beneficiaries. Asidefrom using its endowment as a counterpart fund, JVOFI requires itspartner-communities to raise their own counterpart funds. Thislessens the burden on the foundation and builds community owner-ship of the projects.

The End-Goal: Outputs and Impact

Ultimately, an endowment’s value will be measured by the public anddonors in terms of an organization’s outputs and impact. This isregardless of whether the money came from the endowment, lever-aged funds, or operating funds. The bottom line question is: Howwell did the foundation invest all its funds to deliver the targetedoutputs and achieve the desired impact? Without good managementsystems and performance, the answer will never be satisfactory. If anorganization consistently delivers its intended outputs (i.e. services tobeneficiaries) and attains its targeted impact, it will attract donors andsustain its beneficiaries.


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The diagram in Figure 1 may now be refined to reflect the fore-going analysis.

Lessons and Recommendations

The following lessons and recommendations are based on the experi-ences of the four foundations studied in this paper and are intendedto be helpful to foundations, NGOs, and donors alike.

Endowment Creation

Bilateral donors and large private philanthropic foundations in theNorth remain the main source of large one-time grants for endow-ments. Their smaller grants can also be the source of savings andreflows that can slowly build endowments for organizations inSoutheast Asia. The latter track can be maximized if donors allowedgrant savings instead of requiring grantees to either use up all fundsor return savings.

Debt swap opportunities in the Philippines and Indonesia areavailable again after the relative lull of the late 1990s. This couldprovide organizations in these countries a chance to access largeramounts of funds that can be used to start or augment endowments.Donor-creditors should publicize the mechanics of these programs sothat more organizations can avail of the benefits.

Constituencies and motivations are critical though. Organizationsneed to identify and develop their champions in endowment-creationand debt swaps. These champions need to work with champions on


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Strong EndowmentManagement(not simply

“administration”)Internal Savingsand Reflows

External Donors

Leveraged Funds

Outputs: Grantsor Services

Impacts on:EnvironmentPoverty

Figure 2Overall EndowmentManagement is Essential

the donor side to successfully design and conclude endowment ordebt swap agreements.

It must also be emphasized that organizations should take a proac-tive stance on policy issues. When there is a policy averse to endow-ments, they should try to change this through dialogue, lobbying, andgenerally challenging donors to seriously contribute to long-termfinancial sustainability strategies by setting up endowments. This, ofcourse, presumes that a track record and transparent managementsystems exist within the advocating foundation.

Endowment Building

Endowments, and funds received in general, are inputs. Managementtransforms these and other inputs into tangible outputs and impacts.Sound management is therefore critical. It can even produce internalsources (savings and reflows) of funds for an endowment.

Leveraging is a basic strategy for endowments. Donors and foun-dations should search for, coordinate with, and leverage the funds ofother donors, foundations, and financial as well as relevant technicalinstitutions. Cases on leveraging can be documented and shared withdonors, NGOs, and foundations.

Clear and specific investment policies are essential. Guided bysuch policies, all four endowments grew, at least in local currencyterms. Still, there are pressures from devaluation and inflation thathave to be addressed in the long-term by an endowment-buildingplan.

An ongoing fundraising strategy like KEHATI’s is needed even ifa foundation already has what seems to be a substantial endowment.The needs of grantees and beneficiaries cannot be underestimated.Courses in fundraising may be useful for staff.

Financial experts, investment committees, and asset/fundmanagers are essential, but their functions have to be clearly defined.In-house and direct management of asset investment alone is notadvisable. Even the largest foundations that hire staff to take chargeof their investments still hire external fund managers to do day-to-dayor detailed tasks associated with investment management. Therefore,it is important to build an in-house capacity to understand and moni-tor the performance of investment managers (boards should nevercondone poor performance of investment managers).


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Foundations should invest in measuring, monitoring, and evaluat-ing their outputs and impact. This will enable them to prove todonors and the public if they deserve support or not. Quantitativemeasures of output and impact per unit of input will be very useful notjust for management but also for reporting to, and convincing, donorsand the public of their good work.

Donors and foundations should always maintain a significant focuson outputs and impact as a result of their funding. While it can beeasy to focus on bringing in funds, it can distort the actual picture andunderestimate a foundation’s achievements, especially in the matter ofleveraging. Again, measurement and monitoring are needed to evalu-ate the effects of leveraging on outputs and impact.

Conclusion

Endowments are by no means a panacea to organizations’ financialchallenges. They do provide a sustaining and empowering asset,however, for societal development. Endowments go beyond financialsustainability. This is probably why they cannot be created and builtonly through financial means. Social constituencies, champions,timing, negotiations, not to mention political and funding commit-ments, are needed to create an endowment. Growing an endowmentneeds more of the same plus sound program and financial manage-ment. In the end, however, endowments will be measured not infinancial or project terms but in terms of their impact on a society’senvironment, health, poverty, and overall development.


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Foundations should

invest in measuring,

monitoring, and

evaluating their outputs

and impact – this will

enable them to prove

to donors and the public

if they deserve support

or not

References

Publications

Alegre, Alan. Sustaining Life After Debt – A Case Study on theFoundation for a Sustainable Society, Inc. New York: The SynergosInstitute, 2001.

Foundation for the Philippine Environment. Financial Statements,1994.

––––––. Financial Statements, 1995 and 1996.






––––––. Endowment Fund Analysis. PowerPoint Presentation. 2002.

Foundation for a Sustainable Society, Inc. Annual Report, 1996.

––––––. Annual Report, 1997.



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Garilao, Ernesto D. and Gil R. Tuparan. Corporate Resources for LocalDevelopment in the Philippines: The Jaime V. Ongpin Foundation, Inc.New York: The Synergos Institute, 2003.

Horkan, Kathleen M. and Patricia L. Jordan. Endowments as a Tool forSustainable Development. USAID Working Paper No. 221, PN-ABY-616. Washington DC: USAID Center for Development Informationand Evaluation, July 1996.

Indonesian Biodiversity Foundation (Yayasan KEHATI). AnnualReport, 1997.




––––––. Business Incubator – A Preliminary Concept. PowerPointPresentation, Undated.

––––––. Investment Committee Terms of Reference, 2000.

––––––. Investment Policy Guidelines, 1995.

––––––. Principles and Guidelines for Partnership with BusinessEnterprises, 2002.

Maxim, Sarah, Ismid Hadad and Suzanty Sitorus. Building anEndowment for Biodiversity Conservation in Indonesia: The Case ofKEHATI. New York: The Synergos Institute, 2003.

Quizon, Antonio, A Case Study on the Foundation for the PhilippineEnvironment. New York: The Synergos Institute, 2001.


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USAID Cooperative Agreement No. 497-0384-A-OO-5011-00.

Weatherly, Paul. Endowments in Africa – A Discussion of Issues for UsingAlternative Funding Mechanisms to Support Agricultural and NaturalResources Management Programs. USAID Technical Paper No. 24, PN-698-0478. Washington DC: USAID Office of SustainableDevelopment, Bureau for Africa, August 1996.

Winder, David. Civil Society Resource Organizations in Southeast Asia.New York: The Synergos Institute, 1998.

_________. Endowment Fund Activities and Investment. Paper presentedat the Workshop on Financial Sustainability for Civil SocietyResource Organizations in Indonesia. Yogyakarta, Indonesia, 7-9November 2000.

Interviews

Personal interview with Julio Tan, Executive Director, Foundation forthe Philippine Environment, September 2002.

Personal interview with Ismid Hadad, Executive Director, IndonesianBiodiversity Foundation (Yayasan KEHATI), October 2002.

Group interview with Gustaaf Lumiu, Director of Finance andAdminstration, Andreas Yasakasih, Finance Manager, Irfan Nasution,Research Analyst for Fund Management, and Dr. B. Setiawan andOkkie Adhika Monterie, Members of the Investment Committee,Indonesian Biodiversity Foundation (Yayasan KEHATI), October2002.

Personal interview with Ma. Rosario Lopez, Executive Director,Jaime V. Ongpin Foundation, Inc., November 2002.

Group interview with Helen Grace Baldo, Finance Manager, SalvadorPabalan, Treasurer, and Emily Pimentel, Trustee, Jaime V. OngpinFoundation, Inc., November 2002.


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Chapter SixCorporate Resources for Local

Development in the Philippines:The Jaime V. Ongpin

Foundation, Inc.By Ernesto Garilao & Gil Tuparan

T H E J A I M E V . O N G P I N F O U N D A T I O N , I N C .

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Introduction

The Benguetcorp Foundation was established in December 1980 asthe vehicle to carry out the corporate social responsibility of theBenguet Corporation (BC). At almost 100 years old, BC is thePhilippines’ oldest and leading natural resource company; itpioneered the mining of gold in 1903. While BC’s mining operationsceased in 1997, the company has gone on to invest in water resourceprojects, real estate development, eco-tourism, forest management,trucking and warehousing, construction and engineering services,steel casting, and trading.

Creation of the Foundation

The late Jaime V. Ongpin, who was the first Filipino president of BC,established the foundation. Envisioning “the development of self-reliant communities in the countryside,” he created a corporate socialarm that would promote the welfare of BC employees and theirdependents and the residents living near the company’s mining andother operations.

The idea for the foundation sprung from the perception that thecorporation needed to address the basic service requirements of resi-dents within BC’s mining camps. In the 1960s, a camp checker in thecourse of his daily inspections took note of the residents' problems ofcongestion in bunkhouses, illnesses, and decaying facilities. Herelayed these to his immediate superior, the Chief of Security, who inturn reported the problems to the Vice President for Personnel.

In the 1970s, Ongpin required the mine superintendents to setaside one day a week to go around the camp, talk with the residentsand check on their needs. BC’s Personnel Department was soon


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saddled with numerous problems pertaining not only to the BCemployees but also to their families. The dependents’ concerns weremostly the lack of livelihood opportunities for housewives, malnutri-tion among children, and the high incidence of unskilled out-of-school youth.

In 1980, a boom year for the gold mining industry, Ongpinthought of establishing a group that would focus on the needs of thecommunities, particularly in terms of generating livelihood opportu-nities. Such a group would also relieve the camp administrators oftasks not related to productivity and profitability. Out of this decisionthe BenguetCorp Foundation, Inc. was born. In 1987, it was renamedthe Jaime V. Ongpin Foundation, Inc. after its founder. For thepurposes of simplicity, the foundation will be referred to only by itscurrent name in this chapter. (See back of this book for a profile of thefoundation.)

Foundation Years 1981-1985

The foundation was not born with an endowment. In fact, it was notuntil 1991 that the endowment was actually created. In these earlyyears, almost all of its funding requirements were covered by itsparent corporation, which provided a grant that averaged US $80,000(PHP 1.04 million) per year.

During these early years, under the direction of Ongpin throughthe BC Vice President for Personnel, the foundation carried outsocio-economic projects for the welfare of BC employees and theirdependents. The foundation implemented four core programs in thecorporate campsites in the provinces of Benguet and Zambales. TheCommunity Development program focused on setting up livelihoodprojects for women and children; Social Services provided day careand nutrition services as well as assistance to disabled employees;Education and Training covered trade skills development, scholarshipprograms, and support to company-run elementary schools; andResearch and Information developed information, education andcommunication materials, and conducted feasibility studies.


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Foundation Years 1986-1990

Between 1986 and 1990, concern for the financial sustainability of thefoundation coupled with the desire to take advantage of the manyopportunities to serve other constituencies propelled it to expand itsoperations and income sources. In so doing, JVOFI rapidly built itscapabilities and reputation as a leading NGO in the area.

Under Ongpin’s pressure, BC adopted a broader concept of corpo-rate social responsibility despite the decline of the mining industry.Well aware of the limits of BC’s mining reserves, Ongpin directed in1985 that the corporation’s Public Affairs Program be focused oncommunity relations and guided by BC’s Personnel Strategy No. 5which called for “the transformation of company dependent miningcamps into administratively autonomous, self-governing communi-ties.” The strategy also required that BC should “promote viableeconomic alternatives for those who may wish to remain in thesecommunities after cessation of mining operations.”

Ongpin’s directive translated to the expansion of JVOFI opera-tions to areas neighboring the BC mine sites in Benguet, Zambales,Camarines Sur, and other provinces. For its old and new constituen-cies, JVOFI worked with organized groups and intensified its proto-type development, especially for group-based income-generatingprojects. The foundation, in coordination with the corporation,provided direct services and technical and financial support throughfour major programs then in existence: Livelihood Development,Social Development, Institutional Development, and SupportFacilities.

At the same time, JVOFI’s clients were growing increasinglydiverse. The original clients were BC employees and their depend-ents. Then there were the people in the adjacent non-mining commu-nities, for which JVOFI implemented development projects financedby BC, the US Agency for International Development (USAID), andother fund sources. In 1991, JVOFI became a principal player in therelief and rehabilitation efforts following the July 1990 earthquakeand the June 1991 Mt. Pinatubo eruption that devastated Northernand Central Luzon. The interventions were undertaken in coopera-tion with various donor institutions, local and foreign NGOs, privatefirms, and government agencies. This expansion in the beneficiariesof the foundation somehow strained BC-JVOFI relations. BC area


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managers and community development coordinators increasinglycomplained about what they saw as a shift in attention and decreasedparticipation in BC areas.

During this period, JVOFI operations were supported by BC at anaverage of US $160,000 (PHP 3.59 million) per year. In 1985,however, with the price of gold falling to only US $285 per ounce, thefoundation’s board expressed its concern about the need to generatethe foundation’s own income other than the annual grant comingfrom its principal. Training programs for outside entities and non-mining companies were initially identified as possible sources of fund-ing.

In 1986, Ongpin resigned as president of BC to join the Cabinetof President Corazon Aquino as Minister of Finance. Delfin Lazarosucceeded him and served as BC President until 1991. Lazaro subse-quently retired from BC to join the Cabinet of President Fidel Ramosas Secretary of Energy and was succeeded by Dennis Belmonte.Belmonte retired in 1997 from that post and is currently theChairman of JVOFI.

According to available records, concern about the need to diversifyfund sources to ensure the financial sustainability of the foundationwas officially brought up again in the Third Annual BC-JVOFIOperations Review held in August 1988. Then JVOFI PresidentNarcisa Escaler presented the foundation’s plan to raise its own fundssince most of its money was “restricted” to programs and areas spec-ified in the partnership agreements with donor institutions. Inresponse, two major decisions were made. First, Lazaro approved thefoundation charging management fees for the implementation of BCprojects. The income earned here was to be a major source of fundsfor JVOFI in succeeding years. Second, Lazaro directed the submis-sion of a proposal to the parent company whereby US $190,000 (PHP4 million) would be donated annually by BC to the foundation for itsendowment over a period of 10 years. Nothing came out of this direc-tive, however, until 1991.

The board took up the matter again in its meeting of November1988 where it was suggested that the foundation develop its expertisein generating its own funds since it still had no corpus fund. Aproposal was accepted to have JVOFI act as a conduit of externalfunds, mainly from donor agencies and government institutions, andthat the foundation charge a 30 percent fee against the total cost of


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While corporate

resources seeded the

beginnings of the

foundation, an

expanding group of

beneficiaries and desire

for greater financial

independence from the

corporation prompted

the establishment of

JVOFI’s endowment

projects it was to manage (this was the ceiling rate allowed for over-head for foundations registered with the Department of Science andTechnology).

It was further pointed out that aside from funds from BenguetCorporation for administrative and operating expenses, no otherdirect funds intended for JVOFI operations would be available afterthe current funds were expended. Upon this recommendation, theboard resolved that “an endowment fund be established for the JaimeV. Ongpin Foundation, Inc. to sustain its operations even after thecurrent funds and grants [are] exhausted.” The source of funds,however, was not immediately identified then.

At the same time, JVOFI began to access co-financing from donoragencies for new projects. Its application for accreditation withUSAID was approved in 1985 and its first USAID-assisted project,the US $340,000 (PHP 7.01 million) Benguet CommunityDevelopment Program, initiated in 1986. Meanwhile, a US $2.19million (PHP 45 million) Collaboration Project with the PhilippineDepartment of Health was launched in 1987. These two projectsrequired that funds be expended mostly for communities outside theBC camps.

Towards the end of this period, the foundation redirected its serv-ices from projects to programs and promoted cooperatives andmunicipal and provincial federations as structures to spearhead awider range of development in its areas of operations. It alsoenhanced its networking, forging partnerships and working agree-ments with various government agencies and non-governmental enti-ties.

Creation of the EndowmentActions of Emily Pimentel

Emily Pimentel, a Certified Public Accountant, was assigned byDelfin Lazaro to help manage JVOFI as Assistant Treasurer in 1990and as Vice President for Planning and Development in 1991. She wasappointed JVOFI President in 1992, a position she held until sheretired from BC towards the close of 1996. Since 1993 and up to thepresent, she has been a member of the board.


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When she joined the foundation, Pimentel was concurrently aranking BC officer serving as Assistant to the President. Like Lazaro,she came from the Benguet Management Corporation, a whollyowned subsidiary created in 1980 to handle all non-mining operationsof BC. Informed of the limits of BC’s mining reserves, Ongpin hadpushed for diversification into other businesses, including real estatedevelopment, forest management, trucking, warehousing, agriculturalproduction, and shipping. Pimentel was a pioneer in developing andmanaging these business ventures of Benguet Corporation.

Notwithstanding the JVOFI board resolution on the subject, noendowment fund had been established when Pimentel was assigned tothe foundation in 1990. She had the forethought to see the limits toBC’s assistance and the clout to push for what she felt were necessaryreforms in the foundation’s financial management. Among her earlyinitiatives was the decision to direct the management staff to set asideUS $120,000 (PHP 3.43 million) as the initial “endowment fund” ofthe foundation.

Pimentel had several reasons to take these steps. The corporationhad earlier been placed under government sequestration1 and wasundergoing internal turmoil in its management and ownership. It waslikewise suffering heavy losses in its mining operations. On the otherhand, with funding from donor agencies, JVOFI was servicing manycommunities other than those covered by the mining, logging, andagricultural operations of its mother company. Pimentel thought itwould be awkward and difficult to withdraw from non-BC communi-ties, should funding from the parent corporation end. Moreover, shewanted to ensure that the vision and pro-poor orientation set by JaimeOngpin, who passed away in 1987, would be sustained regardless ofany change in BC’s leadership and ownership.

In addition, the foundation then had a complicated and unpre-dictable budgeting process that was dependent on what projects thedifferent BC Vice Presidents for the campsites favored. Planning wasfor one year only and sometimes projects were downscaled or discon-tinued due to insufficient releases from BC operations.

“We wanted Benguet Corporation to shift to longer term planningand to commit a percentage of its budget to social development,”Pimentel said. But BC did not then have enough resources to agree tothat. JVOFI tried several times to convince its mother company toprovide an endowment fund that would help ensure the foundation’s


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1 With the downfall of theMarcos dictatorship in1986 and CorazonAquino's assumption ofpower, efforts were madeto recover the alleged ill-gotten wealth of theformer dictator.Companies suspected ofbeing owned by theMarcos family wereplaced under governmentcontrol pending investiga-tion. One of BC's major-ity shareowners was thebrother of Imelda Marcos.

financial sustainability. BC, however, was having its own financialproblems at that time, making its annual grants to the foundationdifficult. It could support only its identified programs and projects.

Creating an endowment fund was thus a strategy to ensure thecontinuity of projects and rationalize the foundation’s planning andbudgeting. With an endowment fund, Pimentel believed that thefoundation could better plan and pursue projects in accordance withthe JVOFI mission and development objectives.

Meanwhile, USAID and other foreign aid agencies had pouredsignificant funds into the Philippines in support of the Aquino admin-istration. Pimentel was well aware of USAID’s plan to substantiallyreduce its levels of assistance to the country and Southeast Asia gener-ally by the early 1990s, which would mean losing the foundation’smajor source of funds. Indeed, USAID had been advising its localNGO partners to not continue to depend on it for funding support.This development added pressure to the perceived need within thefoundation to establish an endowment fund.

Origins of the Endowment Fund

Upon the recommendation of Pimentel and with the approval of theboard, JVOFI set aside US $120,000 (PHP 3.43 million) in 1991 as itsinitial endowment fund. The amount came in part from savings accu-mulated from the annual grants received for BC programs, realizedthrough loan collections and raising of counterpart funds. The othersources were the savings and reflows from a collaborative project withthe Philippine Department of Health (DOH) and interest and otherincome on projects initiated before the endowment fund was actuallyrealized. Pimentel then proceeded to build up the endowment fundmainly from earned income, fund surpluses from operations, and,most important, loan reflows from donor-assisted projects. Thesestrategies are each described below.

Strategies for Building the Endowment Fund

Collectively, the following three strategies have been importantmechanisms in the building of JVOFI’s endowment. More detailed


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examples of these mechanisms can be found in Appendix 1: Strategiesfor Building JVOFI’s Endowment.

(a) Using Loan ReflowsPimentel recognized the importance of loan reflows from previousJVOFI projects. For example, USAID projects had loan collectionsaccruing to the fund of the foundation after a three-year period fromthe project’s completion date. “Yes, that really interested us,”Pimentel said, referring to the possible reflows from USAID and theDOH-JVOFI Collaboration Project on social and livelihood develop-ment. “This was one of the reasons why the board demanded betterperformance in loan collections of past and ongoing projects.”

The endowment fund substantially increased through the transferof loan reflows from projects after completion of grant holding peri-ods of USAID and other projects. The transfer of some of the reflowscaused the endowment fund to jump from US $220,000 (PHP 6.02million) in 1994 to US $520,000 (PHP 13.75 million) in 1995.

(b) Generating a Fund SurplusFor the longer term, Pimentel emphasized the need for the founda-tion to generate income and savings that it could save for a rainy day.The foundation earned management fees on the implementation ofdifferent BC programs, the DOH-JVOFI Collaboration Project, andothers. Pimentel also pushed JVOFI to take on additional projects inorder to spread its overhead costs over various income sources.Moreover, under the BC-JVOFI zero-based annual budgetingworked out by JVOFI Chair, Dennis Belmonte, it was agreed that anysavings realized by the foundation should accrue to its growingendowment fund. This encouraged JVOFI to generate savings byimproving efficiency in its operations and raising counterpart supportfrom community or partner implementers.

(c) Implementing New Projects with Resource OrganizationsUnder Pimentel’s leadership, the foundation put together and securedfunding for new development projects with loan assistance compo-nents in collaboration with USAID, the Australian Agency forInternational Development and the Canadian InternationalDevelopment Agency. Of particular importance was the use of lever-aging the foundation’s existing funds to secure additional grants.


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As part of its desire to leverage foreign donor funding using itsown corpus, Pimentel worked out a technical increase in BC’s annualgrant to JVOFI. BC funds already earmarked for community relationsand social development were consolidated and released to the foun-dation. These included funds for various community activities, refor-estation, livelihood projects, and other activities initiated by BC oper-ations staff. Consolidating the funds under JVOFI for social develop-ment would help coordinate and rationalize the use of the funds, shereasoned. As a result, BC released funds to JVOFI at a much higherrate than previously, averaging US $410,000 (PHP 10.51 million)annually from 1991 to 1996. (As a result of tough economic condi-tions in the mining sector and in the country generally in 1997, BCofficials stopped making the annual grant to the foundation at thattime.)

Pimentel then leveraged the BC funds to secure a USAID grantfor an Integrated Area Development Assistance Project. “It wascreative packaging and financial maneuvering, actually,” she disclosed.JVOFI received about US $560,000 (PHP 16 million) from USAIDunder this project, of which there were reflows in the amount ofapproximately US $150,000 (PHP 4.6 million). These reflows laterbecame part of the foundation’s fund.

These new co-financing partnerships were to yield more incomeand loan reflows that would later find their way into the endowmentfund of the foundation. These allowed JVOFI to become less depend-ent on the mother company in terms of annual operations and long-term financial sustainability. Moreover, JVOFI’s high profile network-ing and ties with resource organizations established its solid reputa-tion in Northern Luzon and created linkages that were to prove bene-ficial in securing other projects in the coming years.

Managing and Using the Endowment FundEndowment Fund vs. General Fund

On its financial books, JVOFI has a Total Fund Balance that is brokendown into a Restricted Fund and a General Fund. The RestrictedFund represents amounts received by the foundation for purposesspecified by its partnership agreements with granters and donor insti-


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tutions. The General Fund represents amounts already under the fullcontrol of the foundation.

Under the General Fund, which is free from the claims andrestrictions of donors, certain amounts have been identified as consti-tuting JVOFI’s endowment fund. Set aside and accumulated to ensurefinancial sustainability, these amounts are usually those general fundsdeemed not needed for the immediate future. The residual balanceconstitutes Other General Funds.

Although the foundation has had no clear-cut policies or guide-lines on how the endowment fund should be built, there have beensome general rules adopted, as Pimentel recalled. “First, we estimatedbased on historical figures that we would need to earn from a corpusof at least US $380,000 (PHP 10 million) to sustain our administra-tive expenses. We then transferred to the endowment fund thosereflows that we were sure were beyond the holding period of USAID.We also transferred only those funds we believed would not be neededin the near future.”

After a waiting period of about three years, loan collections aremoved from the Restricted Fund to the General Fund. Depending onthe results of the Finance Committee’s periodic reviews of the finan-cial needs of the foundation and its earning capacity, loan reflows aretransferred to the endowment fund.

Use of the Endowment Fund

The endowment fund has been used mainly to cover the general andadministrative expenses of the foundation. Pimentel observed that theendowment fund was particularly useful in 1997 and 1998 after theBenguet Corporation stopped providing its annual grant to the foun-dation. Total Funds Received plummeted from approximately US$930,000 (PHP 24.31 million) in 1996 to a little under US $100,000(PHP 2.85 million) in 1997 to just over US $40,000 (PHP 1.64million) in 1999. in 1997, JVOFI lost its 30 percent management feeon BC programs and had fewer projects against which it could chargeits overhead. The availability of the endowment fund cushioned thedislocation that could have happened with the decision of BC’s newleadership to stop its financial support to the foundation.

The endowment was likewise tapped for expenses incurred in1997-1999 to develop, market, and deliver JVOFI’s services in micro


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finance, training, and consultancy. These services continue to begroomed to become major income earners for the foundation.

The endowment fund is now tapped largely to maintain a corestaff that the foundation can leverage to obtain other funds accessedfrom donors. The personnel expenses charged against the endowmentoften serve as the JVOFI counterpart in the projects it manages.

Composition of the Endowment Fund

In its first five years and under Pimentels’ leadership, the endowmentwas invested primarily in money market placements and a condo-minium unit in Metro Manila. After she left BC and resigned asJVOFI President in 1996, the board decided to buy golf club sharesand invest in marketable securities upon the recommendation of theJVOFI Treasurer (though the bulk of the endowment fund hasremained in banks as money market placements or trust accounts). Atthat time, the Philippines was being hailed as “Asia’s New Tiger” andthe economy was purring at a growth rate of 7.1 percent.Unfortunately, the Asian financial crisis struck in mid-1997 resultingin a marked decline not only in the yields in interest income but alsoin the value of the investments. The turbulent political climate underthe successor government of Estrada did not help either. Thus, in2001, the securities and shares were valued at less than 50 percent oftheir purchase price in 1997.

Management of the Endowment Fund

When Pimentel was appointed president of the foundation, she wasgiven wide latitude to reshape and redirect JVOFI. “Our Chairmanhad his hands full running Benguet Corporation. It was, therefore, upto management to present proposals for consideration,” Pimentelrecalled. “The trustees fully supported such proposals. Thus, it wasnot that difficult for us to set aside funds and build up the endowmentfund.”

Ma. Rosario Lopez, current JVOFI Executive Director, agreed.“In fact, the creation and management of the endowment fund wasgenerally left to our president, Emily Pimentel. The board used tomonitor only the consolidated General Fund, leaving most of thefinancial details to the Finance Committee. When money became


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tight, however, the board as a whole began to require reports andupdates on the status of the endowment fund and the overall financialsustainability of the foundation.”

When the endowment fund dipped to US $530,000 (PHP 12million) in 2000, the board instructed the management staff to ensurethat the endowment fund not drop any further. The foundation as awhole has rallied to preserve its corpus.

In 2000, in view of the mergers, acquisitions, and closures happen-ing in the banking industry, JVOFI’s board issued a list of accreditedbanks that the foundation should deal with. These banks offeredlower returns but were chosen because their stability provided secu-rity for JVOFI investments. The executive director and managementstaff are guided by this list in their day-to-day management of thefoundation’s bank accounts.

Status of JVOFI Corpus

Through the transfer of loan reflows and savings from operations andinterest income, the JVOFI endowment fund quickly increased,reaching a peak of US $650,000 (PHP 17.16 million) in 1997. Acombination of factors, however, caused the fund to shrink annuallyto only US $530,000 (PHP 12.12 million) by 2000. These factorsincluded a decrease in the number of projects against which overheadexpenses could be charged as well as lower yields in bank investmentsbrought about by the Asian economic crisis.

In 1997, with the closure of the Dizon Copper Mines and thecessation of its Masinloc Chromite Operations, BC stopped providingits annual grant to the foundation. The following year, USAID,JVOFI’s major resource partner for more than a decade, released thelast of its remittances with the conclusion of the Integrated AreaDevelopment Assistance Program.

Based on the instructions of the board, the foundation thus imple-mented a number of measures to arrest the decline of its endowmentfund. These included a retrenchment of personnel in 1998 and thepromotion of new income-generating services in micro finance, train-ing, research, and consultancy.

Despite low yields in bank investments (interest rates hovered atonly 5 percent per annum), the endowment improved modestly toreach US $540,000 (PHP 12.96 million) in 2001. The growth,


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however, came from the transfer of loan reflows previously underOther General Funds to the Endowment Fund. Meanwhile, the totalGeneral Fund increased by 10 percent from US $780,000 (PHP 23.12million) in 2000 to US $850,000 (PHP 28.70 million) in 2001. Againthis was due to the reclassification of loan collections, this time fromRestricted to Other General Funds.

More recently, JVOFI stepped up its fund sourcing and generateda total of US $630,000 (PHP 3.21 million) in grants in 2001. This wasmore than double the US $250,000 (PHP 1.11 million) raised in theprevious year. Expenses, however, continued to outstrip support andrevenues such that the Total Fund Balance decreased for the fifthconsecutive year. Apparently as a result of the aggressive fund sourc-ing and reduction in expenses, however, the decline was reduced from9 percent in 1999-2000 to only 2 percent in 2000-2001.

In light of these developments, the foundation came up with a newstrategic plan for 1999-2003. While the same vision and missionstatements were adopted, the four core programs became EnterpriseDevelopment, Ecological Enhancement, Internal Capacity Building,and Resource Generation and Management.

Under its strategic plan in place since 1999, JVOFI operationshave been focused on Baguio City. The foundation has been leverag-ing its expertise and experience in developing and managing projectsinvolving micro finance, watershed development, and solid wastemanagement, among others. More recently, the foundation intensi-fied its training, research, and consultancy engagements, including afew in the Northern Luzon provinces of Ilocos Norte and La Union.

Challenges in Building and Managing the EndowmentPreserving the Corpus

“At this point, it is unlikely that we could enlarge the endowmentfund. The challenge is how to manage what we have, how to preserveour corpus. To do that, our strategy is to break even using our earn-ings to fund our administrative costs. Until things get better, we arein a cost-recovery mode.”

This is how Maribel Ongpin summed up the foundation’s sustain-ability strategy while grant funds are scarce and the Philippine econ-omy is sluggish. Maribel Ongpin, the widow of Jaime Ongpin, was


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appointed President of the foundation in April 2002. She has been anactive and vocal member of the Board of Trustees ever since shejoined in 1988.

Emily Pimentel elaborated that, “Our objective on a year to yearbasis when we approve the budget is just to try to break even in termsof administrative costs. That is, our administrative costs should beequal to our expected earnings for the year. If we make more, well andgood as that would add to our endowment fund. Unfortunately, weare not yet there; we are hitting maybe only 60 to 70 percent costrecovery. Hence, our resource mobilization efforts do not translateyet to a fund surplus.”

“Protecting the corpus also means getting contracts that wouldallow our qualified staff to pay for itself,” Pimentel added. “It wouldbe a waste to lose them because these are the same people we will needwhen the projects come in. That is why we have to do cost-recoveryin the meantime.”

According to Executive Director Lopez, another strategy theyhave adopted to conserve JVOFI’s funds is to maximize counterpartarrangements with communities, local government units, and partnerimplementers. As was done in the more recent solid waste and refor-estation projects, resources are pooled by the foundation to come upwith the amount necessary to access an identified grant. Alternatively,the foundation may determine the total budget requirements andthen approach several donors to collect the required amount.

In addition, training, research, and consultancy services are deliv-ered, even for small engagements, to help cover general and adminis-trative expenses. Maribel Ongpin said, “When funding dried up, as ithad in the past few years, we started pulling our bootstraps. We havebeen doing work like facilitation, trainings, and seminars. We alsotake in work from other NGOs or government agencies. We try tomake these projects contribute a little to our overhead.”

Managing Income Opportunities

In building up the corpus, Pimentel readily saw the importance ofloan reflows as a major source of growth in the endowment. “But ourbad debt figure was so high; our rate of loan collections was awful. Ifound out that not enough efforts were going to collections. What awaste of resources!” she recounted. The Finance Committee,


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composed then of Salvador Pabalan as Chairman, Cora de la Paz, andPimentel, therefore introduced a number of reforms to improve themonitoring and recovery of loan funds.

At the same time, the foundation has endeavored to do well in theexecution of its partnerships with resource organizations. MaribelOngpin explained, “We try to instill a culture of responsibility andservice. Likewise, financial accountability is an institutional value. Forexample, the grants we got from USAID were pretty big at that time.And we were able to deliver the objectives and discharge the respon-sibility, including the financial accounting. Knowing how difficult andexacting USAID could be, we could not have gotten five major grantsfrom them over 12 years if we had not managed the projects well.”

Diversifying Competencies

“We have a history of adapting to our environment to ensure our rele-vance to our partners and communities,” Lopez pointed out. “Wehave been reinventing ourselves, adjusting our roles, strategies, andprograms in accordance with the needs and opportunities of thetimes. We have shifted from being a direct implementer and servicedeliverer to being an enabler and mobilizer. To adjust and adapt, weunderwent a reengineering in 1995 and a restructuring in 1999.”

She emphasized, “To ensure our sustainability, we have tocontinue to be creative, innovative and relevant. To do that, we mustbe attuned and up-to-date with what is happening externally in thesocial development scene. Networking and linkaging are very impor-tant. We have to establish and maintain good working relationshipswith other actors in the development sector – NGOs, POs, donorinstitutions, and government agencies – particularly in Baguio City,Benguet province, and Northern Luzon. We have to be aware of whatthey need. If that is consistent with our mission and goals, then maybewe can put together something.”

Looking for Co-financing Partners

Maribel Ongpin explained, “Our donors have helped in more waysthan one. In a sense, they were also the sources of our endowmentfund. That is why we ensure that they are happy with our perform-


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“To ensure our sustain-

ability, we have to

continue to be creative,

innovative and rele-

vant. To do that, we

must be attuned and

up-to-date with what is

happening externally in

the social development

scene. Networking and

linkaging are very

important.”

ance. We always look at our relationships with them on a long-termbasis.”

"Part of our sustainability strategy was to look for partners whocould give us funds that later on we could add to our endowment.That used to be mainly USAID for us. Unfortunately, they decided tofocus on democratization, governance, and other issues in the politi-cal scene.”

“CIDA [Canadian International Development Agency] andUNDP [United Nations Development Programme] came in withsmall grants that were very useful during the crunch time in the late1990s. After USAID left the picture, we concentrated more on thesesmaller funds. We were able to revive our partnership with AusAIDfirst established during the relief and rehabilitation efforts for theAetas (indigenous peoples) affected by Mt. Pinatubo’s eruption. TheJapanese Embassy recently gave us a largish grant for a garbage-recy-cling project in Baguio City.”

“We maintain our good relations with these donor partners. Ournext step will be maybe to acquaint ourselves with European fundinginstitutions which have access to European Union funds. Maybe wecan start with Spanish grants. We want to find out what their interestsare and see if our programs could fit.”

Success and Limiting FactorsGood Track Record

“I would say our success in getting projects and grants essentiallycomes from our track record. We really don’t have to sell ourselves,”Maribel Ongpin asserted. “We have established our track record;people know that we have the experience and expertise in our areas ofconcentration,” she clarified. “And we have highly committed anddedicated staff who do good work and come up with creative ideas.These are strengths that attract our clients and donor partners. Ournetworking merely facilitates the linking of interests and resources.”

Active Board

Lopez observed that the Board of Trustees now more actively partic-ipates in the affairs of the foundation. “Before, when we had more


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money, the board as a whole was not too keen on getting details offinancial reports and fund balances. They just relied on EmilyPimentel and others in the Finance Committee like Cora de la Pazand Salvador Pabalan. Now, they actually visit projects, they probe uson the financial performance of the foundation, they want to knownot just the outputs but also the impact of what management isdoing.”

“We have a good mix of people on our board,” said MaribelOngpin. “I know many foundations fail because of their inability tomanage their finances. But we had Emily who took care of that for us.Then there is Cora de la Paz who is also very perceptive when itcomes to numbers. She was a big help in straightening out our prob-lems with our micro finance program.”

She continued, “We also have people who are well-versed inmanagement and we have experts who are very much into NGO andcommunity work. Recently, Norberto Viera, who is the ManagingDirector of Texas Instruments in the Philippines, joined our board.He has been very helpful in looking for linkages and partners.”

Aggressive Resource Mobilization

According to Pimentel, resource mobilization, which she calls “fundsourcing,” has been built into the culture of the foundation. WhenJVOFI still had enough personnel, it had a Fund Sourcing Groupwhose job was to secure co-financing partners that could providefinancial and technical resources for the foundation. Later, they justhad Fund Sourcing Specialists. “But fund sourcing is a responsibilityof all the managers. They have to go out and look for projects andresources to sustain their operations. It is really a conscious effort onthe part of the managers and on the part of the board,” Pimentel said.

Champions

“The endowment fund would not have been created had EmilyPimentel not championed it,” Lopez pointed out. “The board wantedit but was not doing much about it. She made it happen. She trans-lated financial sustainability into operating terms.”

“Similarly, we had our Chair, Mr. Dennis Belmonte, advocatingour causes and concerns in Benguet Corporation,” said Lopez. As


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concurrent BC President and JVOFI Chair from 1992 to 1997,Belmonte approved the zero-based budgeting system that allowed thefoundation to retain whatever savings it could generate from theimplementation of BC projects. He also agreed to Pimentel’s propos-als to increase BC releases to JVOFI in order to avail itself of USAID’sEnterprise and Community Development grant, which was thebiggest project ever handled by the foundation.

According to Pimentel, since Maribel Ongpin joined the board shehas been a leading force in moving the foundation forward effectively.“She provides the inspiration and guidance in ensuring that JVOFIwould pursue the vision of her late husband for the development ofself-reliant communities,” Pimentel noted. “She is the keeper of thevision and core values of the organization.”

BC-JVOFI Relations

From the time that JVOFI began accessing funds from sources otherthan BC, the mother company and its corporate foundation havesteadily drifted apart. “Today we are nominally still connectedbecause according to our bylaws, we remain a corporate foundation ofBC. Operationally, however, we have been independent, especiallyafter 1997,” said Maribel Ongpin. “We do not want to rock the boatby changing our bylaws and formally declaring our independence.Anyway, they let us be. The new owners, which took over in 1998,have their hands full managing their debts and trying to stay afloat.”

The divergence has been both a success and a limiting factor in thecreation and management of the endowment fund. On the one hand,building the corpus could have been expedited by a seed fund fromBenguet Corporation. “For maybe 12 years now we have been hopingthat they could give us an exit grant that they can consider an endow-ment. And then we could work from there and build it up,” MaribelOngpin said. “Louie Lagdameo [former Treasurer] worked for thatand Dennis Belmonte is still trying to do it.”

On the other hand, the absence of such an endowment from BCspurred JVOFI to create its own corpus from its savings and opera-tions. Pimentel remarked, “It forced us to work harder, to develop ourcapacity in fund sourcing, to be creative and innovative. We havelearned a lot along the way.”


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Key Lessons Learned

The following can be seen as key lessons learned regarding how thebuilding and growth of an endowment can be a successful approach tobuilding a foundation’s financial sustainability (and particularly acorporate foundation’s sustainability).

Lesson: Ensure some independence from the mother company

Pimentel observed, “Many corporate foundations that receive anendowment from their mother company exist for the interests of thecorporation. In our case, we did not get an endowment and we had todepend on our operations to create a corpus. Increasingly, however,we existed for the communities we served rather than for BC.Eventually we became aligned with, but independent of, BenguetCorporation. We programmed our funds according to our missionand goals.”

“If we had not been independent, we could have gone down whenour mother company was hit by hard times. I think that for a corpo-rate foundation to survive it should have financial independence atleast in the form of a corpus that can sustain the organization, nomatter what happens to the corporation.”

“And if you are dependent for funds on the performance of yourmother company, you have to know what is happening in the corpo-ration itself – what are the plans and projects, how is the corporationbeing run, what are the major problems and critical concerns…thingslike that. You have to be able to predict what to expect of thecompany. In my case, I had the advantage of knowing what washappening in the corporate context and JVOFI could plan accord-ingly.”

Lesson: Adopt a business approach to social development

“Although we have our social development goals, we have adopted abusiness approach and we are very conscious of the amounts that wehave to deliver to ensure that we will be able to sustain our opera-tions,” Lopez noted. “This is particularly true in our microfinanceproject. We are always looking for ways to improve it so that it will


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not just be money going down the drain like what happened beforewhen we wrote off some US $495,000 (PHP 12 million) in loans.”

The microfinance project was launched in August 1996 to provideaffordable credit and encourage savings among the enterprising poorof Baguio City. Capitalizing on the learnings gleaned from the foun-dation’s previous lending programs, however, the project incorporatesfull cost recovery mechanisms to preserve the JVOFI corpus andensure that funds will be available to sustain other core programs.“Now we emphasize to the community groups that they have to paytheir loans as well as the full cost to deliver the credit,” Lopez said.Out of the US $890,000 (PHP 32.02 million) due in 1996-2000, totalcollection amounted to US $870,000 (PHP 31.49 million) for a 98.3percent repayment rate.

Lopez likewise observed a marked difference in the thinking of theboard when considering funding requests and project proposals.“Before, it was easy for the board to give grants and donations orassent to dole-out projects. Now because we are all concerned not todeplete the General Fund, the board always asks for counterpartcontributions. It is also very conscious now of both social and finan-cial returns.”

Lesson: Leverage limited resources with co-financing resource partners

Pimentel pointed out, “We did not start with money coming out ofour ears. We just had modest sums. I think the learning here is thatyou do not have to have hundreds of millions to pursue your vision.By creatively packaging your projects and leveraging your funds, youcan actually do a lot even with a little. There are a lot of resourcesoutside the organization that can be tapped to attain common goals.”

“That is one of our strengths, actually,” Maribel Ongpinremarked. “We go to possible donor institutions with our track recordand creative ideas. To make our proposal more attractive, we then putour corpus to play by offering to cover part of the costs of the venture.On our side, however, we do not shoulder the entire counterpart. Weask the community, local government unit, and other stakeholders toco-finance the project. Thus, our limited funds go a longer way ingetting development projects implemented on the ground.”

Pimentel stressed, “The key here of course is to deliver effectiveprograms and services. You have to develop the institutional capacity,


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credibility, and track record. Especially now, nobody gives largechunks of money the way USAID used to do. Thus, it is important topresent many options to resource organizations before, during, andafter a project.”

Lesson: Organizational sustainability should be an institutional value

“The foundation has to be sustainable, this is what we inculcate,”Maribel Ongpin emphasized. “I see many NGOs living a hand-to-mouth existence because they do not think of the future. In our case,everyone from the board to the rank-and-file is aware of the need toensure our sustainability.”

“For example, we have been very prudent with our funds. We werenever extravagant; we have always been frugal. We promote trans-parency and financial accountability in our dealings with our clientsand co-financing partners. We have also worked hard to build ourendowment fund.”

“It goes beyond the financial. We do good work, we innovate, andwe adjust to our environment. We made our mistakes but we madesure that we learned from them. Where necessary we even gotresource persons to help us process the learnings and do the reforms.The concern for sustainability has also guided us in our selection oftrustees and managers, in the motivation of our staff, in our conductof strategic planning exercises, in the capacity building in training andconsultancy, and in many other aspects of the foundation’s opera-tions.”

“Because of this value, this culture, we are very enthusiastic aboutthe future. We understand that we just have to endure the financialcrunch that everybody is suffering from. But it will not always be likethis; things will improve. And when they do, the foundation will beprepared to meet all the challenges and opportunities the future hasto offer.”


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“It goes beyond the

financial. We do good

work, we innovate, and

we adjust to our envi-

ronment. We made our

mistakes but we made

sure that we learned

from them.”

Appendix 1Strategies for Building

JVOFI’s Endowment

Important strategies to build the endowment fund may be traced fromtwo key moves made in 1985 to 1987 to ensure the financial sustain-ability of the foundation. These were the implementation of thePhilippines Department of Health-JVOFI Collaboration Project andthe development of partnerships with resource organizations, partic-ularly the long-term relationship with USAID.

DOH-JVOFI Collaboration Project

Through the initiative of Ongpin, BC donated US $2.06 million(PHP 45 million) to the government for the implementation of devel-opment projects in the provinces where BC was operating. Thedonated amount was held in trust by the foundation and jointlyadministered by BC, JVOFI, and the Department of Health, the part-ner government agency. Formally called the DOH-JVOFI IntegratedLivelihood and Primary Health Project, the pioneering government-NGO-business sector collaboration had four components. The DOHwas responsible for the Primary Health Care component, which wasthe biggest, while JVOFI handled the Livelihood Development,Social Development, and Institutional Development components.

The project facilitated the rapid growth of the foundation as anorganization providing grants, loans, and technical assistance acrossdifferent projects in Benguet, Zambales, and Camarines Sur. JVOFIacquired the experience and expertise in managing development proj-ects in partnership with people’s organizations (POs) and otherNGOs. The projects included the development of potable watersystems, integrated swine breeding, cattle dispersal, day care centers,scholarships, loans for cooperatives, and assistance to various schoolsand private volunteer organizations.

The US $2.06 million (PHP 45 million) grant was released toJVOFI in three equal tranches in 1987, 1988, and 1990. Significantly,


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although the bulk of funds eventually went to the primary health carecomponent managed by DOH, the release of the grant to the foun-dation provided JVOFI with funds that it could leverage to secureother projects with donor institutions, particularly USAID.

For example, in 1989, BC and JVOFI secured USAID funds forthe Zambales Integrated Development Program (ZIDP) using theDOH-JVOFI Collaboration Project funds as counterpart. TheUSAID grant was notably used for a credit program for livelihoodprojects in Masinloc and San Marcelino. Meanwhile, part of theCollaboration Project funds was used for project management train-ings.

The ZIDP subsequently yielded loan reflows amounting to US$90,000 (PHP 2.44 million), of which US $60,000 (PHP 1.61 million)was classified in 1995 as part of the JVOFI endowment fund. TheDOH-JVOFI Collaboration Project itself had credit programs thatbrought in substantial loan reflows that later formed part of theGeneral Funds of the foundation.

Partnership with Resource Organizations

In the late 1980s, donor agencies started pouring official developmentassistance into the Philippines in support of the AquinoAdministration. The new government also adopted a policy topromote countryside development in collaboration with POs andNGOs. To take advantage of the opportunities under this favorableclimate and in view of the growing difficulties of its mother company,the foundation actively secured financial assistance from USAID andother donor entities. Here are some examples of such partnerships.

USAID PVO Program

The first JVOFI-USAID partnership was the Benguet CommunityDevelopment Project (BCDP) implemented from 1986 to 1989 underthe donor agency’s program to assist NGOs (what the Bank oftenrefers to as private voluntary organizations, or PVOs). The BCDPinvolved a US $210,000 (PHP 4.34 million) total grant from USAIDand a US $130,000 (PHP 2.67 million) counterpart contribution incash or in kind from JVOFI and its co-sponsors. The BCDP wasfollowed by the first cycle of the Benguet Livelihood Development


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Project from 1988 to 1991 and the second BLDP cycle from 1991 to1994.

USAID ECD Program

Under USAID’s Enterprise and Community Development Program(ECD), BC became part of the ZIDP, which was implemented in 1989to 1992. It involved a US $200,000 (PHP 4.7 million) grant from thedonor agency matched by a US $200,000 (PHP 4.7 million) counter-part from BC-JVOFI. The ECD, which provided grants to for-profitorganizations to encourage the use of their philanthropic funds tosupport more sustainable community development projects, called fora 50-50 sharing of expenses between USAID and the grantee-corpo-ration.

The last USAID-assisted project that JVOFI participated in wasthe Integrated Area Development Assistance Project carried out from1994 to 1998. The USAID grant totaling P18 million was likewisesecured by BC under the ECD Program with JVOFI as the sub-granter of funds.

According to Pimentel, USAID was interested in working with thefoundation because there were not too many corporate foundationsthat could come up with the counterpart funds. “We were among thefirst to avail of their ECD because we had funds coming from ourcollaboration project with the DOH,” she said.

Other Fund Sources

As a leading NGO in the area at that time, JVOFI was well positionedto collaborate with resource organizations to carry out credit formicro-entrepreneurs, construction of school buildings and, later,relief and rehabilitation programs. Among the partnerships estab-lished by the foundation were the loan assistance programs with theDepartment of Trade and Industry and the Philippine Business forSocial Progress. In 1993, JVOFI also obtained a small grant from theAustralian Embassy for crop and livestock projects for indigenouspeople in Mt. Pinatubo resettlement sites (the Aeta).


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Chapter SevenBuilding an Endowment for

Biodiversity Conservationin Indonesia:

The Case of KEHATIBy Sarah Maxim, Ismid Hadad

& Suzanty Sitorus

T H E C A S E O F K E H A T I

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Introduction

Indonesia is one of the world’s three mega-diverse countries for therange and breadth of its biological resources.1 In recent decades,however, this biodiversity has come under threat. Growth-orienteddevelopment policies have led to unsustainable pressures being placedon natural resources and a dramatic reduction in habitat areas forendangered species. Compounded problems of pollution, deforesta-tion, erosion, and the disruption of watersheds are severely impactingthe environment. Moreover, a history of corruption and inconsistencyin the application of the rule of law have limited the government’sability to adhere to acceptable guidelines, or common principles, inthe sustainable management of Indonesia’s natural resources.

This marked decline in the quality of Indonesia’s environment bythe mid-1980s pushed the subject to the forefront of the agenda of thecountry’s nascent community of non-governmental organizations(NGOs) as well as some government sectors, particularly the StateMinistry of Population & the Environment.2 Between 1983 and1993, Dr. Emil Salim, a Berkeley-trained economist, directed thisministry. It was during his tenure as minister that Indonesia developeda strategic plan to promote biodiversity conservation, participated inthe 1992 Rio Summit, and signed and ratified the InternationalConvention on Biological Diversity.3

Although the State Ministry of Population & the Environmentwas an effective voice in calling for the country to pay more attentionto sustainable development, its status as a state ministry meant it hadlittle implementing or enforcement authority, and only a limitedbudget.4 Local NGOs also lacked sufficient resources to spearheadthe kind of initiatives that would have substantive impact in address-ing the degradation of the natural environment.


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1 The other two mega-diverse countries areBrazil and the DemocraticRepublic of Congo(formerly Zaire).

2 The ministry became theState Ministry for theEnvironment after Dr.Emil Salim ended histerm as minister.

3 This international treatywas drawn up in 1992 topromote three goals:biodiversity conservation,sustainable use of theearth's biologicalresources, and the “fairand equitable” sharingof the benefits from the

use of natural geneticmaterials. The treatyhas 182 parties. Seewww.biodiv.org.

4 This situation has contin-ued to the present dayunder the State Ministryfor the Environment. Forexample, the ministry doesnot have direct supervi-sion of the country’s manynatural parks and conser-vation areas; these areasare instead coordinated bya department in theMinistry of Forestry.

Amidst these developments, two contiguous events collided to givebirth to KEHATI’s endowment. First, a 1992 summit meeting inTokyo between US President George H.W. Bush and Japanese PrimeMinister Kiichi Miyazawa resulted in the governments of Japan andthe United States agreeing to a common agenda for the environmentwith Indonesia selected as a pilot country. Called the “TokyoDeclaration,” funds provided by the two countries were allocated tosupport the implementation of Indonesia’s biodiversity strategy.

The second event occurred with Salim’s departure from his post asminister in 1993. At this time, he established a plan for a nationalorganization devoted to environmental sustainability. YayasanKeanekaragaman Hayati Indonesia, abbreviated to KEHATI, wasofficially formed in January 1994 and came under the direction of aboard of prominent Indonesians chaired by Salim.5

At the same time, officials of the US Agency for InternationalDevelopment (USAID) charged with following through on the USgovernment’s commitment under the Tokyo Declaration to supportbiodiversity conservation in Indonesia, decided to fund an endow-ment managed by an independent national Indonesian organization.Funds derived from interest earned on the endowment would be usedfor grantmaking activities focused on conservation objectives. WhileUSAID officials believed in endowments as a means to generate long-term support for sustainable development, they also recognized theendowment’s role in building financial sustainability within localorganizations and empowering civil society. Other examples of envi-ronmental organizations supported by USAID-funded endowmentsduring this same period include the Foundation for the PhilippineEnvironment, established in 1992, and the Mexican NatureConservation Fund (Fondo Mexicano para la Conservación de laNaturaleza), established in 1996.6

USAID officials determined that KEHATI was the organizationbest suited to manage the endowment in Indonesia. They believedthat KEHATI would be able to command the requisite internationalprofile because of its highly esteemed board, and that it would be themost appropriate organization to meet the criteria of the US govern-ment and Congress that would be disbursing the funds. The finalterms for how the endowment would be transferred and managedwere drawn up through the mechanism of a Cooperative Agreement,


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5 An amendment was madeto the foundation'sArticles of Association inAugust 1995, but other-wise the formal terms forestablishing KEHATIremain as stated in 1994.

6 The interest of USAIDstaff in endowments as afunding strategy, includ-ing descriptions of endow-ments funded by theagency in the 1980s andearly 1990s, are covered indetail in Kathleen M.Horkan and Patricia L.Jordan’s USAID workingpaper “Endowments as aTool for SustainableDevelopment.” Theauthors also note that newlaws and guidelines issuedin the early 1990s made itpossible for USAID to setup dollar-based endow-ments using congression-ally appropriated funds.Endowments establishedprior to 1990 could onlybe funded with localcurrency, and not with USdollars.

which covers a ten-year period from 1995 to 2005.7 (See the back ofthis book for a profile of KEHATI’s mission.)

Establishing the Endowment

Under the terms of the Cooperative Agreement with USAID,KEHATI received US $16.5 million for its endowment to supportgrantmaking in the field of biodiversity conservation in Indonesia.USAID also pledged an additional US $2.5 million to KEHATI tocover its operating costs for the first five years of the CooperativeAgreement (1995-2000) as well as any technical assistance or consul-tancies needed to help it establish effective operations at the outset.The total grant was therefore equal to US $19 million, with the termsof the agreement in effect for ten years, from 1995 to 2005. TheCooperative Agreement stipulates that KEHATI must raise an addi-tional US $6.5 million from its own sources. Of that amount, US $4.7million should be contributed to its endowment and the remainingamount, US $1.8 million, should be contributed as cost-sharing foroperational and program expenses (see Table 1). While the agreementleaves design of KEHATI’s programmatic approach to KEHATI’sboard and staff, it states that the objectives are to be achieved throughtwo main strategies: grantmaking first, and consultation, collabora-tion, and networking second.

In order to actually receive funds from USAID, KEHATI had topass a review of grant-worthiness conducted by the agency and meetvarious requirements set out in the Cooperative Agreement, includ-ing developing an investment strategy for the funds. For example, allfunds selected for investment have to be formally registered with theUS Securities & Exchange Commission. This requirement isintended to safeguard the endowment but also means that the endow-ment is to be invested in the United States. KEHATI also chose toadopt USAID standards in many areas of its operations, particularlythose for financial administration and personnel management.

In passing the grant-worthiness review, KEHATI was registered asa nonprofit and tax-exempt organization in the United States. Thisstatus means US corporations or other US-based entities that donatefunds to KEHATI can receive tax benefits if filing in the UnitedStates.


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7 While the US govern-ment's contributionensured it met its commit-ment to the TokyoDeclaration, the USgovernment also countedit as a contribution to theGlobal EnvironmentFacility, a trust fundmanaged by the UnitedNations DevelopmentProgramme, the UnitedNations EnvironmentProgramme, and theWorld Bank. The Facilityprovides grants and otherfunding for environmentalprograms in countriesaround the world. Underthe Tokyo Declaration,Japanese government offi-cials supported biodiver-sity conservation inIndonesia by adding fundsto existing grants it wasalready making inIndonesia. Specifically, anational biodiversityresearch center andIndonesia’s national parksreceived the additionalgrants. As the funds fromthe two governments weredisbursed according to astrategic plan drawn up bythe State Ministry forPopulation & theEnvironment, the funds’use reflected Indonesia’sown priorities for itssustainable development.

Establishing a Grantmaking Program

KEHATI’s endowment has made possible the development of astrong grantmaking program and technical assistance fund, but eachexecutive director has faced different challenges in developing thefoundation and implementing its mandate. As stated earlier, KEHATIshifted its funding from research initiatives on biodiversity to commu-nity empowerment with an emphasis on bringing together commu-nity groups and NGOs to conserve and use local resources in asustainable manner.

The changes in KEHATI’s grantmaking have been due primarilyto the need to adapt its mission to realities on the ground. Staff hashad to redefine the concept of biodiversity conservation as well asclarify its meaning in the Indonesian context in order to make it morereadily accessible to the public. Along with this has been an emphasis


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USAID KEHATIEndowment 16,500,000 4,700,000

Operating costsSalary 272,558 50,000

Operations 275,040 50,000

Technical assistance 445,500 0

Travel 239,869 0

Sub-total 1,232,967 100,000

Program expensesProgram officers 12,000 0

Staff & trustee travel 7,700 90,000

Public information materials 111,075 0

Meetings & workshops 96,258 60,000

Sub-total 227,033 150,000

Grantmaking support 550,000 950,000

Consultation & networking 265,000 600,000

Evaluation & audit 225,000 0

TOTAL 19,000,000 6,500,000

Source: USAID Cooperative Agreement

Table 1KEHATI’s Budget Outline,1995-2005 (in US dollars)

on generating greater public support for, and involvement in, generalenvironmental issues. KEHATI’s grantmaking now supports commu-nity-level programs, public education, and scientific research onbiodiversity. These changes have also prompted necessary organiza-tional restructuring.

The current executive director, Ismid Hadad, has initiated themost recent structural changes at KEHATI, including establishingregional network centers that link local communities with the organ-ization (see Box). The network centers (usually staffed by a programofficer and accountant selected by partner organizations in theregion) reflect the decision of KEHATI officials to shift funding awayfrom a project-based approach toward one more programmatic. Theyalso make KEHATI’s programs more efficient by channelingresources to targeted areas and issues.

Conservation, in Hadad’s view, has to be approached from multi-ple angles in an integrated manner, and requires long-term planning,multi-stakeholder involvement, multi-year budgeting, and a strongrole for community. This approach allows local organizations to focuson developing methods to address biodiversity conservation that areless driven by short-term considerations and more by a broaderassessment of how conservation can be achieved simultaneously at themicro- and macro-levels. Providing grants that generate long-rangeimpact through community empowerment means that the endow-ment is being used efficiently to accomplish KEHATI’s mission.

KEHATI now actually receives many more proposals than it canfund. Although proposals are solicited in an open-ended way, since1999 the organization has established review processes that winnowout those beyond its priority areas. Between 1995 and 2002, KEHATIdistributed a total of US $4,783,936 in grants (see Graph 1).

Grantmaking priorities for KEHATI include the following:• Biodiversity awareness and income generation for communities

living near Meru Betiri National Park, East Java.


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Java/Madura/BaliAlternative food crops, medicinal plants, community-based ecotourism

PapuaCommunity-based natural resource management

East & South KalimantanCommunity-based management/co-management of natural resources

BoxRegional Network

Centers andProgram Focus

Providing grants that

generate long-range

impact through commu-

nity empowerment

means that the endow-

ment is being used effi-

ciently to accomplish

KEHATI’s mission

• Community empowerment and natural resource conservationin the peat swamp ecosystem of Central Kalimantan.

• Promotion of sustainable use of natural resources and alterna-tive income generation in villages adjoining Laiwanggi-Wanggameti National Park, Sumba, East Nusa Tenggaraprovince.

• Capacity building and development of tuber plants as alterna-tive food sources for communities in Yogyakarta province,Central Java.

• Development of traditional medicinal plants for local healthpractices in Sumenep District, Madura Island, East Java.

• Capacity building in the management of marine resources inthe Padaido Islands, Papua province.

• Community management and alternative income generation inthe Arfak Mountain Nature Reserve, Papua province.

KEHATI also supports policy advocacy efforts that seek govern-ment recognition for communities’ accomplishments in biodiversityconservation and the sustainable use of natural resources.

Some of KEHATI’s resources are used to fund technical assistanceand training for its grantees. For example, KEHATI strives toenhance the transparency of its grantees, including trying to ensurethat its grants are managed appropriately. KEHATI also tries toimprove its grantees’ program management skills. It holds annual


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Graph 1Proposals Received andApproved by KEHATI

1995-2002

800

700

600

500

400

300

200

100

0

1997 1998 199919961995 2000 2001 2002*

Number of

proposals

received

Number of

proposals

approved and

granted

* as of June, 2002

meetings with grantees in each of its regional network center areasand may meet more frequently with partners in smaller areas ofnetwork centers.

These capacity-building efforts are tied to KEHATI officials’concern to avoid creating a dependency among local groups on theorganization’s grants. The ultimate goal is for these community andNGO programs to become self-sustaining. KEHATI’s emphasis onbuilding sustainability derives also from its recognition that theendowment itself cannot provide for all existing and future needs.

Managing the EndowmentInvestment Management Policy

The management of KEHATI’s endowment fund portfolio isgoverned by a set of guidelines on investment policy, endorsed by thefoundation’s Board of Trustees and in accordance with its CooperativeAgreement with USAID. The guideline covers the objectives of long-term investment, rules on spending, rate of return goals, and assetallocation policies.

The two primary objectives guiding the management of the foun-dation’s endowment fund are to preserve the real value of the assetsover time and to provide a substantial, stable flow of income tofinance the foundation’s activities. Preservation of the real value of theassets will be achieved by maintaining an investment program thatgenerates returns, net of all fees, which in real terms at least match theannual rate of spending.

As for spending, the investment policy stipulates that the averagetotal rate of return goal be equal to a spending rate of five percent ofthe average market value of the total portfolio of the year, plus thecost of investment and rate of inflation. Total return is a measure ofcurrent yield plus capital appreciation. The policy also stipulates thatspending will be a minimum of three percent and a maximum of fivepercent of a 12-quarter (three-year) moving average of the fund’smarket value, at least for the initial five years of the endowment.

KEHATI manages its asset allocation based on an assessment oflong-term considerations, such as rate of return, volatility, diversifica-tion, inflation hedging, and investments in major asset categories,including stocks, bond, cash, and real estate. In order to maximize the


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KEHATI’s emphasis on

building sustainability

derives also from its

recognition that the

endowment itself cannot

provide for all existing

and future needs

likelihood of achieving the long-term investment objectives and itsreal rate of return goals, KEHATI sets long-term neutral asset alloca-tion targets of 60 percent equities and 40 percent fixed income secu-rities. In accordance with the Cooperative Agreement, the foundationinvests exclusively in publicly traded securities offered by investmentfirms registered with the US Securities and Exchange Commissionand denominated in US dollars. Private investments, includingventure capital and real estate limited partnership investments, areprohibited.

Following a mid-term review of KEHATI in the year 2000(conducted in compliance with the Cooperative Agreement), thefoundation’s investment policy underwent a few significant changes.Amended were the stipulations on rate of return, performance bench-marks, spending policies, and guidelines on equity investments. As aresult of this amendment, target return rates are now a function ofmarket-driven benchmarks. With regard to spending policy, theamendment stipulates that KEHATI may withdraw its fund up to 6.5percent of a 13-quarter (three-year) moving average of the fund’smarket value for the initial five years of the endowment. If appliedcontinuously, however, this stipulation would likely result in the grad-ual erosion of the real value of the endowment principal.

The original investment policy did not specifically regulate equityinvestment. In response to current and future trends in the market,the amendment included just one sentence on equity investment, asfollows: “In order to achieve an appropriate amount of diversification,given the limited amount of funds to be invested in various equityinvestments, the foundation will consider purchasing unit shares inpassively managed equity funds by an investment management firmregistered with the Securities and Exchange Commission and denom-inated in US dollars.”

Governance and Fund Management Structure

KEHATI’s reputation and performance as a credible and accountableorganization has been augmented significantly by the effortsexpended by its governing bodies. Until January 2003, KEHATI hada Board of Trustees, Executive Board, and three advisory committees.In compliance with the new law on foundations in Indonesia, thestructure of KEHATI’s governance has been reformed to now consist


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KEHATI’s reputation

and performance as a

credible and accountable

organization has been

augmented significantly

by the efforts expended

by its governing bodies

of a Governing Board, Supervisory Board, and Executive Board. Thethree advisory committees remain as non-formal but essentialelements of the organization, assisting the Executive Board in dealingwith policy issues on grantmaking, investment, and resource mobi-lization.

KEHATI’s Governing Board is now composed of eight senior,including founding, members of the foundation. It is a policy makingand supervisory body that is required to meet at least once a year butcan meet more frequently at the request of five or more boardmembers, or at the request of the Executive Board. Members of theGoverning Board serve terms of six years, and these terms can beextended for an additional three years. The board members are drawnfrom diverse backgrounds and various sectors, including NGOs, busi-ness, and academia. A consistent emphasis has been made to electthose with professional reputations of the highest caliber andintegrity.

The Executive Board has a maximum of seven members and takesan active role in implementing policies formulated by the GoverningBoard. The Executive Board is required to meet at least three times ayear, with a quorum of at least four members required at each meet-ing to make any formal decisions. Since its inception, however, theExecutive Board has met monthly and is seen as an integral part of theorganization’s management structure and decision-making processes.The Executive Board is responsible for appointing the organization’sExecutive Director, who together with his/her full-time professionalstaff actually manages the day-to-day functioning of the organization.

The organization’s first Executive Director was Dr. SetijatiD.Sastrapardja, a founding member of the Board of Trustees and oneof Indonesia’s senior scientists in conservation biology. She completedher term in 1996 at which time Dr. Nengah Wirawan, a scientist witha background in applied ecology and botany filled the position. Dr.Wirawan completed his term in 1999 and Ismid Hadad then replacedhim. Hadad remains the Executive Director at this time. In additionto being a founding member of KEHATI’s board, Hadad has aneconomics and environmental management background, was apioneer of the NGO movement in Indonesia, and led two nationalmanagement consulting firms previously.

KEHATI has three advisory committees currently, focused oninvestment, grantmaking, and resource mobilization. They provide


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policy advice and technical guidance to the Executive Board. Thegovernance of these committees is regulated by the organization’s by-laws. Each committee must consist of three or more members, ofwhom at least one must be a member of KEHATI’s board.

The role of the investment committee has been instrumental inthe management of KEHATI’s endowment. Its main responsibilitiesare to: recommend investment policies and procedures or theiramendments; oversee the performance of the asset managers andinvestment advisor; and monitor overall investment performance.The committee is required to meet at least four times a year andreport to the foundation’s Executive Board.

Since the beginning, KEHATI has attracted high-caliber profes-sionals in finance, investment, and banking to its investment commit-tee. Of the current five members, one is from the foundation’sGoverning Board. Apart from giving policy advice to the board, theinvestment committee also assists the Executive Director in financialmanagement issues and in negotiations with asset managers and theinvestment advisor.

Based on committee’s recommendations, the Executive Director(assisted by the finance department, especially the Finance Directorand Finance Manager) seeks to exercise the highest standard of careand prudence with respect to their fiduciary responsibilities in manag-ing the endowment investment. As assets are allocated in a globallydiversified portfolio of equities and fixed income securities traded onpublic capital markets, however, the foundation employs professionalasset managers, a custodian bank, and a reputable investment advisor.

The services of the investment advisor fall under six main cate-gories:

• overall investment policy assistance to the Executive Director• portfolio construction, including conducting an annual review

of KEHATI’s spending policies and asset allocations• setting of investment objectives for asset managers and bench-

marks for monitoring investment performance• advising on the relationship with the custodian bank and asset

managers, including KEHATI’s contractual arrangement withits asset managers

• performance monitoring, including a monthly evaluation ofinvestment results and asset allocations, and a quarterlyoverview of market trends


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• and treasury administration, including the withdrawal of fundsfor programming and operations, maintenance of tax-freestatus with the IRS, and other investment administrationmatters as required.

Endowment Performance

KEHATI’s endowment is invested in an international portfolio offixed income (bonds) and equity investments, with the asset mix policyset at 60 percent equities and 40 percent fixed income. KEHATI hasengaged professional asset managers with high international regard,including TIFF (The Investment Fund for Foundations); Vanguard,Hochkis & Wiley; and Morgan Stanley. During the first four years ofits operation, KEHATI’s investment, mostly in the US capital market,enjoyed relatively high rates of return. Since 1996, the four-yearannualized return of KEHATI’s endowment fund has been 13.7percent. It surpassed the targeted annual objective of 6 percent plusthe cost of investment management and the rate of inflation. Thismeans that KEHATI’s original endowment fund of US $16.5 millionin 1996 grew significantly, reaching close to US $25 million inDecember 1999, after annual withdrawals of US $2,225,000 forprogram operations.

With the onset of the Asian financial crisis in late 1997, KEHATI’sendowment also ballooned in rupiah terms because of the drasticcollapse in the value of this currency against the US dollar. While theexchange rate when the fund was established in 1995 was approxi-mately Rp. 2,300 per US $1, this rate has been in a state of flux for thelast few years, and even went over Rp 15,000 in 1998. By early 2003,it was trading at an approximate value of Rp. 8,500 per US $1. Thisinitial jump in value of the endowment in local currency in late 1997meant that KEHATI was suddenly receiving many more rupiahs thanit had been used to. Inflation quickly caught up with the exchange ratefluctuation, however, causing this sudden increase in rupiahs to bequickly swallowed up by concomitant increases in operating expenses.

Unfortunately, between 2000 and the present, KEHATI’s portfo-lio has suffered in the weakening of US capital markets. After enjoy-ing strong years of growth from 1995 to 1999, the equity asset classlost approximately US $5,200,000 in market value from 2000 to the


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second semester of 2002. Current low interest rates of 2.5 to 3 percenton KEHATI’s US investment portfolio are not favorable, especiallyagainst the Indonesian financial market, which has been generatingyields of 15 to 18 percent interest rates. While investing in theIndonesian market could potentially result in larger returns forKEHATI, this is not allowed under the terms of the CooperativeAgreement (which stipulates that investment of the endowment capi-tal and reinvestment of endowment income can only be throughfinancial instruments offered in the US and through US-based finan-cial intermediaries.)

As demonstrated in Graph 2, while the overall value of KEHATI’sportfolio hit a high of nearly US $25 million in 1999, it declined to avalue of US $22,579,980 as of December 31, 2000 and then furtherdropped to a value of US $17,361,725 as of December 31, 2002, farbelow the endowment’s original market value. At the end of June2003, after withdrawal and management fees, the market value ofKEHATI’s endowment fund stands at US $18.5 million. The founda-tion needs to maintain this performance if it wants to capitalize oncurrent market trends, which are indicating slow but significantimprovement nonetheless.

Although the asset mix policy was set at 60 percent equities and 40percent fixed income, due to the declining equity values asset alloca-tion changes occurred. In 2000 the actual mix was 58 percent equitiesand 42 percent fixed income; in 2001, it was 55 percent equities and45 percent fixed income; and in 2002, it was 51 percent equities and49 percent fixed income. From 2003 and on, the asset mix allocation


163

25,000,000

24,000,000

23,000,000

22,000,000

21,000,000

20,000,000

19,000,000

18,000,000

17,000,000

16,000,000Beginning 2nd– ’96 2nd– ’97 2nd – ’98 2nd – ’99 2nd– ’00 2nd – ’01 2nd– ’02 Feb – ’03 Apr– ’03 Jun – ’03

18,126,115

16,500,000

24,943,539 Graph 2Endowment fund

balance in rupiahs

16,701,799

policy has included other alternative investments such as preferredshares, Real Estate Investment Trusts (REITs), and short-term invest-ments of fixed income in the domestic market.

Strategies for the Future

The compounded effect of unpredictable capital market volatility andthe adoption of a new strategic plan within KEHATI (for 2002 to2007) resulted in significant changes to the investment perspectiveand strategy of the foundation. During the period in which USAIDfunds supported KEHATI’s operations, the endowment only neededto cover program costs. The additional funds for operations thereforeafforded the organization some breathing room during which time itconcentrated on developing its administrative systems and program-ming strategies. The corresponding end of this grant with the slumpin value of the endowment in 2000, however, forced KEHATI tomaximize the use of funds available for operating costs through effi-ciency measures, including scaling back expansion plans for regionalnetwork centers and new grants. KEHATI was thus reminded thatwhile the endowment offers the means to support innovative effortsto meet its objectives, the funds derived from the endowment are notalways constant or consistent.

A challenge for KEHATI is thus to adopt a new, more diversified,investment strategy that includes attracting funds to its endowment,building its long-term fundraising capacity, and therefore diminishingits reliance on USAID funds. KEHATI has already been successful inattracting funding from other donors for its programs. In the past twoyears, the organization has successfully raised additional funds(outside of its endowment) of US $2.1 million, thereby increasing toabout 60 percent the proportion of programs being funded by non-endowment funds. Like other foundations, especially in developingcountries where immediate needs are so great, it has been a struggleto get donors to contribute to the endowment fund.

While a priority for KEHATI’s fundraising strategy is to fulfill theterms of its Cooperative Agreement, KEHATI’s ResourceMobilization Committee has also adopted the following strategies toensure adequacy and sustainability of resources for KEHATI’sprograms and operations between 2002 and 2007:


164

A challenge for

KEHATI is to adopt

a new, more diversified,

investment strategy that

includes attracting funds

to its endowment, build-

ing its long-term

fundraising capacity,

and therefore diminish-

ing its reliance on

USAID funds

• diversification of its donor base• development of alternative and innovative funding mechanisms

and instruments• development of a program to engage the private sector (for

which KEHATI has an internal policy advising how to selectcorporations and actively engage with them as partners)

• management of the endowment fund and its investments moreeffectively (such as by changing the investment advisor andreviewing the range of investment options available to theorganization)

• development of non-grant instruments to support communi-ties and adoption of a social entrepreneurship approach toprogram planning and implementation

• promotion of earned income amongst its beneficiaries throughthe sale of goods or services, program-related investments, andestablishment of businesses related to KEHATI’s mission.

In recent months, KEHATI’s management has been particularlyinterested in promoting a debt-for-nature swap on behalf of theIndonesian government with the resulting funds possibly being allo-cated to either a trust that would be managed by KEHATI (such ashas occurred in the Philippines already) or to KEHATI’s existingendowment fund.

KEHATI is also currently exploring the potential of a “greenmutual fund.” Apart from being a future revenue-making mechanismfor KEHATI, the fund would give businesses an incentive to act moreenvironmentally responsible.

KEHATI has also recognized the need to create an enabling fiscalenvironment in Indonesia that can encourage charitable giving fromindividuals and the private sector. Currently, a culture of philanthropyexists largely only within Muslim traditions of giving; this rarelyextends to organizations such as KEHATI. Nothing within the taxframework acts as an incentive for companies to provide donations tocharitable organizations. While KEHATI does not pay taxes inIndonesia by virtue of a special dispensation secured from theMinistry of Finance (which will be renegotiated in the coming years),it cannot provide charitable tax deductions to Indonesian donors.


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Lessons Learned

An environmental or conservation trust fund in the form of anendowment is not simply a financial mechanism. Such a fund must beviewed as a strategic institution that has several roles to play, in addi-tion to generating and channeling funds. To succeed in building orga-nizational financial sustainability, endowment funds require morethan strong financial management systems and skills. They needgovernance structures, committed board members, dedicated andcompetent staff, strategic policies, and technical support that enablethe funds to meet long-term goals.

From KEHATI’s experience with its endowment, one can extractthe following lessons:

Lesson: Establishing an endowment also requires a justification for its exis-tence

Donor agencies generally prefer to support programs or projectsrather than give to an endowment fund. Therefore, an organization’sstaff and board must present a strong case that they face extraordinaryproblems or challenges that cannot be solved by conventional projectfunding. In the case of KEHATI, the foundation’s founders were ableto convince USAID that Indonesia is one of three mega-diverse coun-tries in the world and therefore one of the richest centers of biologi-cal resources on the globe, but is increasingly threatened by powerfulexternal factors such as over-exploitation. The gravity of this contextclearly underscored the need for large and sustainable resources tomeet such a long-term challenge.

Lesson: Establishing an endowment with bilateral assistance has associatedrestrictions and rules

Organizations endowed initially by foreign donors are likely to besubject to several restrictions. While the adoption of donor-mandated, or donor-guided, investment policies and procedures andfinancial administration and human resource standards can beburdensome, they can also help a new organization begin to functionquickly and well. This can be particularly helpful in an environment


166

where transparent and accountable institutions have not been thenorm.

Lesson: A knowledgeable, engaged Board of Trustees is critical for effectiveendowment management

The Board of Trustees or its Executive Board must understand theorganization’s mission, have the time to devote to overseeing itsvision, and be able to contribute positively and actively to themanagement of the endowment.

In KEHATI’s case, it was particularly important to have a commit-ted core group of founders on its Executive Board. This group wasable to oversee the extensive negotiations required to implement theestablishment of the endowment and then be actively involved inensuring that the organization began functioning fast and well.

More recently, KEHATI has found it useful to have externaladvice channeled through the medium of committees established bythe Executive Board. It has been particularly useful to have an activeand informed Investment Committee to attend to endowment growthand assess the range of investment vehicles that the organizationmight benefit from.

Lesson: Having endowment management skills among staff can be verybeneficial

An organization supported by an endowment requires staff with skillsin endowment management, including an understanding of securitymarkets, market trends, and investment options. This allows theorganization to respond appropriately to investment advice, includingnoting when such advice is not timely or useful.

The novelty of endowment management in many countries meansthat local capacity and expertise may be lacking. Specific attention tosuch weaknesses can be prepared for at the outset of the organization’slife by providing targeted technical assistance, using experiencedconsultants for specific tasks, or arranging for mentoring.

The unique circumstances of establishing an organization withfunds from a foreign donor also means that it may be important forsome of its staff to have prior experience with bilateral funding agen-


167

cies and an understanding of these agencies’ policies and require-ments in terms of grantmaking and organizational management.

Lesson: An endowment is only as strong as its investment policy

While an endowment can play a significant role in stabilizing annualfunding, an investment policy that encourages the growth andstrengthening of the endowment at the same time is an absolutenecessity. The fund’s investment strategy must be appropriately broadin its portfolio mix and be able to access strong markets, whether theyare domestic or international.

Lesson: Ongoing fundraising is critical to help build sustainability

It is important to have a comprehensive and effective fundraisingprogram to ensure that the endowment continues to grow and inorder to secure the sustainability of the organization. And it is nevertoo early to put the fundraising plan in place. Fundraising shouldanticipate whether local conditions support philanthropic donationsto the endowment or whether funding will have to be secured mainlyfrom other sources, such as foreign donors, and plan accordingly asearly as possible. In KEHATI’s case, a systematic fundraising drivebegan rather late because in the first four years the foundation had alimited absorptive capacity and more annual funds than it needed. Inaddition, KEHATI was (and continues to be in many ways) up againsta domestic scene in which philanthropy for environmental causes isvery limited. At the same time, foreign donors have not been veryinterested in contributing to the endowment (although they havebeen willing to support KEHATI programs). Regardless, graduallybuilding an innovative fundraising plan therefore ensures the endow-ment continues to be a viable source of long-term grantmakingsupport.

Lesson: Changes should be anticipated as the organization matures and

evolves

It is expected that an organization will change over time. Senior staffand board should anticipate re-adjustments, including those on howthe endowment is invested and applied. Although the early years of an


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organization’s life will undoubtedly emphasize organizational devel-opment and refinement of the mission, new concerns will emerge asit matures. This evolution is not something to avoid, but can insteadbe a fruitful and positive experience if anticipated.

Lesson: An endowment’s purpose needs to be rooted in realities of the local

context

Organizations established with support from foreign aid agencies canretain an aura of being a bilateral development project instead of ahomegrown organization. These organizations need to thereforeensure that their programs reflect local needs, as KEHATI has donethrough its grantmaking at the grassroots level and regional networkcenters. In part, achieving this means communicating the rightmessage to the general public and private sector. KEHATI has foundthat the concept of biodiversity has been a difficult sell, either becausethe term is unfamiliar to most or because it seems to refer to complexprocesses that are not felt to have much direct impact on peoples’lives. KEHATI’s program work on community empowerment hasbeen part of its strategy to draw out the explicit links between humanactions and the environment in a way that is easier to communicate topeople. Indeed, if an organization’s mission is perceived as relevant, itgenerates goodwill locally and nationally, thereby laying a strong basefor local fundraising and endowment growth.

Conclusion

While this case study of KEHATI demonstrates the importance ofnot seeing an endowment as a panacea to all fundraising needs, it alsoexemplifies the very positive assets an endowment affords.Endowments provide organizations with time and flexibility, duringwhich period the staff can develop its programs and mission whilemaintaining attention to ongoing fundraising and endowmentmanagement. More importantly, donor-driven program funding canbe put aside in favor of grantmaking and programming that is thor-oughly grounded in the genuine needs and requirements of commu-nities.


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Although KEHATI’s future depends in part on growing its endow-ment successfully, its record of managing both its programs andinvestments places the organization in a strong position from where itcan succeed at this task and continue to make a positive impact onpublic awareness and community empowerment for biodiversityconservation in Indonesia.


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References

Publications

Arinanto, Satya. “Indonesia” in Thomas Silk (ed.), Philanthropy and

Law in Asia: A Comparative Study of the Nonprofit Legal Systems in Ten East

Asian Societies. San Francisco: Jossey-Bass Publishers, 1999.

Chemonics International. Final Report of External Evaluation of theIndonesian Biodiversity Foundation Project, Yayasan KeanekaragamanHayati, under the Biodiversity & Sustainable Forestry (BIOFOR)IQC, USAID Contract No. LAG-I-800-99-00014-00. March 2000.

Hadad, Ismid. Financing from Endowment Funds; Experience ofKEHATI, the Indonesian Biodiversity Foundation.

–––––. A Profile of Indonesia’s National Environmental Fund. February1997.

Horkan, Kathleen M. and Patricia L. Jordan. Endowments as a Toolfor Sustainable Development. USAID Working Paper No. 221, PN-ABY-616. Washington, D.C.: USAID, Center for DevelopmentInformation and Evaluation, July 1996.

Indonesian Biodiversity Foundation (Yayasan KEHATI). AnnualReport 1995.

–––––. Annual Report 1996.


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–––––. Articles of Association and Bylaws 1995.

–––––. Grantmaking Procedures (July 2000).

–––––. Grantmaking Policy (July 2000).

–––––. Laporan Tahun 2001.

–––––. Rencana Strategik 2002-2007.

–––––. Rencana Tiga Tahun 2002-2004.

–––––. Report of First Semester 2002.

–––––. Strategic Plan and Programs, 1998-2002.

–––––. Strategies to ensure adequacy and sustainability of resources forKEHATI’s programs and operations: 2002-2007. 2002.

–––––. Executive Board, Board of Trustees, The Final Note (January1994 – January 2000).

Smith, Ted et al. Report of the Design Team. January 1994.

USAID Cooperative Agreement No. 497-0384-A-OO-5011-00.

Interviews by Sarah Maxim

Personal interview with Ismid Hadad, Executive Director,Indonesian Biodiversity Foundation, November 2001.


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Personal interview with Gustaaf Lumiu, Director of Finance andAdministration, Indonesian Biodiversity Foundation, February 2002.

Personal interview with Anida Haryatmo, Program Director; JuliaKalmirah and Cliff Marlessy, senior program staff, IndonesianBiodiversity Foundation, February 2002.

Personal interview with Wouter Sahanaya, USAID/Jakarta, March2002.

Telephone interview with Jerry Bisson, USAID/Manila, March2002.

E-mail interview with Dave Heesen, USAID/New Delhi, April2002.


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Chapter EightEarned Income for FinancialSustainability in Indonesia: The Dian Desa Foundation

By Rustam Ibrahim

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T H E D I A N D E S A F O U N D A T I O N

Introduction: Indonesia’s Path Forward

A Time of Political and Economic Change

Over the past several years, Indonesia has experienced drastic changesin its economic and political fields which have directly affected civilsociety’s opportunity to bring about change in the country. In theeconomic sector, Indonesia has been enduring a very serious mone-tary and economic crisis that began in mid-1997. The crisis startedwith the dramatic fall of the rupiah’s value against that of the USdollar, falling from Rp 2,250 per US $1 to about Rp 10,500 per US $1at the end of 2001. It suffered a drop of more than 350 percent withina period of less than five years and, in early 2003, stands at about Rp8,500 per US $1.

The crisis had a very serious impact on the lives of millions ofIndonesians. Between 1996 and 2001, the number of Indonesiansliving below the poverty line increased from an already high figure of22.5 million people, or 17 percent of the total population, to about 45million people, some 25 percent of Indonesia’s total population in2001. Open unemployment reached 6.2 million people during thecrisis; combined with the percentage of the population underem-ployed, approximately 35 million people were seeking work at theturn of the millennium.

In the political field, the fall in May 1998 of the military-backedNew Order regime under Suharto marked a turning point in thecountry – one that began a transitional process toward democracy.The basic freedoms of citizens, such as freedom of association, assem-bly, and expression, were rehabilitated by the democratic governmentformed in 1999.

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Civil Society Takes Root

Indonesian civil society has been a part of this transition process inmany ways. Hundreds, even thousands, of new organizations havecome into existence since 1998. Moreover, a significant number havebeen providing education on democracy and human rights. Othershave been asserting the right of citizens to participate in the decision-making process, to fight corruption, and to struggle for law enforce-ment. At the same time, Indonesian organizations have been provid-ing food security, basic social services, job creation help, and otherassistance in income generation for the urban and rural poor.

Like many of these organizations, Dian Desa was established as ayayasan, which literatally translates into foundation in English. Formany years, the legal requirements to establish a yayasan were mini-mal, requiring only a notarized document listing the founders, struc-ture, and composition of the board, location, and assets. Recognizingthe lack of accountability that laws permitted within yayasan, theIndonesian government drafted a new, stricter law governing yayasanoperations. It was issued in 2001 and allows existing organizations tomake adjustments within five years from the time of the act’s issuancein order to meet these new standards of accountability.

Although there are many different kinds of yayasan now operatingin the country, most are quite small, with limited assets and littlecapacity to manage endowments. In fact, a high dependence on exter-nal sources for funding is one of the main challenges confronting localNGOs and funding organizations alike. Similar to the organizationsthat they assist, Indonesia’s foundations obtain the greatest portion oftheir funds from foreign sources. A survey conducted of over 25 localfunding organizations in Indonesia in 2000 indicates that 65 percentof their funds were obtained from overseas sources, namely officialdevelopment assistance agencies, international foundations, andNGOs. Other funding sources were in the form of contracts withgovernment agencies and consultancy services, but this portion offunds accounted for only 12 percent of revenues. Meanwhile, fundingsources in the form of endowments and contributions from theprivate sector accounted for only 6 percent. The remaining 9 percentwas from other sources, including public donations (Ibrahim 2001).The continuing decline of foreign aid promises to mount an even

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Similar to the organiza-

tions that they assist,

Indonesia’s foundations

obtain the greatest

portion of their funds

from foreign sources

greater challenge to Indonesian organizations seeking to sustainthemselves as well as their impact on critical societal issues.

Nevertheless, yayasan like Dian Desa are playing a critical role inIndonesia. According to a survey conducted in 2000, some 25 indige-nous foundations in the country disbursed about US $8 million ingrants and loans in that year alone (Ibrahim 2001). As this case studywill illuminate, Dian Desa’s work underscores the value of developingindigenous organizations that reflect local needs and strategies butthat can also provide the financial and capacity building means tostrengthen civil society. Moreover, it exemplifies how a profit-gener-ating business can reap positive social benefits at the same time.Earned income opportunities like those pursued by Dian Desa nowdemand greater attention and consideration.

Dian Desa’s Beginnings

In 1971, a small group of university students led by a young engi-neering student, Anton Sudjarwo, went to live in the villages ofMount Merapi, about 50 kilometers north of Yogyakarta, Indonesia.The students were assigned by their university to engage in a commu-nity service as a prerequisite to obtaining their university degrees.The inhabitants of these villages were very poor. Water was a partic-ularly scarce but critical need; villagers had to travel four kilometersaway just to take home about 20 liters of water. Over the course of theyear in which Anton and the other students worked with thesecommunities, they collectively succeeded in laying about 80 meters ofpiping underground that allowed for villagers to access water forconsumption and irrigation. Approximately 8,500 people gainedaccess to regular clean water (Bhaskara 1989). The availability of cleanwater made it possible for farmers in the villages to harvest rice twicein a year. With the increase in income this brought, the villages weretransformed.

In 1972, Anton Sudjarwo formed Yayasan Dian Desa in order tocontinue helping villages gain improved access to clean water. WhileDian Desa grew to establish support for other technologies incommunities, the organization believed that clean water access wasthe basis for supporting other projects, like agriculture or animalhusbandry.

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A second key philosophy behind the early days of Dian Desa wasthe recognition that they needed to work with the villagers them-selves. According to Anton, the Executive Director of Dian Desa,“Our philosophy is partnership. Those who are willing to look forways to overcome their own problems can get our assistance through‘appropriate technology’ (Ibid, p.184).” By appropriate technology,Dian Desa refers to simple equipment that villagers are able toproduce, reproduce, and maintain by themselves using relatively smallfunds. The production of appropriate technology most often occursbetween Dian Desa staff and community members in order to ensurethat it grows out of local capacities, knowledge, and needs. Thirtyyears later, this philosophy remains a cornerstone of Dian Desa’swork.

Today, Dian Desa has succeeded in becoming one of the largestfoundations in Indonesia with a staff of about 300 operating projectsall over Indonesia (see the back of this book for a profile of DianDesa’s mission). Headquartered in Yogyakarta with branch offices inEast Nusa Tenggara, Dian Desa currently runs six operational depart-ments, as listed below. Various divisions support these departments,including a metal workshop, multimedia, a library, and a survey andanalysis laboratory.

Water and Sanitation: This is Dian Desa’s oldest department and isthe trademark of the organization. Through its clean water and sani-tation programs, Dian Desa works with local communities to plan andimplement clean water projects. Dian Desa provides expertise inmaterials and their technological applications while communitymembers make available their land, labor, and local materials.

Waste Water Treatment: This department was established whenDian Desa tried to find new technologies to remove skin wastes fromfish processing. Dian Desa has also developed waste treatment tech-nologies for wastes from different industries, hospitals, and house-holds. Currently, Dian Desa is building a water treatment technologycenter with three years of assistance from the Japanese government.The assistance includes funds for the construction of buildings,complete with equipment and a laboratory, funds for seminars andworkshops, the establishment of a website, human resource develop-ment, and funds for several pilot projects.

Cookstove: Since the early 1980s, Dian Desa has been developingappropriate technologies based on the idea of using less energy than

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other conventional methods. In particular, the organization hasconcentrated on producing energy efficient cookstoves that produceless smoke, are less costly, and can be produced easily in largevolumes.

Agriculture and Aquaculture: On the northern coasts of Java, DianDesa has been working with communities to overcome a dwindlingshrimp population. Together, they have established shrimp seedlingsthat can turn out 3 million shrimp eggs monthly. With communitiesin the coastal areas of East Nusa Tenggara, Dian Desa has developedmarine herb farming.

Small-Scale Industry: This department encourages and assists ruralvillagers with their entrepreneurial capabilities in the area of smallindustries and handicraft businesses. Skills training and soft loans areprovided.

In all cases, departments’ technologies reflect the philosophy ofappropriate technology.

Exploring Earned Income Opportunities

Fifteen years ago, in an interview with the prominent Indonesianjournal Prisma, Anton Sudjarwo said that in order to survive in asustainable way, NGOs could not, and should not, depend merely ondonor organizations because such assistance would be reduced,perhaps even terminated, sometime in the future. “In order to sustainorganizations, we have to raise funds through our own undertakings.One way to do that is to produce and sell goods and services….If theycan generate profits, such activities will reduce Dian Desa’s depend-ency on donor agencies, and can eventually help increase donors’confidence in Dian Desa,” says Anton. The Advisory Board of DianDesa supports income-generating projects as a way to maintain inde-pendence from foreign loans.1

Anton further explained that any business activities to be carriedout by Dian Desa should take into account two things. First, the activ-ities should always be related to community development programs orthe needs of target groups. Second, the activities should rely on theapplication of appropriate technology, which is the trademark of DianDesa.

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1 Dian Desa does not havean official or separateBoard of Directors. Thegovernance of the organi-zation is very much builtinto its management.According to AntonSudjarwo, this is a prod-uct of the organization’shistory that hasn’t evolvedover time. As an informalorganization started bythree university students(Anton Sudjarwo, andChristina and BambangPurwanto), these becamethe decision makers, alongwith other managers hiredover time. On the initia-tive of Anton Sudjarwo asExecutive Director, threenational figures wereappointed to be advisorymembers eventually. Theywere Emil Salim, formerState Minister ofPopulation andEnvironment, KoesnadiHardjasumantri, andMasri Singarimbun whowas then professor atYogyakarta’s Gajah MadaUniversity. In their advi-sory capacity, they wereinvited by Dian Desa staffto contribute their ideasand perspectives in anannual forum.

The Role of Marketing

The first income earning activity initiated by Dian Desa was theprocessing of various agricultural commodities grown in communitiesengaged in development cooperation projects with Dian Desa. DianDesa helped add value to the farmers by assisting in the marketing oftheir commodities in the larger cities of Indonesia, including forexport. For example, in Ambarawa, Central Java, a coffee-producingarea, Dian Desa cooperated with coffee farmers. Indonesian coffeefarmers there used to sell coffee beans at very low and also highly fluc-tuating prices. In order to attract higher and more stable prices, thecoffee beans needed to be ground though. Dian Desa introduced thevillages in this region to the idea of processing coffee beans and pack-aging coffee grounds as a post-harvest technology. Dian Desa assistedin the promotion and marketing of the final products.

In other regions of the country, Dian Desa helped farmers plant-ing kecipir bean trees to process the beans into a sauce similar to thatproduced by processing soybeans. Dian Desa also tried to help findmarkets for this product.

While these projects have since ended, Dian Desa learned aboutthe importance of having sufficient knowledge amongst its staff onmarketing from these experiences. Dian Desa’s staff found that with-out a strong background in the marketing of farm products, theycould not compete with large and highly competent traders.According to Anton Sudjarwo, who still actively manages the founda-tion, these experiences taught Dian Desa that if it wished to be seri-ously involved in earned income activities, it could not be orientedmerely to the products turned out, but also to the requirements ofcompeting in the marketplace. “We eventually became aware thattechnology had been our area of expertise up until then, and thatmarketing was something else entirely,” says Anton.

Turning Waste Into a Marketable Product

These initial undertakings in earned income as a means to attainfinancial sustainability reached a higher level of success only in themid 1980s when Dian Desa succeeded in developing stingray skinleather processing technology. This initiative, which we will now

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Early experience taught

Dian Desa that if it

wished to be seriously

involved in earned

income activities, it could

not be oriented merely to

the products turned out

– it needed to also

consider the require-

ments of competing in

the marketplace

focus on, began with a program coordinated by Dian Desa called theCoastal Community Development Program. The program began in1985 and was focused on working with fishermen living on the northcoast of Central Java. The program grew out of the sad and ironic factthat while Indonesia is a country with thousands of large and smallislands providing rich marine ecosystems for several different speciesof fish and other sea creatures, 70 percent of the country’s fishermen,equivalent to 3.2 million people, lived below the poverty line in 1985.Of all the country’s fishermen, 500,000 were then living on the northcoast of Central Java. Dian Desa’s program initially focused on shrimpfarming. It targeted shrimp farmers who were experiencing difficul-ties obtaining shrimp eggs because they were sold at very high prices.Dian Desa provided them with low-cost shrimp eggs under produc-tion sharing arrangements.

Aryanto Sudjarwo, a senior staff member of Dian Desa underAnton Sudjarwo, related how staff felt motivated to find additionalways to help the fishermen. “We undertook small-scale studies to findout what we could do for the fishermen. We identified what technicaland financial assistance they had received and from whom. Resultsshowed that they had often received financial assistance and fishingequipment from the government and NGOs so their catch hadincreased. Unfortunately, they had to face the reality that when theircatch increased, fish prices also dropped. Indeed, fishermen were sopoor that they often had to bequeath their debts to their siblings. Wetried to see which of their catch did not sell; it turned out to be shrimpskin, jellyfish, marine herbs, and fish skins. It turned out that the fish-ermen used the stingray fish meat and threw away its skin."

The Creation of Dian Mandala

Aryanto Sudjarwo had witnessed the trading of stingray skin-basedproducts in Bangkok. While he tried to identify makers of these prod-ucts, he found that they kept their business strictly secret. Instead, heobserved the use and marketing of such products. “I found thatThailand was the only country producing such items, meaning thepotential market to capture was still so large. Moreover, at that timepeople were prohibited from making foods with reptile skin due tomounting pressures from environmentalist groups to preserve reptilepopulations. I concluded that fish skin could be a substitute for reptile

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skin. Surprisingly, Thai fishermen bartered with other fishermen forstingray skins that had been caught in Indonesian waters. Theymanaged to buy the stingray skin at very low prices. Eventually, Iasked myself why stingray skins were not processed in Indonesia."

Aryanto discussed this matter with Anton who supported settingup an earned income strategy around the processing of stingray skins.The fact that the organization saw this as an opportunity to earnincome to support Dian Desa’s other initiatives, however, made itdifficult to subsume the business within the foundation. Therefore,staff founded another foundation in 1985 called Yayasan DianMandala. Aryanto was appointed its Managing Director. According toAryanto, “We imagined that this foundation was like a wheel whichrotates. It can go up and down; it can succeed and fail. Also, it illus-trates dynamism, trial, and error.”

Although the legal status of Dian Mandala is a foundation, it isdesigned and operates as a business by its management. This meansits working approach is based on productivity objectives and is fullyoriented toward earning profits. Dian Mandala requires workingsystems that are different from Dian Desa’s, including tight workschedules, an orientation to product volumes and a more competitivesalary system.

Incorporating Dian Mandala under Dian Desa would have causedsalary distortions and upsets in the lower staffing echelons of thelatter, as some of the Dian Desa staff is remunerated at a relatively lowlevel in recognition of their willingness to volunteer some of theirservices. Aryanto explains that on the whole, the level of salariesreceived by Dian Mandala’s workers is relatively higher than in DianDesa, notably the salaries of those involved in production. Theyreceive labor insurance, which is fully in keeping with governmentregulations on manpower. “Recruitment at Dian Mandala stronglystresses certain expertise, while the recruitment of Dian Desa stafftakes into account one’s activist spirit and idealism,” Aryanto says.

While Dian Mandala was set up as a foundation, the idea of settingit up as a limited liability company had been considered too. Thelatter structure was not selected for three main reasons. First, at thattime it was relatively easy to establish a foundation; formation simplyrequired the presence of a notary in Yogyakarta. Establishing a limitedliability company was then far more difficult, requiring ratificationunder the Ministry of Justice in Jakarta. This would have taken a long

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time and demanded significant amounts of money for processing themany bureaucratic hurdles involved. Second, in addition to theopportunity to earn profits on selling processed stingray skins, thisbusiness had the potential to generate social returns related to theneeds of poor fishermen. Third, this was viewed as a strategy to raisefunds for investment and working capital for Dian Desa and thereforeas an opportunity to reduce dependence on donor organizations inthe long run.

In addition, at the time of Dian Mandala’s incorporation there wasneither a law nor regulation determining whether or not a foundationcould be involved in purely economic activities; nor was there anyregulation stipulating how a foundation could apply its surpluses.2

Financing the Technology

After the organization received its legal status, the next task was toinvent appropriate technologies for processing stingray skins intoleather. In particular, the processing needed to address the fact thatthe fibers of stingray skin tend to be very tough, making it difficult tosoften. While the first five years were therefore very much a trial anderror period, it was also rich in the innovation of inventing appropri-ate technology, not only for processing raw materials but for makingend products. For example, for sewing leathers special sewingmachines were required because the needles of normal sewingmachines would be broken easily if they were used with stingray skins.This led Dian Mandala to reorganize itself into two main divisions,namely leather processing and leather production.

In the beginning, no donor agency was willing to provide DianDesa with financial assistance for the items produced by DianMandala at its experimentation stage. Consequently, Dian Desa hadto use its own funds as initial working capital for investments in tech-nological development. This was made easier by the fact that, asAnton Sudjarwo pointed out, Dian Desa was already allocating acertain amount of money into research and development activitiesbecause it was an organization founded on the development of appro-priate technology.

During the trial and experimentation period, which coveredseveral years, Dian Mandala invested approximately US $125,000 inresearch and development. The foundation’s revenues from earned

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2 It was only in August of2001 that the House ofRepresentatives passedinto law the Draft Law onFoundations (Law No. 16,Year 2001). The law stipu-lates, among other things,that any foundation canestablish business enter-prises provided that itsstake in them does notexceed 25 percent of itstotal assets (Article 7,Section 2). This aims tosupport the foundation inachieving its purpose andobjectives. Any surplusesgained by the foundationfrom its business under-takings cannot be distrib-uted to its founders, boardof directors, or supervi-sory board members. Thefounders or board ofdirectors of the founda-tion are also not allowedto serve on the board ofdirectors or board ofcommissioners of thebusiness enterprise(Article 7, section 3).

income activities in farm product sales, however, only reached approx-imately US $250,000 in that same period.

Dian Desa was aware that no donor agencies would be willing toprovide financial assistance for Dian Mandala’s activities which werestill at the experimentation stage. But in 1990 when several end prod-ucts, including wallets and handbags, began to be marketed, DianDesa officials decided to submit a project proposal to the SwissAgency for Development and Cooperation (SDC), an agency of theSwiss government for international development assistance. DianDesa had been receiving support from SDC since 1988 under theagency’s Block Grant Project.3

The proposal submitted by Dian Desa was to cover the fundsnecessary to help Dian Mandala become a real business entity provid-ing long term sustainable income. It was proposed that this could bedone by improving Dian Mandala’s management systems and devel-oping an in-country marketing strategy. According to the 1997 FinalReport to SDC there were three main targets which Dian Mandalawanted to achieve with SDC’s assistance:

• improve the organization’s human resources capacity andspecifically its managerial capability

• develop an in-country marketing strategy and launch activityrelated to that strategy

• provide special working tools and machinery in order to be ableto answer specific quality demands.

After examining Dian Mandala’s technological capacity, inven-tions, and products, SDC agreed to provide it with funds for astingray skin processing project in 1991. Initially, SDC’s support waslimited to research and development but in 1996 it was expanded inorder to increase the quality of ready-made goods for commercial use.

In line with Dian Mandala’s desire to develop its managerial capa-bilities, it hired a production manager in 1996 who had a leatherindustry background and was able to manage the relatively largepersonnel of Dian Mandala. The staff then also outlined a productionworking system and financial system.

With support from SDC, Dian Mandala was able to purchaseadditional machinery and tools in order to meet specific quality needs.Additional machinery purchased included, among others, sewingmachines, leather cutting machines, and leather ovens for final dryingand spraying of the products.

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3 Under the Block GrantProject, Dian Desa chan-neled funds received fromSDC to a few local, smallNGOs for sustainableincome generatingprograms. Dian Desaadministered, monitored,evaluated, and submittedfinancial and narrativereports to SDC. In effect,Dian Desa acted as anintermediary organizationthat enabled SDC tomake grants to localNGOs without having apresence in Indonesia. Inaddition, however, DianDesa provided theseNGOs with training,institutional capacitybuilding, and technologi-cal support. For all this,SDC provided Dian Desawith an “administrativefee” for its overhead costs,which accounted forabout 10 percent of thetotal funds channeled tothe foundation.

Marketing the Products

Being aware of its weaknesses in marketing its products domestically,Dian Mandala asked for assistance from Kenzo Hani in 1991, aJapanese consultant. Hani was the previous chairman of theYogyakarta-Kyoto Sister City Arrangement who traveled both a lotoutside and within Indonesia. Moreover, he had extensive businesscontacts. Kenzo met with Aryanto Sudjarwo at an exhibition and wasattracted by the leather items produced by Dian Mandala; thisprompted him to assist in their marketing.

Hani’s analysis was that Dian Mandala’s leather products wereunique and should be categorized as exotic products catering tospecific market segments, specifically higher income residents andtourists. Accordingly, Hani recommended that Dian Mandala under-take direct marketing through certain exclusive stores in tourist desti-nation cities like Denpasar (Bali), Yogyakarta, and Jakarta. It was alsodecided that a portion of processed leathers should not be developedinto final products but instead exported to countries like Japan, SouthKorea, and European countries like Switzerland and France. Theratio was 30 to 40 percent for exports and 60 to 70 percent for thedomestic market. (Admittedly, the buyers of the products on thedomestic market were mostly foreigners like tourists and businesspeople who later sold the items in foreign countries.)

For overseas promotion, Dian Desa received assistance from theIndonesian government through the National Export DevelopmentAgency. The agency sponsored many small and medium enterprisesto take part in various exhibitions. Based on a recommendation madeby the Association of Indonesian Handicrafts Industry, Dian Desatook part in exhibitions in Japan, Switzerland, and Australia.

SDC’s financial assistance was very meaningful to the financialdevelopment of Dian Mandala. In looking at a comparison of DianMandala’s income from the sales of its products to its total expendi-tures in 1996, the balance sheet was in the deficit position. “The storywould be different if the money all came from Dian Desa’s own pock-ets,” according to Aryanto. It was only at the end of 2000 that DianMandala recorded a real profit of approximately US $43,000 (Rp434,500,000).

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Creating Social Impact

The leather industry developed by Dian Mandala not only generatedprofits but also benefited small fishermen who were clients of DianDesa’s programs. According to Aryanto, fishermen had for long beendiscarding stingray skins as wastes. Even fishermen did not believethat Dian Desa intended to buy them. It was only after the foundationgave them a down payment that they believed it. Currently, DianDesa takes stingray skins from the north coast of Central Java andEast Java which allows them to produce 4,000 to 5,000 pieces ofleather monthly. Measuring 20 to 80 centimeters on average each, theleathers are tanned at Dian Mandala’s workshops.

For the development of the leather tanning unit, Dian Desareceived assistance from AusAID to utilize fish waste and naturalcocoons for improving and creating job opportunities for poorpeople. The AusAID assistance project, which lasted 18 months fromJune 1999 to December 2000, aimed to assist poor people in ruralvillages who were hardest hit by Indonesia’s economic crisis by creat-ing income generating opportunities. Over its duration, the AusAIDproject provided US $50,000 of support.

This project had two components. The first was training toincrease farmers’ skills in making fabric and high quality yarn fromsilk cocoons. The second was financial assistance to Dian Desa toconduct several activities for fishermen, namely providing trainingand guidance for fishermen groups in urban and rural areas in thenorth coast of Central and East Java to increase their knowledge ofstingray skin collection, pretreatment techniques, and preservation(to in turn ensure a quality product for Dian Mandala to buy). No lessthan 2,000 fishermen have attended such courses. The result is thatfish leathers, which had been worthless, are now generating income.For example, 192 families of poor fishermen succeeded in earningextra income by selling fish leathers. Extra income per family, basedon year 2000 data, reached US $400 annually. This is very significantconsidering that the annual per capita income of poor fishermen inIndonesia was only about US $450 in 2000 (Dian Desa, 2000).

AusAID also provided Dian Desa with assistance funds to buyprocessed fish leathers from fishermen so that the foundation couldfurther process them under one of its two units – the fish leatherprocessing unit and the ready-for-use production unit. For the first

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unit, AusAID provided funds for making tanning drums, dyeingdrums, and waste treatment systems. For the second unit, AusAIDprovided the foundation with funds for buying heavy-duty sewingmachines. Training has also been held for young people from poorfamilies in urban areas. They are trained in fish leather tanning andthe production of ready-for-use items. Some of them have even beenrecruited to work at Dian Mandala.

Grants from donors like SDC and AusAID have proven to be vitalfunding sources for Dian Mandala’s working capital as it has neverborrowed from banks, individuals, or other institutions. Borrowingmoney from banks would have required collateral that Dian Desa didnot have. Its legal status as a foundation has in fact been an obstaclefor borrowing.

The relationship between Dian Mandala and its customers wasmaintained mainly through “cash and carry” methods. Customerswere obliged to pay in advance through banks designated by DianMandala before products were sent to them. This of course requiredan extraordinarily high level of confidence between Dian Mandalaand potential customers. Similarly, in purchasing goods, DianMandala made cash payments. “This provides a new challenge forDian Mandala if it wishes to further advance,” Aryanto says. In thefuture, borrowings from banks will be an option. Aryanto is awarethat borrowing from banks means Dian Mandala’s burden willbecome even greater. “But, when production has become strongerand the market has been guaranteed, it could be the right time forDian Mandala to borrow from banks and other parties. It is now timeto grow Dian Mandala. It now [owns] 0.75 hectares of land which canbe used as a new location for the leather industry as the present loca-tion is too small.”

Additional Opportunities for Earned Income

While Dian Desa serves poor communities in largely rural areas ofIndonesia, within this population there are varying needs to addressand opportunities to harness. Dian Desa has tried to meet these vari-ations with different support programs, not all of which use appropri-ate technology. One of these programs is its micro finance and softloan program, aimed at fulfilling the needs of rural people requiringaccess to working capital with relative ease and low cost methods. The

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program, which began in 1995, provides low interest loans (belowmarket interest rates) for different groups and individuals involved insmall enterprises like small-scale farming, small industries, the craftindustry, cattle breeding, food stalls, small traders, etc.

The funds channeled to borrowers come from the “revolvingfunds” set up in the block grant projects with SDC. These funds wereplaced in Dian Desa’s bank accounts and now total US $400,000 (Rp4 billion). The amount of loans made to an individual borrower aver-age between US $100 and $3,000. Loans channeled to a group aver-age between US $500 and $5000. By 2001, Dian Desa was serving nofewer than 2,800 clients.

The interest earned by Dian Desa reached more than US $4,500(Rp 45 million) per month, or US $54,000 per year. The amount wasenough to finance all of the organization’s operating and administra-tive costs, as well as generate some profits. The earnings have beenplaced in Dian Desa’s program accounts and are being used toincrease the organization’s available working capital.

Dian Desa’s fish leather business is now going to be followed upon with the development of a silk making operation, as mentionedpreviously. Silk fabrics are potentially profitable commodities but silkweaving technology is not an industry commonly practiced. With theassistance of AusAID, Dian Mandala has been able to introduce thistechnology to farmers and craftsmen in East Nusa Tenggara, aprovince already well-known for its traditional woven products.These communities have been trained in silkworm raising technologyand silk yarn spinning for making fabrics. Dian Mandala has looked toJapanese silk making industries for deriving its technology. In coop-eration with an organization in Japan, Dian Mandala has been teach-ing this Japanese weaving technology. At present, the products turnedout are still at the experimental level and include items like shawls,scarves, and sweaters. As of yet, they have not reached sufficientvolume for contract sales. Dian Mandala hopes that, like its fishleather business, its silk weaving operations will also generate profitsfor the organization.

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Allocating Earned Income

Profits earned by Dian Mandala are transferred to Dian Desa’s bank-ing accounts and used to support other Dian Desa activities, notablyits experiments and pioneering programs such as those dealing withwaste treatment. Wastes produced from tanning leather require treat-ment before being disposed but very few clean technologies exist todo that in Indonesia. Upon testing the waste waters from this specificproduction process, results demonstrated that the tanning waste watercould be used for farming various kinds of fish, if cleaned. Developingwaste treatment technologies has thus become a significant focus forDian Desa. It is not only handling its own production wastes but alsothose produced from other industries and households. Surplus moniesearned on these technologies are invested in part in ongoing researchand development in order to increase its production capacity.

The surpluses gained by Dian Mandala are also being used forimproving the welfare of Dian Desa’s employees. As a private volun-tary and nonprofit organization, it has been difficult to receive suffi-cient funds from donors to fully cover the remuneration of Dian Desastaff.

In addition to the core activities described, Dian Desa also appliesits earned income to running assistance in the following areas: help-ing university students gain on-the-job training; assisting otherorganizations involved in activities to help street children; and allo-cating funds for emergency needs and charitable activities.

Lessons Learned

The experiences and challenges faced by Dian Desa demonstrate thefollowing six important lessons regarding earned income as a mecha-nism to build financial sustainability:

Lesson: Perseverance and leadership are critical

It seems that any success can be achieved only through perseveranceand hard work over a long period of time in which considerable trialand error is undertaken. According to Aryanto Sudjarwo, the first fiveyears of Dian Mandala’s existence were full of challenges. While

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several are detailed below in the other lessons, the question of how toinvent appropriate technologies for processing fish leather was a verydifficult one. At that time, fish leather processing technology was notyet known in Indonesia. Moreover, the technology could be foundonly in Thailand, where it was held secretly. Dian Mandala had toinvent its own technologies, including required machinery forproduction.

Lesson: Sufficient seed funding needs to be raised upfront

A second main challenge was related to the availability of funds thatcould be used for initial investments and as working capital. As statedby Aryanto Sudjarwo, it is quite difficult to imagine Dian Desa’ssuccess in carrying out earned income activities without assistancefrom donor agencies. Tireless efforts were needed to produce goodproposals and convince donor agencies that the programs theysupported would be intended not only for the interest of Dian Desabut also for poor people who had become the target groups for DianDesa’s programs. (Unfortunately, borrowing from banks in Indonesiarequires significant collateral which Dian Desa has not had.)

Dian Desa’s experience demonstrates that donor agencies canprovide significant assistance for the development of earned incomeactivities conducted by locally managed funding organizations. In thecase of Dian Desa, ODA agencies have made significant contributionsto research and development opportunities, especially for leathertanning technology, waste treatment technology, and the invention ofmachines for producing leather products. They have also assisted inthe provision of working capital for starting a micro credit program.

Lesson: Staff need to have marketing skills

A third main challenge was deciding on the market for Dian Desa’sproducts and then how to penetrate those markets successfully.Consumers already knew crocodile leathers and other reptile skins,but they were not familiar with fish leather when Dian Desa firstintroduced their products. Accordingly, a process for introducing fishleather products was required. It took quite some time to convince thetargeted populations that using fish leather products was no less pres-tigious than using products made of other leathers. In order to decide

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and control the market segment, Dian Desa asked for help from aJapanese consultant (with funds from SDC). As exotic leather of highvalue, the product was marketed to medium and high earning buyers.“The Mercedes car company could produce and sell low-priced carsbut if it does, it commits suicide. Similarly, we [Dian Desa] need tohave our own market segment,” remarked Anton Sudjarwo.

Lesson: The organization’s core competency must be applied

Dian Desa has always been consistent in carrying out its mission andin maintaining its expertise, or core competencies. Since its inception,Dian Desa’s philosophy has been to disseminate the application ofappropriate technology, work with communities on communitydevelopment activities, and support local earned income activities thatimprove the economic conditions of the rural community. Earnedincome activities carried out by Dian Desa have never been outsidethe realm of the organization’s core competency.

Lesson: Know the community being served

A fifth factor behind its success is Dian Desa’s closeness to thecommunities it has been serving, namely fishermen and other ruralpoor. Dian Desa developed joint programs together with fishermen –it collected fish leather from them and also trained them. Thisencouraged trust to develop between the fishermen and the organiza-tion, with the former developing great confidence in the foundation.In carrying out its micro finance program, Dian Desa entered thebusiness world of the community that it wanted to serve, and studiedthe details of existing businesses in the community. Behind theseachievements, Dian Desa has always strived to have at least adequateknowledge about the social, economic, and cultural backgrounds of itsclients. Its prudence and care in selecting clients has also not beenremoved from macro situations like Indonesia’s national bankingcontext.

Lesson: Recognize what the enabling environment will and will not allow

Finally, the experiences of Dian Desa illustrate that, depending on thelegal and economic policies in a country, organizations may have to

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make certain decisions and follow certain rules and actions shouldthey desire to pursue an earned income strategy. Knowing full wellwhat this environment will and will not permit is critical to determin-ing how one makes the most informed decisions possible.

Conclusion

With more than thirty years of experience, Dian Desa has becomeaccustomed to identifying technological solutions to poverty.Inventing appropriate technologies has been its greatest contributionto rural communities in Indonesia. As echoed by Aryanto Sudjarwo:“In developing businesses, Dian Desa always begins with the logic ofseeing the experience of other people and learning from them. Themost important thing is willingness to try. In my opinion, this is theessence of Dian Desa’s successes.”

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References

Publications

Bhaskara, Harry. “Indonesia: Ending the Daily Water Chore” inAgainst all Odds: Breaking the Poverty Trap (pp 168-171). London:The Panos Institute, 1989.

Community Recovery Program. Progress Report: January – December2000.

De Silva, Donatus, et al. Against all Odds: Breaking the Poverty Trap.London: The Panos Institute, 1989.

Holloway, Richard. Menuju Kemandirian Keuangan: Buku Panduanmengenai. Jakarta: Yayasan Obor, 2001.

Ibrahim, Rustam. National Directory of Civil Society ResourceOrganizations: Indonesia. Series on Foundation Building in SoutheastAsia. New York: The Synergos Institute, 2001. Online atwww.synergos.org/globalphilanthropy/02/seasiacsrodirectories.htm

Prisma, No. 3, April 1978.

Prisma, No.4, April 1988.

Prisma, No. 4, May 1988.

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Penggalangan Sumberdaya bagi Organisasi Masyarakat Sipil di Negara-negara Selatan. Jakarta: Yayasan Obor. 2001.

Yayasan Dian Desa. Appropriate Technology Group Brochure.

Yayasan Dian Desa. Dian Desa-SDC Cooperation: Phase III (1996-1997). Final Report. December 1997.

Yayasan Dian Desa. Pemanfaatan Limbah Perikanan & KepompongAlam: Program dengan Dukungan AusAID untuk PeningkatanPendapatan dan Penciptaan Lapangan Kerja Produktif. Final Report.December 2000.

Yayasan Dian Desa. Utilization of Fish Skin Waste and NaturalCocoons: Final Report. Program supported by AusAID for “RaisingIncome and Creating Productive Employment Opportunities.”December 2000.

Interviews

Personal interview with Aryanto Sudjarwo, Managing Director,Dian Mandala Foundation. November 2001.

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Author Biographies

A U T H O R B I O G R A P H I E S

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Natasha Amott

Natasha Amott is an Associate with The Synergos Institute, where herwork focuses on supporting existing and emerging foundations inIndonesia, the Philippines and Thailand. She is also a consultant atthe Ford Foundation.

Ms. Amott holds a BA in Anthropology from McGill Universityand an MA in Environmental Studies from the University of Toronto.In between her two degrees, she was a teacher for one year in Pusan,South Korea. In her graduate and post-graduate work, Ms. Amottworked in northern China on a socio-economic study of landmanagement issues funded by the Canadian InternationalDevelopment Agency.

Following her master's work, she worked for a nonprofit organi-zation in Toronto, first as Outreach Coordinator and then as ProjectManager, where she was responsible for fundraising, strategic devel-opment and project administration. She has also acted asDevelopment Coordinator for the University of Toronto and hasbeen a member of several task forces and steering committees in theareas of poverty relief, youth empowerment and environmentalimprovement. Prior to joining Synergos, Ms. Amott was a ResearchAssociate with the Center for the Study of Philanthropy at theGraduate Center of the City University of New York.

Ernesto D. Garilao

Ernesto D. Garilao is a Professor and former Associate Dean of theCenter for Development Management of the Asian Institute ofManagement in Manila. He specializes in managing state-civil societyrelations, institutional development, social marketing, state reforms,management of change, and conflict resolution and mediation.

Prior to joining the Institute, Prof. Garilao was the ExecutiveDirector of PBSP. He served as Secretary of the Department ofAgrarian Reform and as Vice-Chairperson of the Social ReformCouncil, then the highest policymaking body for the Government ofthe Philippines’ anti-poverty program. Presently, he is the Chairmanof the Philippine Development Assistance Program, President ofBahay ni Angelo King Foundation, Senior Executive Officer of the


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Assisi Development Foundation, and is on the boards of KabangKalikasan ng Pilipinas, Kennedy School of Government AlumniFoundation, Philippine National Police Foundation, and a member ofthe International Advisory Council of the Eisenhower Fellowships.

Prof. Garilao holds a Master in Public Administration from theKennedy School of Government, Harvard University (1988), aMaster in Management (with Distinction) from the Asian Institute ofManagement (1982), and a Bachelor of Arts in Behavioral Sciencefrom Ateneo de Manila University (1968).

Eugenio M. Gonzales

Eugenio M. Gonzales is an Industrial Engineer with 22 years of expe-rience in strategic planning, project development and management,institutional development, and policy analysis. He has participatedextensively in the design and implementation of four grantmakingmechanisms that have provided over US $18 million to more than1,000 Philippine non-governmental organizations and people’sorganizations in the last fourteen years. His work has covered entireproject cycles, from design to appraisal, management, monitoring,and evaluation.

As Executive Director of the Foundation for a Sustainable Society,Inc. between 1996 and 2002, and as a free-lance consultant now, Mr.Gonzales has spent the last six years providing technical and financialassistance to small and medium enterprises that are community-basedand environment-friendly. Mr. Gonzales is a Synergos Senior Fellow.

Before working in civil society, Mr. Gonzales taught for six yearsin the Department of Industrial Engineering and OperationsResearch at the University of the Philippines in Diliman. Concurrentwith his academic involvement, he was a consultant and lecturer invarious projects and training courses at the National EngineeringCenter, the Institute for Small-Scale Industries, and the College ofSocial Work and Community Development, all at the University ofthe Philippines. Mr. Gonzales lectured on Project Feasibility Analysis,Methods Engineering, Industrial Organization and Management,Industrial Quality Control, Industrial Statistics, and Rapid RuralSystems Appraisal.


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In 1991, as one of its founding board members, Mr. Gonzaleshelped organize the Caucus of Development NGO Networks, thelargest coalition of NGOs in the Philippines. Mr. Gonzales interactswith and submits policy recommendations to cabinet-level policy-makers. He also participates in policy discussions with the heads andofficers of bilateral and multilateral development agencies as well asinternational organizations.

Ismid Hadad

Ismid Hadad is the Executive Director of KEHATI, the IndonesianBiodiversity Foundation, and a founding member of the organization.He currently serves on the Executive Board of the Indonesian Eco-labeling Institute, the Indonesian Foundation for SustainableDevelopment, and the Indonesian Institute for Energy Economics,three of the leading environmental and developmental NGOs inIndonesia. He also serves as chair of the national steering committeefor the international Leadership in Environment and Development(LEAD) Indonesia Program. Mr. Hadad is a Synergos Senior Fellow.

Mr. Hadad is an economist and institutional development expertwith over 25 years of professional experience in the areas of gover-nance, social communication, capacity building, and environmentalmanagement. Before working with environmental NGOs he spent 16years in the private sector where he was President and ManagingDirector of two leading private consulting companies in Indonesiaproviding policy advice and expert consultancy services to privatecorporations, government agencies, and international donor & devel-opment institutions. He was among the leaders in the first generationof development-oriented NGOs in Indonesia in the early 1970s.

Mr. Hadad holds a BA in Economics from Christian University ofIndonesia in Jakarta and an MPA from the John F. Kennedy School ofGovernment at Harvard University. He is a Fellow of the WoodrowWilson School of Public and International Affairs at PrincetonUniversity and has received professional training at the Institute ofJournalism in Berlin, the East West Center in Hawaii, and throughthe Eisenhower Exchange Fellowship Program in Philadelphia.


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Rustam Ibrahim

Rustam Ibrahim started his career in the nonprofit sector at LembagaPenelitian, Pendidikan dan Penerangan Ekonomi dan Sosial (LP3ES– Institute for Economic and Social Research, Education, andInformation) in Jakarta, Indonesia in 1976 as an editorial staff ofPrisma, a journal of social and economic affairs published by LP3ES.He then held various positions in the organization includingExecutive Director (1993 to 1999), Senior Advisor (1999 to 2000),and Senior Research Associate (2000 to now). He also acts as an inde-pendent consultant.

He is one of the founders of the Center for the Study ofDemocracy, housed in LP3ES, and YAPPIKA (YayasanPengembangan Partisipasi, Inisiatif dan Kemitraan MasyarakatIndonesia). From 1998 to the present, he has been Board Chairman.

Mr. Ibrahim is a prolific writer and editor on the growing civilsociety sector in Indonesia. Publications include: The IndonesianNGO Agenda Towards the Year 2000 (1994), The New OrderPolitical Format: Reconsidered (1997), Strategy to Build Civil Society(1999), The Directory of Civil Society Resource Organizations inIndonesia (2000). He has also written several articles for Indonesiannewspapers on the subjects of democracy and civil society. As aconsultant, he has conducted evaluations, case studies, and facilitatedpublic consultations for the World Bank and the Department forInternational Development of the United Kingdom.

Mr. Ibrahim holds a degree in Political Science and acquired hispostgraduate diploma on Rural Policy from the Institute of SocialStudies in The Hague, Netherlands (1984).

Consuelo Katrina A. Lopa

Ms. Lopa is currently doing freelance research and writing. She wasProject Coordinator of a Philippine non-governmental organization,the Gaston Z. Ortigas Peace Institute, working on the Project on theLegacies of the Marcos Dictatorship from 1999 to 2002. Prior toworking on the Legacies Project, Ms. Lopa was Coordinator ofPhilippine Development NGOs for International Concerns(PHILINK), from August 1990 to June 2000. PHILINK’s programs


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included information networking, dissemination, organizing of studytours, and database management on Philippine development. Ms.Lopa remains actively involved in PHILINK as an Adviser.

While working with PHILINK, Ms. Lopa was also a Consultantwith the Caucus of Development NGO Networks (CODE-NGO)from April 1996 to April 1999. In that capacity, she had a special focuson the International Solidarity & Development Finance AdvocacyPrograms. This included liaison and advocacy work with internationalcivil society organizations and multi-lateral, bi-lateral, and regionaldevelopment organizations. The programs also looked at facilitatingthe organization of NGO-managed funding mechanisms.

Ms. Lopa is a member of various civic organizations and serves onthe board of various development NGOs. She has a Bachelor of Artsin Interdisciplinary Studies from the Ateneo de Manila University,Metro Manila, Philippines (1983). Her course work focused on Asianphilosophies, history, and literature.

Sarah Maxim

Sarah Maxim graduated from Yale University with a BA in SoutheastAsian Studies in 1982. She completed her graduate work at CornellUniversity, where her PhD was in the field of Southeast AsianHistory, with a minor in comparative politics focusing on Indonesia.Between 1992 and 2003, she lived in Indonesia. For several yearsduring this time she worked as a program director and consultant forIndonesian and international civil society organizations focused onenvironmental and democratization issues. In 2003, she became Vice-Chair of the Center for Southeast Asian Studies at University ofCalifornia-Berkeley. She is fluent in English and Indonesian.

Suzanty Sitorus

Suzanty Sitorus, has been with KEHATI since 1998 working mainlyin the areas of public awareness, public relations, and recently on themobilization of resources both from domestic and internationalsources. She has an MA in Mass Communication/Journalism fromCharles Sturt University, Australia and currently is pursuing an


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MPhil/PhD degree from the School of Development Studies,University of East Anglia, Norwich, UK.

Gary Suwannarat

Gary Suwannarat has several decades of experience in promoting thedevelopment of Thai civil society through positions she has held inboth the foundation world and in development assistance agencies.An American citizen, she currently resides in Chiangmai, Thailand,and consults on social policy issues.

Gil R. Tuparan

Gil R. Tuparan, also from the Philippines, is currently a Director ofthe Center for Advancement of Societal Transformation, an NGOengaged in the promotion of public administration and programmanagement in basic sectors (including indigenous peoples, urbanpoor and rural development). He also conducts freelance writing forthe Asian Institute of Management.

Mr. Tuparan has served as Bureau Director in Philippine govern-ment agencies for agrarian reform and rural development as well as invarious agribusiness and management consulting firms. He holds aBachelor of Science in Agriculture from the University of thePhilippines at Los Banos (1979).

David Winder

David Winder is Director, Country Programs of The SynergosInstitute. At Synergos, Dr. Winder has developed a foundation build-ing program that provides technical assistance to grantmaking foun-dations, associations of foundations, and philanthropy support centersin Latin America, Southeast Asia and Southern Africa.

Prior to joining Synergos in 1993, he was a mid-career Fellow atSt. Antony’s College, at Oxford University, conducting research onthe role of non-governmental organizations in Mexico. Dr. Winderworked with the Ford Foundation for over a decade, as the Ford


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Foundation Representative for Mexico and Central America andsubsequently Southeast Asia (1987-1992). In these positions heexpanded the size and scope of the Foundation’s programs developingnew areas of work in human rights, civil society strengthening, inter-national affairs and rural and urban poverty.

Dr. Winder has been affiliated with numerous NGOs, boards ofdirectors and committees, including: WINGS, IMAG, Global Kids,Oxfam UK and St. Antony’s College North American Trust. Hisextensive list of publications includes research on community devel-opment, the role of foundations, local philanthropy and NGOs and asourcebook on foundation-building, edited and co-authored withother Synergos staff.

Dr. Winder holds a PhD and a Masters in Education in commu-nity development from the University of Manchester, UK.


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Profiles of Foundations in Case Studies

P R O F I L E S O F F O U N D A T I O N S I N C A S E S T U D I E S

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Jaime V. Ongpin Foundation, Inc.

In establishing the Benguetcorp Foundation, Inc. in 1980, the lateJaime V. Ongpin, the first Filipino president of BC, envisioned “thedevelopment of self-reliant communities in the countryside.” Towardsthis vision, he created a corporate social arm that would promote thewelfare of BC employees and their dependents and the residentsliving near the company’s mining and other operations.

More than 20 years later and a change in name in 1987 to honorits founder, the Jaime V. Ongpin Foundation, Inc. is a private, non-stock, nonprofit organization based in Baguio City and registeredwith the Securities and Exchange Commission and the Bureau ofInternal Revenue. The Department of Science & Technology accred-ited JVOFI from 1980 to 2001. In 2001, the Philippine Council forNGO Certification certified the institution, and the Internal Revenuegave it a five-year donee institution status. Its bylaws were amendedin 2002 to be consistent with its character as a social developmentfoundation. It sits on the board of the Association of Foundationsrepresenting the Luzon network as well as the board of the CordilleraNetwork of Development NGOs and POs (people’s organizations). Itis also a member of the Council on Foundations in the United Statesand Microcredit Council of Practitioners. It is also accredited with theUS Agency for International Development (USAID).

Since 1995, the organization has stated its vision and mission asfollows:

Vision: JVOFI shall be the leading institution in the formation of

self-reliant communities capable of harnessing resources for

equitable development.

Mission: Guided by the principle of holistic development and


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with utmost concern for the environment, the foundation shalluplift the sense of dignity of the Filipino communities it serves.

Since 1999, the foundation’s goals have been to:• enhance the capability of client communities to implement,

manage and sustain projects• enable communities to develop and conserve their ecological

resources• enhance the capability of the foundation to pursue its mandate. Four core programs are pursued in this regard: Ecological

Enhancement, Enterprise Development, Internal Capacity Building,and Resource Generation and Management.

For more information, visit www.mozcom.com/~jvofi/.


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KEHATI The Indonesian Biodiversity Foundation

In January 1994, a group of prominent Indonesians founded YayasanKeanekaragaman Hayati Indonesia (KEHATI), translated in Englishto mean the Indonesian Biodiversity Foundation. KEHATI’s missionis to promote the conservation of biological diversity in the country.KEHATI was established with an initial endowment of US $16.5million, provided as a grant by the United States Agency forInternational Development (USAID). This endowment was set upunder terms outlined through a Cooperative Agreement betweenKEHATI and USAID to be in effect for a period of ten years, from1995 to 2005.

As outlined in its Articles of Association and Bylaws 1995,KEHATI’s objectives are to:

• strive for the conservation of natural resources including thebiodiversity thereof comprising among others the diversity ofecosystems, species and genetics, whether nationally, regionallyand internationally.

• strive for the emergence of policies, programs and efforts forthe conservation, utilization, management, study and develop-ment of biological resources [and their diversity in Indonesia].

• initiate and promote national, regional and international coop-eration among non-governmental organizations, scientific,research and educational institutions, the business communityand governmental agencies to achieve the purposes and objec-tives of the Foundation.

·• foster and improve the capabilities of society and its institu-tions to play an active role in efforts for the conservation andutilization of biodiversity in a fair, equitable and sustainablemanner.


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• provide contributions to charitable, educational and otherscientific organizations that have the same or similar purposesand objectives as the Foundation.

For more information, visit www.kehati.or.id.


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Dian Desa

Based in Yogyakarta on the island of Java, Dian Desa is one ofIndonesia’s largest foundations with a staff of more than 300 people.Translated into English, Dian Desa means “light of the village.” Itsname underscores the organization’s belief that its role is to work withpeople to create a means to lead a better life. Staff often say theirpurpose is to help people help themselves.

Since its establishment in 1972, Dian Desa’s philosophy has beento spread the use of “appropriate technology” to improve livingconditions among poor communities in Indonesia. Working as a cata-lyst, Dian Desa introduces technological ideas that are relativelysimple and draw on local capacities and knowledge to rural commu-nities. Making the technology “appropriate” implies that it can bemaintained, refined, and spread by community members themselves.This means that community members are involved from the begin-ning and work closely with Dian Desa technicians in the planning andimplementation stages of a project. Dian Desa’s guidance and supportfosters self-confidence within communities to help them meet theirmost basic needs while seeking new economic opportunities at thesame time.

Over the past few years, Dian Desa’s earned income activities haveaccounted for 35 to 40 percent of the organization’s total annualbudget, itself approximately US $1.3 to $1.4 million.


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About Synergos

A B O U T S Y N E R G O S

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Bridging Social and Economic Divides to Reduce Poverty

The Synergos Institute is an independent nonprofit organizationwhose mission is to develop effective, sustainable and locally basedsolutions to poverty.

Our foundation building services build and strengthen communityfoundations around the world. Synergos has played a critical role inthe formation of over a dozen such foundations, fostering a localculture of philanthropy, and today provides capacity building servicesto over 200 foundations, philanthropic support organizations andsocial investment groups in Africa, Asia and Latin America, as well asmore limited services globally.

Synergos’ Senior Fellows are a key part of this work. The Fellowsare a global peer learning and practice network of 50 leading profes-sionals from the field of organized philanthropy that provides on-sitepeer consulting and other services to community foundations. SeniorFellows come from around the world but especially represent experi-ence in foundation building from Africa, Asia and Latin America.

Through the Global Philanthropists Circle, we bring leading phil-anthropic families together to deepen the impact of their socialinvestments. The Circle is composed of 50 philanthropic familiesfrom over a dozen countries in all regions of the world that conveneglobally to learn from each other. Members also visit each other'scountries to gain in-depth knowledge of national initiatives in socialand economic development and strategic philanthropy. A powerfulaspect of this network is its intergenerational nature.

In Africa, Asia and Latin America, Synergos is working to bridgedivides between business, government, civil society, and communities.We link foundations and philanthropists to these initiatives to createbroader partnerships to address issues such as community develop-ment, the prevention of HIV/AIDS, and the inclusion of indigenouspeoples.

Synergos was established in 1986. Based in New York with a staffof 35 drawn from 11 countries and with offices in Rio de Janeiro,Manila, Capetown, and San Diego, California, we are supported byprivate foundations, corporations, international agencies and individ-ual contributors.

For more information, visit www.synergos.org


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Board of Directors

Wanda Engel AduanRegional Dialogue Division, Inter-American Development Bank

Valentin von Arnim Corporate Treasury, Goldman, Sachs & Co.

Bill BohnettPartner, Fulbright & Jaworski LLP

Alan DetheridgeVice President, External Affairs, Exploration & Production, Shell International Limited

Lance Dublin President and CEO, Lance Dublin Consulting

Peggy Dulany Chair, The Synergos Institute

John Michael ForgáchMcCluskey Fellow, Yale School of Forestry and Environmental Studies

Juliette Gimon Flora Family Foundation

Dorian S. Goldman President and Trustee, Irving Goldman Foundation

Nadine B. Hack President, beCause Global Consulting

Brian Henderson Vice Chairman, Merrill Lynch Europe Middle East and Africa,Merrill Lynch

A B O U T S Y N E R G O S

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Nilufar HossainFamily Care International

H. Peter Karoff Chairman and Founder, The Philanthropic Initiative, Inc.

Maria Elena Lagomasino Chairman & CEO, JPMorgan Private Bank, J.P. Morgan Chase & Co

Cornelio Marchán President, Esquel Foundation – Ecuador

Marcos Augusto de Moraes President, Empreendimentos e Participações B4 S.A.

Lucia Moreira-SallesRiovoluntairo

Kim Samuel Johnson Director, The Samuel Group of Companies

S. Bruce Schearer President, The Synergos Institute

Tokyo Sexwale Executive Chairman, Mvelaphanda Holdings

Adele S. Simmons Vice Chair, Chicago Metropolis 2020

James Sligar Partner, Milbank, Tweed, Hadley & McCloy

Michael W. Sonnenfeldt Managing Member, MUUS & Company, LLC


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The Synergos Institute

How can foundations in Southeast Asia increase their financialviability and in turn meet their critical missions to alleviatepoverty, conserve natural resources, and create social change?How can international funders and aid agencies contribute toincreasing resource flows to local foundations in the region?What are the benefits of such partnerships?

The case studies and perspectives collected in this book set outto provide answers to these questions as well as to spark dia-logue on what are sometimes contentious issues. The authorsspeak to the dynamics of the foundation movement inIndonesia, the Philippines, and Thailand; the historical rela-

tionships between international aid agencies and local founda-tions in these countries and future possibilities to enhance suchrelationships; and the opportunities to mobilize funding forlong-term development.

This book will be of value and interest to foundation profes-

sionals, international donors, policymakers, and all who areinterested in understanding the complex dynamics of financingdevelopment in Southeast Asia and other regions of the world.

SynergosThe Synergos InstituteMain Office9 East 69th StreetNew York, NY 10021 USATel +1 (212) 517-4900Fax +1 (212) 517-4815synergos@synergos.orgwww.synergos.orgwww.globalphilanthropy.info

endowments

financial sustainability

Thailand

earned income

official development assistance

debt swaps

Indonesia

corporate philanthropy

social investment

civil society

the Philippines

foundations

grantmaking

lending

FinancingDevelopment in Southeast Asia

Southeast Asia Regional OfficeRm. 207 - Center for Social Policy & Public AffairsSocial Development ComplexAteneo de Manila UniversityLoyola Heights, Quezon City 1108The PhilippinesTel +63 (2) 426-6001ext 4647Fax +63 (2) [email protected]

Documents

Financing Development in Southeast Asia