Social Science Series #1: Non-Governmental Organizations (NGO)
What are NGOs?
NGOs are “legal or social entities created for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them” (System of National Accounts in 1993). The main characteristics of NGOs are that they do not distribute their profits, or in other words they are nonprofit making, they are independent and institutionally separate from any direct control of the government, and additionally they must be self-governing and non-compulsory, which means that membership and contributions are not required or enforced by law. To be considered self-governing, the organization must control its management and operations, have its own internal governance and exercise a degree of autonomy. NGOs also must not be constituted as a political party or have any political associations, and they must not be related to criminal groups.
Based on the articles of associations on which they are established, the institutional units that manage them are not entitled to a share of any profit or income they receive, hence why most NGOs are exempted from taxes. That is not to say that NGOs cannot be profit making, however they are non-profit distributing, and the accumulated surplus must be utilized for achieving the basic mission of the agency, rather than the organization’s members or founders. There are various reasons leading to the establishment of NGOs, ranging from those created for charitable, philanthropic or welfare reasons to support those in need, or those that intend to provide health or educational services.
While most NGOs are legal entities that are institutionalized with a certain degree of internal organizational structure, some are informal organizations that lack formal legal statuses, yet meet the criteria of being organizations with a meaningful degree of structure and permanence.
(Source: United Nations, System of National Accounts, International Encyclopedia of Civil Society Book)
Types of NGOs
There are several types of NGOs, which are classified based on their orientation or their level of operation:
NGOs usually involve little participation by the beneficiaries and include those with activities towards assisting and meeting the needs of the poor. Such organizations always may undertake in relief activities during natural disasters.
Includes organizations that engage in activities such as provision of health or educational services designed by the NGO, and require the participation of people in its implementation and in receiving the service.
nonprofits include those in which the local citizens are required to aid in the implementation of the project through contributions such as cash, materials, land and labor.
NGOs aim to help the poor in developing a clearer understanding of the social, political and economic factors affecting them and raise awareness about the potential steps in gaining control in their lives. In such cases, such organizations have a facilitative role in the development of the group and there is maximum involvement of the people.
According to the World Bank, operational NGOs focus on designing and implementing development-related projects. These include community-based organizations (CBOs), which mainly arise from people’s own initiatives such as women or educational organizations, and serve specific populations in a narrow geographic location. Community-based organizations usually consist of groups of individuals who joined due to common interests, rather than to provide service to others. Additionally, there are national NGOs, which operate in and aid developing countries, and international NGOs (INGOs) that are usually headquartered in developed countries and serve several developing countries. Most operational NGOs have to mobilize their resources through financial donations, volunteer labor and materials in order to achieve their projects. They obtain finances from grants, contracts, the government, foundations or companies, however this requires extensive effort and expertise in planning, preparing application, budgeting, accounting and reporting. Hence, they require an efficient headquarters bureaucracy in addition to an operational staff who is skilled in the field of advertising and media relations.
On the other hand, advocacy NGOs are another classification according to the World Bank, which have a primary purpose to promote and defend a specific cause and influence public policy. They carry out similar functions such as fundraising, however it is usually on a smaller scale, and they aim to strengthen the donors’ identification with a certain cause. Most events attract publicity rather than raise funds. It is important to mention that a large amount of NGOs engage in both operational and advocacy activities.
Despite the diversity present in NGOs, in general, they have strong grassroots links, field-based development expertise, are capable of innovation and adaptability, emphasize on sustainability of long-term projects, and tend to be cost effective. They have flexibility in responding to local needs and have the ability to develop integrated projects and tailor their assistance based on whom they serve.
In the US, most NGOs are classified as 501(c)(3) organizations under the US international Revenue Code, which allows for federal tax exemption. What makes this classification distinct is the tax deductibility of donations. In order to qualify as a 501(c)(3) organization, the nonprofit must exist for charitable purposes that serve the public good including charitable, religious, scientific, literary, educational, and literary purposes in addition to testing for public safety, fostering amateur sports competitions and preventing cruelty for animals and children. Such organizations can receive grants from the government or from private foundations due to their tax-exempt status. The three main categories of 501(c)(3) organizations are public charities, private foundations and private operating foundations. Public charities have active programs, obtain at least 1/3 of its donated revenue from public support such as through individuals, companies or other public charities, and maintain a governing body which is made up of independent individuals. Public support must be broad rather than focused on a limited set of individuals. Private foundations such as family foundations do not have active programs and obtain funding through a small number of donors rather than through public support, primarily through investments and endowments. They often support the work of public charities through grants. Lastly, private operating foundations are characterized by having active programs like charities and have attributes such as close governance similar to foundations. 501(c)(3) entities follow strict regulations in activities and governance of the organizations and all assets must be permanently dedicated to a charitable purpose.
(Source: World Bank, Global Policy Forum, Foundation Group, Internal Revenue Services)
Functions of NGOs
NGOs play a crucial role in developing society, improving communities, advocating for positive change, and promoting citizen participation. According to the World Bank, NGOs pursue “activities to relieve suffering, promote the interests of the poor, protect the environment, provide social services, or undertake community development”. Based on the classification of either being operational or advocacy based, in addition to the target goal they promote, the function of NGOs slightly varies. Both types of NGOs need to engage in fundraising, mobilization of work from supporters, organization of events, media promotion and administering a headquarters. However while operational NGOs primarily focus on implementing projects, advocacy NGOs aim at holding demonstrations and campaigning towards implementing change for a certain cause. For instance, human rights NGOs and women NGOs have programs that assist victims of discrimination and injustice. Research institutes have special operational programs and aim to increase knowledge and understanding through either promoting academic images or disseminating information for campaigning purposes. Various other NGOs play a role in the development and operation of infrastructure, supporting innovative pilot projects, facilitating communication with policy-making levels of the government, developing technical assistance and training, and advocate for the poor or undermined in society to influence government policies on their behalf.
(Source: UNESCO Encyclopedia of Life Support Systems, Global Policy Forum, World Bank)
Importance of NGOs
As society is challenged by a multitude of socioeconomic, health, educational and humanitarian issues, NGOs from various sectors explore innovative solutions that address such problems. Some organizations work in the field by providing humanitarian relief and development assistance in underprivileged countries, while others focus on the promotion and facilitation of arts, sciences, and research. Their important contribution in initiating and coordinating mechanisms for social change has led to the achievement of long-term security, community sustainability, and inclusive human development. They also are useful actors in providing cost-effective services in flexible ways or developing new solutions to world-pressing problems.
For the beginning of the development of NGOs historically, their organizational manifestations have led to altering global politics and social movements. NGOs have exerted their influence in policy making on a global scale. They obtain global attention through various methods such as organizing large-scale protests, capturing media outlet’s attention, and challenging the legitimacy of larger scale governmental entities. Their efforts forced governmental institutions to involve NGOs in decision-making. Due to the poor performance of public sectors in various underdeveloped countries and the lack of confidence in the government leaders and institutions, NGOs have emerged to address the deficiencies caused by the distrust in the government. Additionally, NGOs play a vital role in international systems as they contribute valuable information, advocate for positive change, provide essential operations in emergencies, and additionally they increase the accountability of global governance processes.
The most important roles of NGOs include social development, sustainable community development, and sustainable consumption. They have shown leadership in mobilizing poor populations and empowering them in strengthening local organizations. Through their programs, many NGOs increase local economic diversity, encourage self-reliance through the establishment of local markets and productions, and gain commitment of sustainable communities towards social justice. NGOs mainly aim to reduce human suffering and to develop poor countries, in addition to their role in supporting women, men and households. In order to achieve their long-term goals of sustainable community development, NGOs organize activities that encourage capacity building and self-reliance through funding projects, contributing to awareness, and promoting self-organizations. Additionally, it is important for NGOs to educate the people about their social rights and duties.
(Source: Sage Publications, MDPI Sustainability 2018 Journal, UNESCO Encyclopedia of Life Support Systems, Global Policy Forum, International Encyclopedia of Civil Society Book)
NGOs and Funding
NGOs require funding and sources of revenue in order to accomplish their mission. There are several ways NGOs can generate income, and many depend on a variety of income streams. The largest source of revenue according to Giving USA foundation’s statistics is through private giving from individual donors, foundations and businesses, reaching a total of $427.71 billion dollars in 2019 (Giving USA Foundation 2019). NGOs also may depend on corporate philanthropy, by obtaining long-term corporate funding through partnerships, sponsorships, campaigns, and cause-related marketing. Furthermore, many NGOs rely on federal, state or local government grants. In most developed countries, a certain percentage of the gross domestic product (GDP), which is the value of the goods produced in a country annually, is set aside to help NGOs based on their adherence to government policy. NGOs may also receive funding from multilateral development banks such as the World Bank, which fund agencies for specific causes and purposes. Another large source of revenue is through foundations. Grant-giving foundations may provide funding for specific programs or causes. Corporate foundations are private foundations whose endowment funds exist separately from the corporate, while family foundations receive endowments from individuals and families and tend to fund local charities. Endowments are usually restricted with investment interests that can be spent from year to year. On the other hand, community foundations are public foundations that gather the assets of many donors and aim to improve local communities through grant making and in providing donor-advised funds. Some non-profits rely on the sales of products or services, which provide a constant income stream. It is important to mention that this income must be related to the mission of the organization and is known as “earned income”, which adheres to many regulations by the IRS. NGOs may also benefit from episodic funding from foundations or corporate grants, events or bequest. Lastly, NGOs partake in various fundraising campaigns in order to raise a significant amount of funds for a particular project, such as raising funds for cancer research. Establishing a constant source of funds is crucial and enables NGOs to grow and advance in the future.
(Source: Giving USA Foundation, National Center for Charitable Statistics, Artemis, The Balance Small Business)
Jacinto Convit World Organization (JCWO) is a U.S. nonprofit and non-governmental organization incorporated in 2014 under the laws of California, classified as a 501(c)(3) tax-exempt public charity for medical research. JCWO’s aim is to give access to better healthcare solutions to those who need it the most, while training the new generations. Through specialized scientific programs, it contributes to important areas of public health, such as cancer and infectious diseases in poor developing countries. The philosophy of the organization is based on Dr. Convit’s humanistic approach in developing accessible treatments and serving vulnerable communities.
According to the World Bank categorization, JCWO can be considered an operational international NGO, since it carries out projects in developing countries supporting healthcare areas. Additionally, pursues activities to relieve suffering, promotes the interests of the poor and provides social services. In relation to its funding and institutional contribution, JCWO has the continuous support of allies and donors through corporate social responsibility, individual philanthropists, campaigns, cause-related marketing, among other fundraising mechanisms that contribute to the development of the institutional programs. Furthermore, the organization has two prestigious accreditations, BBB Wise Giving Alliance and GuideStar, that provides donors and beneficiaries the greatest guarantee of transparency in the spending and use of the resources donated to JCWO.