WHITE PAPER, JANUARY 2025
Dr Stefania Knecht-Turkanik, Nina Berculo, Björn Vennema

Summary

Non-governmental organisations, especially their finance and fundraising teams, are being thrown into the deep end. The shifting political and economic landscape is putting their systems under pressure and threatening their survival. The good news? Despite declining government subsidies, there is still enough capital available to fund development and humanitarian aid. The bad news? NGOs must rethink how they operate and secure funding. Thankfully, there is also a growing pool of options through innovative financing and outcomes-based approaches that can help them navigate those challenges. The sector has faced challenges before, but with funding constraints tightening across the board, NGOs now face a clear choice: sink or swim.

Changing political landscape with financial consequences

On 12 November 2024, Reinette Klever, the newly appointed Dutch Minister for Foreign Trade and Development Cooperation, announced a significant policy shift: subsidies for development and humanitarian aid provided to NGOs will be reduced from €1.4 billion to €0.4 billion between 2026 and 2030. While financial constraints play a role, the rationale extends beyond budgetary concerns. The government aims to encourage NGOs to reduce dependency on subsidies, prioritize efficiency, and focus on direct community funding to ensure aid is more effective and less entangled in complex organisational structures.¹ Partos, the Dutch trade association for development cooperation refers to these cuts as drastic, noting that they also undermine the Netherlands’ reputation and reliability as an international partner. Individual organisations are also voicing concerns and confusion. Cordaid Director Heleen van den Berg, among others, describes the cuts as a fundamental threat to democracy and human rights globally, as well as to the Netherlands itself.²

This new policy is emblematic of a rapidly changing aid and development landscape, one that presents mounting challenges for NGOs. Not just in the Netherlands, global adverse forces are mounting for the development and humanitarian aid sectors. Global financial pressures, disengagement among younger donors, rising costs, advancements in technology (including AI), and increasing demands for financial, social, and ecological accountability are testing the resilience of traditional funding models.³ Coupled with a volatile political environment and a perceived trade-off between climate action and development assistance, these dynamics necessitate a shift in how NGOs operate and fund their work.⁴

At the same time, the need for humanitarian and development aid has never been more pressing.⁵ Conflicts, climate change, and economic crises have widened the funding gap for achieving the Sustainable Development Goals (SDGs) in developing countries to a staggering $4 trillion annually — a 60% increase since 2015.⁶ Public finance or philanthropy alone will not be able to finance the trillions that are needed to close the SDG financing gap.⁷ Addressing this shortfall requires a more strategic and collaborative approach among stakeholders. As the UNDP aptly highlights, “the onus is on policymakers, donors, and development practitioners to adapt, innovate, and collaborate more effectively than ever before.”⁸

So, what does adaptation and innovation look like in this context? It involves diversifying funding sources, implementing programmes more efficiently and involving different partners. Innovative finance is a tool that contributes to all the above. This white paper explores how NGOs can leverage innovative finance mechanisms to navigate a shifting political and financial landscape while driving meaningful progress toward global development goals. The time to rethink funding models and partnerships is now.

Innovative finance goes beyond traditional tools to create impact

Innovative finance involves engaging non-traditional partners, often from the private sector, to mobilize resources and enhance the effectiveness of funding for social or environmental challenges. It refers to financial instruments that go beyond philanthropic donations and subsidies and involves new funding players to generate or optimize capital for impactful solutions. ⁹

The essence of innovative finance lies in its focus on achieving measurable outcomes in the most efficient and impactful way possible. By restructuring incentives and aligning financing with results, innovative finance offers a transformative approach to addressing the funding and operational challenges faced by NGOs. ¹⁰

NGOs can adopt innovative finance through models ranging from debt- or equity-based instruments such as impact investment funds, to outcomes-based finance instruments, like Development Impact Bonds or Outcomes Funds. For instance, Educate Girls successfully linked funding to measurable improvements in education outcomes. ¹¹ In contrast, blended models combine catalytic funding from governments or foundations with private capital, helping to mobilize finance for high-risk projects. For example, Water.org’s WaterEquity initiative mobilizes private investment to fund safe water and sanitation projects, blending philanthropy with market-driven solutions. ¹² To raise these funds, NGOs could set up social enterprise, financial vehicles or funds that would allow them to access investments under financial regulation. What they all have in common, though, is that NGOs start thinking more entrepreneurially about what they want to achieve and what works.

Putting partnerships and outcomes first

There are several ways in which innovative finance can offer advantages to traditional approaches to funding. According to Rob Mills from Social Finance UK, traditional grants or subsidies often include inflexible timelines, budgets and activities set by donors. These donors are most often in the Global North and are as such often less in touch with the local situation. As such, traditional financing can entrench colonial structures of power (“the Global North decides over the Global South”) and organisations can be left implementing ineffective programmes “challenged via bureaucracy that forces service providers to focus on compliance rather than results.”¹³ Innovative finance, on the other hand, aims to disrupt these entrenched patterns:

• Innovative finance fosters a partnership approach, bringing together diverse stakeholders—donors, NGOs, and governments—to collaborate on shared goals. This creates opportunities for more strategic support and creative solutions that are not dependant on public funds or subsidies. For example, the Education Outcomes Fund in Ghana demonstrates how this approach ensures the effective use of development funds while strengthening local ownership. The Ghanaian government is repaying the fund once the agreed-upon outcomes, aligned with local contexts and priorities, are achieved.
• The majority of innovative finance instruments focus on measurable outcomes, allowing for continuous learning, adaptation, and evidence-based decision-making. This approach shifts the focus from activities (“training on basic business skills”) or outputs (“200 individuals trained successfully”) to specific, measurable outcomes (“increase in household income by 10%”), promoting more effective interventions.
• Innovative finance offers flexibility and adaptive management, which is especially relevant in high-risk environments. This model allows for programme adjustments based on real-time evaluations, offering space to refine strategies and better respond to changing circumstances.
• Innovative finance instruments help NGOs leverage their deep local knowledge and networks to navigate cultural and political challenges, helping to reduce costs and risks while enhancing investment outcomes in complex regions.

Experts agree that engaging with innovative finance models and the private sector is becoming essential.¹⁴ Governmental subsidies are decreasing, yet many regions still face chronic under-investment. Additionally, individual donors are becoming increasingly weary of the responsibility of financing solutions to global problems. As a result, donors are expecting NGOs to explore innovative, co-financed solutions that involve the private sector or development funding mechanisms. In times of declining resources, it is crucial to align financial resources with outcomes to ensure more effective use of funding.

Confronting rather than avoiding the inevitable challenges of innovative finance

Given the many benefits of innovative finance, it raises the question: why aren’t more NGOs using it? The answer lies in several challenges organisations face when trying to work with innovative finance.

• One major issue is a lack of information. An InterAction survey showed that the main reason NGOs provided for not engaging in innovative finance is a lack of information about different financing instruments and how they work, as well as a lack of information about innovative finance for development opportunities and partners.¹⁵
• Embracing innovative finance requires a shift in organisational culture towards a more entrepreneurial working manner. It requires confronting assumptions, questioning established practices, and re-thinking processes towards what creates long-term, sustainable change. NGOs are often less familiar with financial markets, the terminology surrounding capital and investment, and are cautious about exploitative schemes, particularly those that may affect the communities they serve. Constructively engaging with scepticism, addressing biases and combating misinformation about innovative finance are also key aspects of this transition.
• A change in organisational culture also demands investing in internal capacity and extra workload. Especially in early stages, innovative finance takes more time and effort to implement. It requires collaboration with external partners, stricter impact measurement and evaluation, and additional staff hours. On top of that, it demands financial resources, specialized expertise, and compliance with complex legal requirements. NGOs simply do not have the staff, resources, or expertise needed to explore or adopt innovative financing options. They may lack the skills or experience to feel confident diving into this unfamiliar territory.
• There is also the perception that innovative finance is risky. Many NGOs believe it comes with higher financial risks compared to traditional grants. However, a survey of implementing organisations found that 73% thought the risk was either “roughly the same” or even “less” than with traditional funding methods.¹⁶
• Finally, finding the right fit can be a struggle. For many NGOs, understanding the different types of innovative finance can feel like learning a new language. Figuring out which tools, funders, or investors are suitable—and how to implement them effectively—can be overwhelming. Without clear guidance or the right frameworks, navigating this space becomes a major challenge.

The question arises whether can afford to overlook innovative finance. The related challenges are not insurmountable if there is unified support among NGO leadership to carefully consider appropriate instruments and mechanisms. Considering a declining government subsidy landscape, NGOs must explore new ways of working to retain their existing donor base and attract new supporters, focusing on increased transparency and the ability to demonstrate impact – two aspects that innovative finance enables.

Innovative Finance: The Holy Grail?

Does this mean that NGOs should abandon traditional funding and solely embrace innovative finance? The short answer is no, innovative finance is not the holy grail, and it cannot fix all financing or fundraising problems.¹⁷  However, it can radically shift the way NGOs are currently implementing programmes or financing their operational costs. Practically, this could mean re-thinking which rights holders to work with, how to bridge the aid-development nexus, or which outcomes to focus on — and to determine which outcomes are realistically attainable.

The catch? Innovative finance cannot become a goal in and of itself.¹⁸ Providing services that lead to lasting, long-term impact must remain the goal, and innovative finance can be a helpful means to achieving this. Keeping an impact-mindset also means that NGOs must promote interventions that are backed by evidence rather than seek to display a new financial product for publicity.¹⁹ This impact mindset means that the needs of the rights holders must remain central, rather than the priorities of funders.

Amid the evolving political and economic landscape that challenge NGOs with funding uncertainties, it is worth remembering that the emphasis on creating lasting impact is also growing. The GIIN estimates that there are $1.571 trillion USD in impact investing assets under management (AUM) worldwide, representing 21% compound annual growth of the total impact investing market since 2019.²⁰ As the drivers of change, NGOs now have a unique opportunity to re-think assumptions, forge innovative partnerships, and re-shape both funding models and implementation strategies, and in the process become less dependent on government subsidies.

NGOs: time to swim!

NGOs must take a strategic and thoughtful approach when considering innovative finance. While the landscape may seem overwhelming, many other organisations have already started this journey. Intermediaries, such as Social Finance NL, are available to help NGOs think through the long-term impact they aim to achieve and explore which innovative finance models might be suitable for advancing sustainable development goals more quickly and efficiently.

The time to act is now—those who choose to swim and embrace this challenge can pave the way for a more sustainable and impactful future.

The November edition of Impact InveStory – The Impact InvesTOUR focuses on resilience, adaptability, and the power of collaboration. This monthly platform highlights inspiring initiatives from around the world that contribute to sustainable and inclusive growth.

In this edition, Björn Vennema shares his personal journey in impact investing. In the blog “Impact Investing – A Means to an End,” he describes how he was involved in setting up the first Social Impact Bond in the Netherlands and the founding of Social Finance NL. He also reflects on the valuable lessons he learned along the way and offers insights into how impact investing can connect financial resources to social change.

Read the full article here.

In deze editie deelt Björn Vennema zijn persoonlijke reis in impact investing. In het blog “Impact Investing – A Means to an End“ beschrijft hij hoe hij betrokken was bij het opzetten van de eerste Social Impact Bond in Nederland en de oprichting van Social Finance NL. Daarnaast reflecteert hij op de waardevolle lessen die hij onderweg leerde, en biedt hij inzicht in hoe impact investing financiële middelen kan verbinden aan maatschappelijke verandering.

Lees hier het hele artikel.

Journalist Senay Boztas wrote an article about the Health Impact Bond Stevig Staan for the British Sunday Times.

The Health Impact Bond Stevig Staan reduces fall incidents among the elderly in North Limburg. At the beginning of October, journalist Senay Boztas wrote an article for the British Sunday Times about the fall prevention courses from this project aimed at preventing 3,940 fall incidents.

Read the full article online.

Below is the PDF of the version that appeared in the printed newspaper.

Governments are faced with a wide range of societal challenges, such as housing, healthcare, education, security, and climate. For these and many other topics, policies are developed, and budgets are set to determine how resources are allocated.

The most common method of financing within the government is paying for the services provided, regardless of the results achieved. However, if parties are paid for their services instead of their outcomes, there is a risk that the target group may not be optimally served. And that is unfortunate because resources are scarce and can only be spent once.

Outcome-based financing offers a solution to these challenges by linking funding to outcomes rather than the efforts of the executing party. Although this instrument offers many opportunities for more effective collaboration and financing, ten years after its introduction in the Netherlands, outcome-based financing is still a niche instrument within the government. Why is this the case? How does it compare to other countries? And where are the opportunities to deploy this instrument more impactfully?

In this report, we look back at ten years of outcome-based financing in the Netherlands, with a focus on Social Impact Bonds (SIBs), and explore best practices in other countries. From this, we draw conclusions on whether and how outcome-based financing should be embedded in policy.

As of July 1st, Social Finance NL welcomes a new face to its board: Myrthe van der Plas. Alongside Bernard ter Haar (Chairman) and Jeroen Rijpkema (Treasurer), she forms the three-person board overseeing SFNL’s mission and guiding the organization forward. Myrthe specializes in helping organizations and individuals increase their impact through data, strategy, and innovation. Currently, she serves as a Social Innovator at the Tax and Customs Administration in the Data Foundations and Analytics department, and manages her own foundation, Lakisama, providing education to children in Kenya. In her spare time, she practices karate and running, and occasionally enjoys knitting or crocheting her own clothing pieces. We asked her about her career journey so far and her new role at SFNL.

Can you tell us something about yourself?

I was born 41 years ago in The Netherlands (Kerkrade), and spent my entire childhood there until I moved to Nijmegen to study International Business Communication after a gap year in Barcelona. Missing the quantitative aspect, I subsequently pursued Econometrics in Amsterdam and Maastricht. During my studies, I worked part-time at ABN AMRO in Asset Liability Management as a quantitative analyst. Upon completing both degrees, I sought a combination of communication and econometrics, leading me to become a Data Analytics advisor at PricewaterhouseCoopers (PwC). In recent years, I have been responsible for the Data Analysis team in the public sector.

PwC is known for its commercial focus; how did you transition into the public sector?

In 2017, I took a sabbatical to Guatemala to volunteer, seeking purpose, which I continued upon returning by dedicating one day a week to volunteering at War Child. Subsequently, PwC offered me an opportunity to spend six months in Kenya training colleagues in Data Analytics and gaining insights into international development. It was a remarkable period where I explored more structured ways to contribute to society. Ultimately, this led to the establishment of my foundation, Lakisama, with a focus on education, as I firmly believe it is key to advancing people’s prospects there

In the meantime, you work at the Tax and Customs Administration. How did you end up there and what is your role?

Could you tell us more about the Responsible Business Simulator?

Sure! The Responsible Business Simulator is an approach that helps support decision-making. Take, for example, the question of how to sustainably deploy employees. First, you determine which elements are important, such as employee satisfaction, health, productivity, engagement, etc. Then, you consider where you could invest, such as in access to sports/physiotherapy, coaching, workplace fruit, self-determined schedules, etc. Next, you investigate the effects these interventions have on the elements you deem important. This way, you can quantify, substantiate, and engage in dialogue about the best choices. It allows decisions to be based on facts rather than gut feelings and promotes transparency about the choices made. The approach is also used for one-time calculations of decisions requiring broad support, demonstrating the effects of specific choices, like the roof renovation at Nemo and the procurement of a weapons system at the Ministry of Defense. Additionally, we quantified the societal value of football for the KNVB (Royal Dutch Football Association). Currently, at the Tax Authority, I’m exploring ways to make decision-making more transparent and easier for various issues.

Quantifying social value sounds familiar to us, of course! How did you come to know about Social Finance NL?

Even before the establishment of SFNL, Annemieke Roobeek had already introduced me to Ruben, and since then we have always kept in touch to exchange ideas on various topics. I’ve known Annemieke since we developed the Responsible Business Simulator together, executed projects with it, and co-authored related books. Our communication has always been ongoing, and with SFNL’s ambition to focus more on Data & Digital, Annemieke asked if I would be interested in a role on the board. A position was becoming available due to her departure. We discussed it together, and now it’s official!

What appeals to you about SFNL?

I find it very impressive what Ruben and Björn have achieved in five years. Not only have they attracted the right people, but the impact that Social Finance NL is making now, for example with impact bonds, demonstrates that gut feelings aren’t always accurate and that decision-making and financing can be approached differently. Moreover, SFNL contributes to a society where everyone gets a chance they might not have otherwise had. I see a connection with my own foundation and personal ambitions there. SFNL does this in a unique way. It’s impressive how much they’ve accomplished in such a short time!

My contribution lies in the areas where I have developed expertise over the past years: data, innovation, and strategy. These are the areas where I bring relevant experience and complement the other board members. Having worked extensively in advisory roles, I understand the challenges organizations face and can effectively collaborate with the management team. This aligns well with the current phase of SFNL: I feel comfortable and enthusiastic about my role. Fortunately, I immediately clicked with Bernard and Jeroen, as well as with the team, so I am eager to collaborate in building Social Finance NL further and creating even greater impact!

The new Dutch cabinet wants to abolish the Social Service Time (MDT). Social Finance NL and various political parties (CDA, CU) demonstrate the positive impact of MDT and speak out about this decision. MDT is an initiative for volunteer work and talent development among young people and, according to analyses, appears to have significant social value.

Read the entire article here on the Dutch News website.