In the worlds of business and finance, when someone makes an investment, they do not simply give that money away; rather, they expect it to generate a financial return.

In doing so, the lexicon of development is beginning to sound more and more like that of business. Suddenly ‘performance’ and ‘value’ apply as much to the work of non-governmental organisations (NGOs) as they do to stocks. And as funders begin to expect clear ‘development dividends’ from their giving in the form of greater social impact, their development partners in the NGO sector must either adapt or risk being labelled a bad investment.

First and foremost, funders want to see impact. In the past, they may sometimes have turned a blind eye to the work of their development partners; it used to be good enough to support a ‘good cause’ and just trust that money donated was having a positive impact on beneficiaries. Today however, in part because of the reputational risks and pressures that funders face, they now want more – and better – information about the impact of the work that they are supporting.

As a result, NGOs must become better at monitoring their work, identifying the positive changes that result from it, and reporting those outcomes to their donors. This does not mean simply reporting sanitised ‘success stories’ – as funders become savvier about social investment, they want harder facts, more data, more rigorous reporting, and more introspection.

Funders also want a clearer sense of value for money. They want to see that their contributions are being spent effectively, and are being translated into clear, measurable social benefits. Just like any consumer, social investors want more quantity, better quality, and more benefits, but at a lower marginal cost.

So, they are increasingly paying attention to the performance of their development partners, including the quantity of outputs they produce (think, the number of training workshops presented) and the scale of their outcomes (such as an improvement in pass rates).

Some funders are introducing complex monitoring and evaluation conditions to help them better-understand how their resources are being used, and to help them assess the developmental value of their giving. This sometimes results in more strenuous grant conditions for beneficiary NGOs, with more burdensome reporting requirements, as well as new procedures and standards that must be adhered to about how and when programme information is collected and captured.

While such conditions are common among international donor agencies and standard practice for large global development NGOs, they may come as an unfamiliar – and unwelcome – burden for local organisations that have long relied on corporate funding.

While some NGOs will bristle at this growing emphasis on ‘performance’, social investors are entitled to earn a developmental return on their social investment – and to share in the credit for it. Like it or not, acceding to funders’ rules and reporting requirements is fast becoming part of the cost of doing business.

Many NGOs will see it as an opportunity, however.

Social investors want to associate themselves with success. As in finance, social investments that can show a clear, consistent, and considerable return will be seen as better-bets – and attract more funding – than those that cannot.

The organisations that will benefit the most will be those that embrace this mindset shift among their donors and treat them like shareholders. They will inculcate a culture of performance and cost-effectiveness. They will report capably to demonstrate the value of their work. And they will become thoughtful learning organisations which use data and forward planning to increase that value – and thereby their funders’ return on their social investment – into the future.

Managing this shift does not have to be burdensome or expensive, but it does require dialogue. Remember, both funders and NGOs share the same end goals: to create highly-effective development organisations and to maximise the development impact of every rand spent. Funders should be up-front and clear with their NGO partners about their expectations, and initiate the discussion about successful change-management – and the associated costs – if necessary. Likewise, NGOs should have the confidence to communicate proactively with their donors, showcase their work forthrightly, and speak honestly about how to improve its effectiveness and impact.

– Michael Rifer is acting manager of advisory services at Tshikululu Social Investment. This article was first published on the Tshikululu Social Investment website www.tsi.org.za.