According to Rocha et. al. (2015), the types of transparency most crucial for improving the efficiency of fund allocation are:
- Management transparency
- Project details
- Source of funds
- Use of funds
Among these, transparency around the source and use of funds plays the most critical role.
Strong governance is essential for attracting long-term funding because funders prioritize investing in stable and credible institutions, not just individual projects. Good governance signals transparency, reduces risk, and builds trust, which is why weak structures often cause funders to withdraw. While accountability to donors has historically overshadowed accountability to communities, governments also play a key role in setting standards for transparency and accountability from all organizations.
Research shows that certain types of transparency, particularly around the source and use of funds, and clarity on management and project details, significantly improve funding efficiency. In contrast, transparency related to personnel, ethics, strategy, activity development, goal setting, and internal reporting does not have a substantial impact on resource management. This means organizations should prioritize clear reporting on where funds come from, precisely how they are used, and provide transparency on project-level decisions and leadership accountability.
Robust governance structures are vital for enforcing these transparency protocols, approving disclosures, and ensuring the ethical use of funds. A lack of transparency, weak internal controls, and inconsistent leadership deter donors. To gain donor confidence, organizations must establish clear policies and procedures that promote accountability, transparency, and operational stability, ensuring funds are tracked, reported, and aligned with agreed objectives. Ultimately, strong governance that emphasizes financial clarity, project alignment, and measurable impact not only ensures accountability but also acts as a powerful magnet for attracting and retaining long-term funding partnerships.
Strong governance is crucial for attracting long-term funding because funders prioritize investing in stable and credible institutions over just projects. Good governance signifies transparency, reduces perceived risks, and builds trust. While accountability to donors has often overshadowed accountability to communities, governments also play a role in setting norms and fostering accountability from both local and international organizations.
Research indicates that specific forms of transparency, such as management transparency, project details, and especially the source and use of funds, significantly improve the efficiency of fund allocation. Conversely, transparency around personnel, ethics, strategy, activity development, goal setting, and internal reporting does not substantially improve resource management.
Therefore, organizations should prioritize clearly reporting where funds come from, precisely showing how they are used, and providing clarity on project-level decisions and leadership accountability. Strong governance structures are essential to enforce these transparency protocols, approve disclosures, and ensure ethical fund use. A lack of transparency, weak internal controls, and inconsistent leadership deter donors. To build donor confidence, organizations must establish clear policies and procedures that promote accountability, transparency, and operational stability, aligning funds with agreed objectives. Ultimately, strong governance that focuses on financial clarity, project alignment, and measurable impact not only upholds accountability but also acts as a catalyst for attracting and retaining long-term funding.
Governments play an important role as essential stakeholders and regulators in the aid and development ecosystem. They have the power and responsibility to:
- Set national norms.
- Enforce openness.
- Foster conditions that require significant accountability from both domestic and foreign actors.
When organizations have weak governance structures:
- Funders may withdraw investment: Funders prioritize investing in stable and credible institutions, and weak governance implies instability, which can lead them to pull out.
- Donor confidence is jeopardized: A lack of transparency, weak internal controls, and inconsistent leadership raise red flags for funders, making them question whether their resources will be used effectively.
- Funding is deterred and jeopardized: Poorly managed institutions are unattractive to investors, making it difficult to attract and retain long-term funding.
- Ethical use of funds is not ensured: Weak governance structures fail to enforce transparency protocols, approve disclosures, and ensure compliance in the ethical use of funds.
According to the research, the forms of transparency that do not substantially improve resource management are:
- Transparency regarding personnel
- Ethics
- Strategy
- Activity development
- Goal setting
- Internal reporting to governing bodies
Beyond the Checklist – the role of strong governance in building trust and telling a story worth funding.
Why do the role of governance matters in attracting long term funding?
The answer is simple, funders are no longer interested in funding for projects, rather they are heavily investing in institutions, and good governance implies stability, credibility, transparency and reduces perceived risks. This is to say that philanthropic donors to hybrid organizations have evolved a unique strategy for handling challenges brought forth by these institutions, because weak government structures are one of the major reasons funders pull out from an investment.
Both local Civil Society Organizations (CSOs) and International Non-Governmental Organizations (INGOs) have long been criticized for their lack of accountability, especially to the communities they serve. Despite being vital players in humanitarian response, rights advocacy, and service delivery, these organizations’ accountability frameworks are still skewed largely in favor of donors and outside regulators. Nevertheless, this disparity in accountability is not unique.
Governments have an important role in shaping and sometimes reinforcing it as essential stakeholders and regulators in the aid and development ecosystem. Setting national norms, enforcing openness, and fostering conditions that require significant accountability from both domestic and foreign actors are all powers and, it could be said, responsibilities of governments.
According to Rocha et. al.( 2015) transparency significantly improves the allocative efficiency of NGOs but not all forms of transparency have the same impact. Specifically, four out of nine transparency variables which were used in her study; management transparency, project details, source of funds, and use of funds, are positively correlated with better fund allocation. Among these, transparency around the source and use of funds plays the most critical role in explaining organizational efficiency.
On the other hand, when it comes to perceived or actual financing efficiency, the other five factors; transparency regarding personnel, ethics and strategy, activity development, goal setting, and internal reporting to governing bodies do not substantially improve resource management. One of the crucial points highlighted by this distinction therefore states that, not all transparency is created equal. Stakeholder and donors are more inclined to believe in and fund NGOs that practice the following strategy;
- Clearly report where funds come from ( source of funds)
- Precisely show how these funds were used, and finally
- Provide clarity on project – level decisions and leadership accountability
Transparency in these financial and operational areas builds confidence in fiscal responsibility, which directly influences donor willingness to commit long-term funding. However, governance structures still play a major role in ensuring that transparency protocols are enforced, projects and financial disclosures are approved and ensure that there is compliance in ethical use of funds. Poor governance deter donors and jeopardize funding, no investor wants to invest in unstable or poorly managed institutions. A lack of transparency, weak internal controls, and inconsistent leadership raise red flags that pose questions in the mind of funders whether their resources will be used effectively.
To build donor confidence and ensure long term support, organizations must establish clear policies and procedures that promote accountability, transparency and operational stability. These systems should not only guide internal operations but also protect the interest of funders by ensuring funds are tracked, reported and aligned with agreed objectives.
Hence, strong governance ensures that the most relevant and impactful forms of transparency are prioritized and institutionalized. Boards and executive leadership must go beyond procedural reporting and focus on financial clarity and project accountability, the areas proven to enhance donor confidence and funding efficiency.
Transparency is only effective when it is paired with strategic governance that focuses on what matters most to funders; which are but not limited to financial clarity, project alignment, and measurable impact. Governance that priorities these pillars does not just uphold accountability, rather it becomes a catalyst for attracting and retaining long-term funding partnerships. Strong governance does not just tick boxes, it tells a clear, credible story of stewardship. This is what donors invest in.
Refrences
Hudon, M., Nyarko, S.A. and Szafarz, A., 2025. Ethical Funding and Good Governance: Does the Design of Funding Matter?. Journal of Alternative Finance, p.27533743251319539
Rocha Valencia, L.A., Queiruga, D. and González-Benito, J., 2015. Relationship between transparency and efficiency in the allocation of funds in nongovernmental development organizations. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 26, pp.2517-2535.
