The late Obama administration envoy to Afghanistan and Pakistan Richard Holbrooke sparked an uproar when he indicated in 2009 that U.S. development assistance would be channeled primarily through local Pakistani NGOs, instead of traditional partners: American contractors and the government of Pakistan. The Pakistani government — one of a handful of governments receiving direct budgetary support from the U.S. government — vehemently protested. American development contractors faced the cancellation of contracts and became concerned about losing business in Pakistan, and their jobs. Even a USAID official leaked a dissent memo to USA Today, stating that "very few Pakistani firms and NGOs can currently satisfy the stringent management financial management audit requirements for USAID project funding."
Lately, the dust seems to have settled. Recently, the USAID Inspector General released an oversight report, detailing 54 awards worth $269 million that have been made to Pakistani NGOs. Last week, USAID Administrator Rajiv Shah indicated that the emphasis on NGOs is a general shift in the way that USAID does business — not just in Pakistan, but around the world: "We are now at a point where nearly 40 percent of our funding goes to non-government organizations. And in each of our countries, through all of our missions, we’re setting specific targets so that we can increase the percentage of support that we provide to local organizations and local entrepreneurs and local NGOs."
The push towards partnering directly with local NGOs makes sense, at least in theory: locals understand their needs, their context, and potential solutions better than foreign contractors, and do not have the high overhead and security costs associated with Americans working abroad, especially in hostile environments. Funding them directly can also increase the profile of U.S. assistance with local NGOs, and promote local ownership of aid projects.
The initiative makes particular sense in Pakistan. The people of Pakistan consistently get a bad rap for not doing enough for the welfare of their country — they rob the country of precious national resources by not paying their taxes and are destroying it from the inside through extremism and violence. Yet, Pakistan deserves credit for its vibrant civil society: the value of local philanthropy, at $1.6 billion, exceeds current U.S. development assistance, at $1.5 billion annually for 5 years. In 1998-1999, according to the last major study of the issue done by the Pakistan Centre for Philanthropy, which certifies NGOs on behalf of the government, Pakistan donated the equivalent of 17 percent of national revenue or 1.25 percent of GDP, with 200,000 people volunteering their skills full-time in 2004. And local giving is perhaps more efficient and sustainable — devoid of overhead costs and fluctuations in political commitments — than foreign aid.
And Pakistani-Americans may be shocked to know that the value of their charity to Pakistan, albeit in dollars, is no match for the rupees that Pakistanis are giving back locally: according to a study done by Johns Hopkins University and Agha Khan Foundation in 2001, only 0.59 percent of funding for Pakistani NGOs comes from individuals outside of Pakistan. According to another study led by Dr. Adil Najam at Tufts University, Pakistani-Americans gave $1 billion in 2005, of which only 40 percent went to Pakistan — mostly to needy individuals directly instead of NGOs, due to mistrust and a lack of awareness among Pakistani-Americans about good locally-initiated organizations.
The irony, then, is that while Pakistan has one of the lowest tax-to-GDP ratiosin the world, it has also been rated one of the most charitable, suggesting that some Pakistanis are evading their taxes, not out of a disregard for public welfare, but because they believe that public funds are misused. (Of course, there are also Pakistanis, particularly among the elite, who are evading their taxes, simply because they can.)
So if Pakistan has such a vibrant civil society, can the U.S. simply inject aid into local NGOs to realize better development, and public diplomacy, outcomes? It turns out that aiding civil society is not that simple.
First, non-governmental organizations come in so many different flavors that the term "NGO" is meaningless as a basis for debate, discussion, or policy. For example, while Pakistanis are actively building schools and hospitals, and delivering post-disaster relief, largely through NGOs, many of them refuse the label of "NGO" and it is very negatively perceived by the Pakistani public. The term "NGO" can be as much an object of scorn and suspicion as government efforts, because it is not associated with locally-initiated work, but with foreign-funded organizations, known for their perceived elitism, high material comfort (high salaries, fancy offices, expensive cars), and lack of visible signs of work. There are also suggestions of corruption and cronyism within the government- and foreign-funded NGO sector.
Similarly, the government of Pakistan employs the term in confusing ways. Prime Minister Yousaf Gilani and other Pakistani officials have taken a strong public stance against channeling aid through NGOs, repeatedly stating that the groups will siphon off half of aid money. But such objections are based on the perceived performance of foreign and international NGOs, such as the United Nations and their subcontractors, making it an ill-fitting response to U.S. proposals to fund "local NGOs."
Fortunately, research has been done to clarify this mass confusion, and suggest more specific terminology.
Oxford researcher Masooda Bano has suggested a distinction between NGOs based on their source of funding: foreign or local. In "Dangerous Correlations," a survey of 40 prominent NGOs in Pakistan, she finds that foreign aid may have a corrupting effect on Pakistani NGOs. She finds that foreign-funded NGOs are often set up in response to the availability of aid, have high material incentives — high salaries, nice offices, and expensive cars — are primarily responsive to foreign donors over local needs, and have no civil society value, evidenced by a complete inability to mobilize local volunteers and funds. By contrast, locally-funded organizations are set-up in response to a public problem, motivated by the needs of a clear beneficiary population, and depend on the support of local donors, translating into visible results. They tend to have a core group of volunteers, modest or borrowed office space, and NGO leaders invest their own money in the organization rather than being compensated for their work.
Locally-funded organizations also face difficulty absorbing aid. In Bano’s study, various organizations reported nearly collapsing due to the influx of aid, difficulty retaining sincere workers and instead attracting individuals interested in personal gain, and a reluctance among local donors to continue support, under the view that aid made their support superfluous.
The challenge then, for foreign donors, is to fund Pakistani NGOs without turning them into characteristically foreign-funded organizations. Fortunately, Bano agrees with my recommendation that this can be achieved through aid grants that are small and flexible, to support the existing or self-defined work of reputable local actors. Grants that are small relative to the size of local organizations ensure that aid will not distort their budgets and incentives or displace the local support base.
My interview with the head of a foreign-funded Pakistani NGO in January 2010, who did not give permission to be named, reinforced Bano’s research. She told me, "We can handle $2 million very efficiently, but if you give us $20 million, we become corrupt. The problem is that USAID comes up with huge contracts, perhaps $90 million, and we don’t have that capacity. It would be more effective to give that money to 100 good grassroots organizations. The problem is not our capacity, but yours."
Fortunately, some good research has been done on this sector, by Johns Hopkins University and the Agha Khan Foundation. Moreover, the Pakistan Centre for Philanthropy publishes a directory of 131 local NGOs that have been rigorously evaluated according to transparency and management standards. (They use the term "NPOs" or "Nonprofit Organisations" instead of NGOs.)
There is an added bonus to working with locally-funded NGOs in Pakistan: while USAID branding has been a hot debate between the agency and its contractors, Pakistani NGOs and local leaders building schools, hospitals, and major infrastructure, who I interviewed last year, had no qualms about branding projects receiving U.S. assistance. To my surprise, they brushed off perceived threats to U.S-labeled projects: they already brand schools and hospitals for their local donors, it would only be fair to offer the same recognition and appreciation for U.S. assistance. One local politician even suggested he would gain favor for attracting American assistance to alleviate public problems in his city.
So asking if we should aid NGOs directly is not enough. The critical question is who, in this vast sector, do we partner with, and how? Sending aid dollars, in measured amounts, to the same NGOs that Pakistanis are trusting billions of rupees with, is one good way to see development and public diplomacy returns on foreign aid money in Pakistan.