Grassroots NGOs Use Special Accounts to Raise Funds

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This article is part of our special issue on New Trends in Philanthropy and Civil Society in China (Summer, 2011). It looks at a fundraising mechanism that is increasingly being explored by grassroots NGOs not allowed to engage in public fundraising. The mechanism involves NGOs partnering with public foundations to set up a special fund within those foundations that would allow these NGOs to engage in public fundraising. This is a similar mechanism to the one used by Jet Li’s One Foundation, which was able to raise funds publicly using a special fund set up within a GONGO, the Chinese Red Cross. 

These cases highlight two interesting problems and trends particular to China’s philanthropy sector. One is the privileges given to GONGOs, like the Chinese Red Cross, and public fundraising foundations, like the China Youth Development Foundation, which are allowed to engage in public fundraising. In contrast, private, or what the Chinese call “nonpublic fundraising”, foundations and other grassroots NGOs, are not allowed to fundraise publicly, which severely constrains their ability to not only raise funds but also gain more awareness and legitimacy among the general public. Secondly, it shows that collaboration is taking place between GONGOs and public foundations and grassroots organizations. The former have often been criticized as being closely connected to the government apparatus, but the special funds mechanism shows a willingness among some GONGOs and public foundations to support grassroots NGO development. 

At the end of 2009, the China-Dolls Care and Support Association (瓷娃娃关怀协会) (hereafter China-Dolls) established the “Osteogenesis Imperfecta (OI ((Editor’s Note: OI is also known as “brittle bone disease” and is a genetic bone disorder.   The names of the funds associated with grassroots NGOs are also the names of the NGOs themselves.))) Fund” (hereafter the OI Fund) under the China Social Welfare Education Foundation (中国社会福利教育基金会). Since then, a series of special funds have been set up by the foundation for other organizations. In total, there are 24 funds, including some associated with well-known grassroots NGOs, such as the One More Kilogram Fund (多背一公斤公益基金), Baobei Huijia Charity Fund (宝贝回家慈善基金), and Beijing Yilian Migrant’s Fund (北京义联农民工公益基金)

Founded in 2008, China-Dolls aims to provide medical treatment and services for OI patients. Donations from caring individuals have kept the association running; however, it has struggled to find a constant revenue stream. Most foundations and businesses do not provide grants or financial support for OI patients. China-Dolls also did not meet the qualifications to raise funds from the public. “We had no choice but to raise funds through a special fund,” said the founder Wang Yi’ou. In talks with some of the larger public foundations, China-Dolls tried to convince them to help set up an OI Special Fund, but those efforts stalled because the foundations required one million RMB in start-up capital, which was too expensive for China-Dolls ((Editor’s Note: The vast majority of NGOs in China cannot raise funds in public. Only public foundations, like the China Social Welfare Education Foundation, and GONGOs, like the Chinese Red Cross, are allowed to fundraise publicly, which means they are allowed to solicit donations through the media, public billboards, and public events.)).

Coincidentally, Wang Yi’ou met Xiao Longjun, who is the Program Vice-Director of the China Social Welfare Education Foundation. Xiao Longjun recognized the needs of China-Dolls and spoke with them about creating a special fund under the Foundation. Later on, Xiao Longjun located other grassroots NGOs, such as the One More Kilogram Fund, Beijing Yilian Migrant’s Fund, and Baobei Huijia Charity Fund, and offered to set up special funds for them.

“Grassroots organizations really need this [special funds] platform, and they have their professional advantages, as they understand the needs of the people they serve and have a longstanding commitment to public service,” said Xiao Longjun in an interview. He and the China Social Welfare Education Foundation appreciate these qualities. In addition, he pointed out that “setting up the special fund will benefit our foundation’s development, and improve the plight of many other marginalized groups.”

The foundation’s involvement marked a turning point in the China-Dolls search for funding; however, once again, the China-Dolls faced financial difficulties when creating the special fund. “Technically, a special fund must have start-up capital,” said Xiao Longjun. At the time, China-Dolls had no money, Wang Yi’ou recalled. Later on, Xiao Longjun submitted a report to the board members of the foundation on the China-Doll’s situation. Eventually, the foundation made a special case for the China-Dolls and used 100,000 RMB from its own operating budget to set up a special fund for China-Dolls. From then on, the foundation required other organizations to have 100,000 RMB in start-up capital, in order to establish a special fund. In an interview, however, staff from the One More Kilogram Fund disclosed that the foundation had not requested any start-up capital from them either. In August 2009, after several rounds of discussions lasting half a year, China-Dolls and the foundation finally drafted the agreement to establish a special fund. That November, during a national conference for patients, China-Dolls formally announced to the public the news that it was setting up the special fund. With the additional 150,000 RMB in donations that was raised at the conference, China-Dolls was able to embark on a new path of development.

Embracing and Accepting Grassroots NGOs

To set up a special fund, the China Social Welfare Education Foundation has put forth some basic conditions. One is that the special fund’s development should be consistent with the foundation’s mission. The special fund must operate legally, and be in compliance with the foundation’s regulations. The foundation and the special fund also share a management committee to ensure the appropriate use of funds.

Special funds do not have their own or separate bank accounts; therefore, all of the publicly-raised money for special funds goes into the foundation’s main account. Furthermore, under the Regulations on the Management of Foundations, the special fund is required to reserve a percentage of the money raised for covering the foundation’s program and financial operating expenses. But to support these grassroots special funds, the China Social Welfare Education Foundation deducts only five percent of the publicly-raised proceeds to cover its operating costs.

“When the China-Dolls had just started up its special fund, we did not collect any fees; only later did we begin collecting a fee from them,” said Xiao Longjun. “Initially we wanted to lend our support to these grassroots organizations, not just one but a number of them, but eventually we could not afford to waive management fees for so many organizations.”

Wang Yi’ou, from China-Dolls, is also the Secretary-General of the Rare Disease Care and Support Fund. Shebelieves that the five percent management fee is a bit high and hopes that the fund could be exempted from the fee. At the same time, she also recognizes the additional work that China-Dolls has created for the foundation. Furthermore, the agreement between the China-Dolls and the foundation states clearly each side’s rights and responsibilities, thereby helping to maintain each side’s autonomy.

Covering the foundation’s management fee is not the biggest challenge for the OI Assocation. Wang Yi’ou said, “At present, what we really need to do is keep our own office administrative expenses within 10%, as required by the Foundation. But it is impossible for us to reach that level. The administrative costs of the organization are mainly for personnel and the rental of office space, for which we would need 40,000 RMB per month, meaning that we would need to obtain 4,800,000 RMB yearly. We cannot raise this much money at this early stage. Currently, China-Dolls has two offices in Beijing and Shandong with nine employees. Also, the public tends to donate more money to cover the patients’ operation and treatment costs and not the administrative costs of the organization. But this situation will change gradually. ”

Since the inception of the special fund, China-Dolls has maintained good relations with the foundation. Wang Yi’ou and Xiao Longjun both agree that this relationship has provided the basis for collaboration. The China Social Welfare Education Foundation also provides guidance to grassroots organizations and regulates the activities and finances of the special fund. However, “the foundation behaves less like a mother-in-law and more like a close relative,” said Xiao Longjun. The foundation is also receptive to criticism of its work and seeks improvement in those areas ((Editor’s Note: The term “mother-in-law” or “popo” is a reference to government agencies that oversee NGOs and interfere in their affairs. Here China-Dolls is saying that even though the foundation is a GONGO, it does not act like a government agency, but instead treats the NGO more as an equal.)).

In Xiao Longjun’s opinion, a lot of progress has been made in developing special funds and some special funds are even fully operational. In the future the foundation hopes to offer them even more support. “This is a gradual process, but it is possible that the special fund could operate on an even larger scale and be given significant autonomy,” Xiao Longjun said. “If possible, they could eventually be independent [of the foundation].” This would allow the foundation to promote the development of grassroots organizations, while also gaining public support. Such an attitude stems from Xiao Longjun’s emphasis on “embracing and accepting NGOs,” a perspective that has been lauded by several of the interviewees, including China-Dolls and the One More Kilogram Fund.

“At present the foundation manages the 24 special funds that are affiliated with it, but the foundation is still a relatively small organization and can continue to learn and develop,”said Xiao Longjun. “However big they might become, special funds set up by the foundation to benefit underprivileged and marginalized parts of the population would not be considered large.”

Nevertheless, Xiao Longjun believes one can expect special funds to improve their fundraising capacity, citing the underdeveloped philanthropic environment as a constraint. The foundation also hopes the special funds can promote team building and enhance fundraising capabilities.  At the same time, “these funds can be further integrated into the foundation,” Xiao Longjun noted. “It can evolve into a more professional platform for helping many more people.” China-Doll’s Rare Disease and Care Fund has so far raised more than one million RMB, far more than other special funds created under the foundation.

On the Vicissitudes of Foundation Special Funds

The establishment of the China Children Charity Foundation (中国少年儿童慈善救助基金会) in November 2009 attracted a great deal of attention. In June and July of this year, the Beijing Stars and Rain Fund, which helps autistic children overcome learning disabilities, and the Sun Village Fund, which provides services for the children whose parents are in prison, were two special funds set up under the Children Charity Foundation ((Editor’s Note: Beijing Stars and Rain (星星雨) and Sun Village (太阳村) are two well-known grassroots Beijing-based NGOs.)).

Sun Zhongkai, the manager of Beijing Stars and Rain explained, “Prior to its establishment, the Children Charity Foundation had been in contact with us. So, it was not difficult to set up our special fund, but it required one million RMB in start-up capital and this was far more than the China-Dolls’ minimum requirement with the China Social Welfare Education Foundation. Fortunately, we were able to come up with this amount of money and creating the special fund represented a great opportunity for us.” Sun added that the Stars and Rain Special Fund would help the NGO, which is registered as a business, solve an “explosive problem” resulting from use of a personal bank account, by allowing it to set up an organizational bank account. Stars and Rain also expects to start a fundraising team in the next year ((Editor’s Note: The “explosive problem” referred to here is common for nonprofits that register as a for-profit business, but use their personal accounts to accept donations, so they will not have to pay taxes on those donations.)).

The two [public] foundations discussed above, the China Social Welfare Education Foundation and the China Children Charity Foundation, have only been in operation a few years. Established in 2005, the China Social Welfare Education Foundation was not very active until early 2009, when the foundation brought in qualified people, including Xiao Longjun, to do their work.

On a different point, some of the foundations supervising special funds have been veteran public fundraising organizations. China Youth Education Assistance (CYEA) (视野中国 ) is an organization that works on promoting education and career opportunities for high school students in second-tier and third-tier Chinese cities. In July 2007, the CYEA created its special fund under a well-known public fundraising foundation, the China Youth Development Foundation (在中国青少年发展基金).

Interestingly, the CYEA and China-Dolls were members of the Non-Profit Incubator (NPI) around the same time. When the CYEA was looking to set up their special fund, they consulted with the China-Dolls.

Tian Yang, a staff member of CYEA claimed, “Establishing a special fund not only qualifies you to do public fundraising, but also gives you legitimate status as an organization and enables you to build trust with the big foundations and the relevant government agencies. It is even more important for our organization to obtain trust from the public than being eligible for public fundraising.” Tian Yang explained that the successful creation of the special fund depends on recommendations from people in the public welfare NGO world, proximity between the NGO’s work and the foundation’s mission, and approval from the China Youth Development Foundation’s leadership. He explained that the special fund also enriches the China Youth Development Foundation’s programs.

In turn, the China Youth Development Education Foundation is very supportive of the work of public welfare organizations, which helps make cooperation possible. The China Youth Development Foundation did not ask the China Youth Education Association for start-up capital, nor did the foundation charge a management fee, except when the money raised was for non-project related activities, for which there was an assessment of 5 percent of the total amount of money raised.

An Zhu from the [NGO] One More Kilogram Fund was astonished when the China Social Welfare Education Foundation first came to him to discuss setting up the special fund. He appreciated their generosity towards grassroots organizations. Today, setting up the special fund under public foundations is becoming more commonplace. An Zhu explained that he is pleased to see public foundations opening up to grassroots organizations and hopes this relationship will continue, so both sides can develop professionally.

In Brief

This article is part of our special issue on New Trends in Philanthropy and Civil Society in China (Summer, 2011). It looks at a fundraising mechanism that is increasingly being explored by grassroots NGOs not allowed to engage in public fundraising.
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