Trust-based Grant-making and Restricted Grant-making are two distinct approaches to charitable giving. They each have different goals, outcomes, and implications for both the grantees and grantmakers. In this blog post, we will compare and contrast the two to help you understand and choose the approach that is right for you.
The philosophy for Trust-based Grant Making (or TBG), was first introduced by the Whitman Institute in 2014. Working from the feedback they received regarding how the Whitman Institute interacted with grantees, they began to build a model around trust-based principles in philanthropy.
In 2018, joined by the Robert Sterling Clark Foundation and the Headwaters Foundation,
Together, a project was conceptualized to encourage the trust-based philosophy throughout the industry. In 2020, the Trust-Based Philanthropy Project (TBPP) began. The project recognized that these underlying principles are already in place for many organizations. However, the project aims to grow that community to build better relationships between funders and grantees.
The TBPP is based on 6 core values:
- Work for systemic equity
- Redistribute power
- Center relationships
- Partner in a spirit of service
- Be accountable
- Embrace learning
When establishing grant-making practices, the TBPP encourages these values as a guide for decision-making. This will maximize relationship building, align goals, and build a structure within your organization. The values apply across four dimensions of your organization:
TBG is an approach that emphasizes the importance of building trust between grant-makers and grantees. The goal of this approach is to empower grantees to use funds in the way that they see fit, without the burden of strict guidelines and reporting requirements. TBG is based on the belief that granting organizations should trust their grantees to use funds in ways that are appropriate for their unique circumstances and needs.
The First West Foundation (“FWF”) in Langley, BC, is adopting a TBG approach. Modelling their approach after the TBPP, FWF granted three multi-year grants last year, and is looking to grow “this area through thoughtful conversations and fiscal stewardship”. Correspondingly. they have simplified and streamlined their grant cycle to make the application process more of a conversation instead of a potentially restrictive application process. In this way, FWF can ensure the application focuses on the need and creates impactful community partnerships.
Restricted grant-making, on the other hand, is an approach that places more emphasis on accountability and control. The Jitasa Group, a United States based organization that provides professional services for nonprofits, simply defines restricted funds as:
“Restricted funds are any donations made and earmarked for a specific purpose by the donor”
The grant-makers specify the purpose or use of the funds and expect grantees to follow their guidelines and reporting requirements. Examples of areas a grant-maker might specify could be research, salaries, scholarships etc. Restricted grant-making ensures fund allocation for intended purposes and impact accountability.
The Ontario Trillium Foundation (“OTF”) has a restricted grant-making process. Grant applicants must understand and adhere to defined processes, expectations and requirements throughout the grant process. In its 40-year history, OTF has granted more than $2.6 billion into 28,000+ grants in Ontario communities. In this care, OTF’s process and track record of impact clearly works.
One key difference between the two approaches is the level of control and accountability. Trust-based grant-making allows for greater flexibility for grantees to use funds in a way they see as most effective. Restricted grant-making, on the other hand, places more emphasis on control and accountability. This ensures fund allocation specific to the original intended purpose.
Another difference is the level of trust and empowerment. TBG is based on the principle of trust, where grant-makers trust grantees to use the funds effectively and efficiently. Comparatively, restricted grant-making implies a lack of trust in the grantee’s ability to use the funds appropriately.
Advantages and Disadvantages
Both TBG and restricted grant-making have advantages and disadvantages. The approach that is right for you depends on how it aligns with your goals and values.
Trust-based grant-making can lead to greater innovation, as grantees are free to experiment and take calculated risks in their use of funds. Consequently, this approach can also lead to stronger relationships between grant-makers and grantees, as it fosters trust and mutual respect. Alternatively, restricted grant-making is thought to have more concrete results and better accountability, as the use of funds is clearly defined and monitored.
For grantees, an advantage of restricted grant-making is knowing that certain portions of your programming have guaranteed funding. Alternatively, the flip side of this is the inability to reallocate and balance your budget as needed. Theoretically, a grantee with parts of their programming over-funded has funds sitting idle with no ability to reallocate.
Notably, it is important to realize there is no obligation to commit to one or the other indefinitely. Funds can be divided, with restrictions on only a portion. Eventually, once the grant-maker and grantee build a relationship and trust, restrictions can be adjusted or removed down the road. Stage gates can be defined by either time, performance or any factor the grant-maker determines.
Conclusion – All Grant-making is Positive
When you work with both types of grant-making, effective communication is critical. Open communication can help both sides navigate and make decisions that are in the best interest of the causes you believe in. Whether you choose TBG or restricted grant-making, the most important thing is committing to positive impact in the world. Either helps support the organizations and communities you care about and foster open communication with those whom you have invested in.
For more information on how Karma & Cents can help you choose the path that is right for your foundation, contact us today.