Israeli charity app won’t give to nonprofits’ overhead — huge mistake

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As covered in Haaretz,— a new charity phone app called “MyIsrael”— donates 4% of shopping with online UK retailers to end-users of Israeli nonprofit services. Especially for Israel’s social sector, this is a horrible idea.

While I sympathize with the popular prejudice against “overhead” and “administrative costs,” it’s an oppressive regime on nonprofits. What counts as overhead? Staff training so they can do their jobs better. Or compensating staff responsibly so they’ll stay longer and rise higher. Replacing old computers and updating the database. Or investing in better fundraising so that more money can be raised — even if it costs a higher percentage of the annual budget.

Dan Pallotta makes this point effectively in his TED Talk (see below). If increasing the percentage of overhead from 20% to 45% of an organization’s annual budget resulted in an after-overhead increase from $1 million to $100 million dollars towards the cause, then surely we’d tolerate higher administrative costs? We certainly should.

And in my experience, the Israeli nonprofit sector is even less well-tooled in administrative capacity, institutional memory and employee compensation than America’s. With a weak public culture of giving, it’s even harder to raise funding domestically and thus nonprofits rely overwhelming on overseas donors. (Professional estimates put 90% of the country’s third sector as foreign-funded by diaspora Jewry. This includes even hospitals, shelters, and the like.)

As an simple example, I recall American college students grilling some Israeli social change leaders. These average students knew to ask how a given nonprofit’s activities achieve its end goals. The Israelis were unable to articulate their theory of change clearly. Just as common, skills like office management, strategic planning and donor appreciation struggle upstream in a culture of greater spontaneity and anti-institutionalism. (Which have their advantages for sure.) The overall point is that if you ask any organizational consultant in Israel what Israeli NGOs need, it’s investment in both people and infrastructure.

If MyIsrael wanted to make a bigger difference, they’d dedicate all of their proceeds to only capacity-building, enabling their beneficiary agencies to “expand their pie” and raise more locally, do it better, and reach more end users.