Burkhard Gnärig

28 April, 2015

Can disintermediation happen?

In his reply to last week’s blog post Ken Caldwell asks for a debate on how and when – and whether at all – digital communications will dispense with ICSOs’ traditional role of intermediary between donors and recipients. I agree with Ken: having this debate is both urgent and important. Many ICSOs bring donors from the Global North and recipients of aid from the Global South together and charge a percentage of the donation or grant to cover 07_Disintermediationtheir overheads. As the revenue from intermediary services is the main source of income for many of the largest ICSOs, I am surprised that so far no major debate about the risk of disintermediation seems to take place.

Ken raises important questions concerning donors’ abilities and preferences such as: “Does the donor feel confident in their own ability to assess and prioritise the projects they wish to support, and have the time to do so?” The answer for most donors will probably be: “no”. And if that is the case, this means that some involvement of a third party may be required. But let’s leave the donor for a moment. Let’s look at the situation from the recipients’ perspective.

Let’s take a local CSO in an African country. Often the organisation is highly dependent on a small number of foreign donors, in many cases ICSOs. If these change their funding priorities, the very existence of the local CSO may be under threat. Having direct access to – and depending on – a large number of individual donors rather than on one or two ICSOs is a much less risky option. And cutting out the ICSOs’ overheads means that a larger percentage of the individual donor’s support reaches the local CSO.

In this point individual donors in the Global North and recipient CSOs in the Global South have converging interests: both want the highest possible percentage of the funds to go to the project and the lowest possible percentage to stay with the intermediary. Therefore it is important to look at both donors and recipients when judging the risks of disintermediation. If donors and recipients can save a significant percentage of their funds by cutting out the middleman they will most probably do so.

Now let’s revert back to Ken’s question. Most donors will neither have the time nor the competency to judge the quality of a recipient of aid. But does that mean that the traditional 06intermediary role is still required? I doubt it. Over the last ten years we have seen new forms of intermediation emerging. Internet donation or crowdfunding platforms such as Global Giving provide more direct links between donors and recipients at a much lower price. We can also observe the emergence of monitoring instruments – for instance professional assessment of the recipient or exchange of information about a specific recipient by the donor community. The donor of the future will be able to assess potential recipients without needing to have the knowledge or the time to do this herself – and without having to pay a large part of her donation for that service.

This means: total disintermediation will not happen. Donors and recipients still need a medium to provide the connection and secure quality control. But this medium will be predominantly virtual with a much leaner infrastructure and much lower costs – “light” intermediation. Against this background traditional ICSOs may find it difficult to justify and to maintain their extensive material infrastructure, especially the part in the Global North.

In a recent discussion one participant said: “I don’t see disintermediation affecting our organisation”. What is your perspective: can disintermediation affect your organisation? And if so, what do you do to prepare for it?

  1. katefstanley30 April, 2015

    I agree that this is an ever increasing challenge for organizations in a more global community, where folks can connect their money to the issues they care about. One of the challenges consistently brought up for me abroad was that of CSO mission creep. In the need and haste to find funding, the small CSOs may have to make compromises to access funds and funders. One of the benefits of an ICSO is that it can find smaller CSOs in need of funds for their own desired activities because it has more of a financial cushion to weather the popularity of fad methods of development assistance. This allows small CSOs that see something working to find funds that can be applied toward those missions. There isn’t an easy answer, but one way for ICSOs to remain relevant will be for them to view local CSOs as clients- disintermediation is less likely in a situation where the client CSO finds value in being connected to the right donors for them through an ICSO with diversified funding sources.

  2. Rhianon Bader3 August, 2015

    Hi Kate,
    Thanks for your input. I just wanted to share a more recent post from Burkhard that also talks about disintermediation: http://disrupt-and-innovate.org/dealing-with-disruption/

    I think you are right that the ICSOs can continue to be of service to small CSOs, however the important thing, it seems, is that the large ICSOs are thinking about this risk and planning accordingly, instead of hoping that it won’t end up being true.

    Rhianon (Communications Coordinator, Disrupt&Innovate)

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