Funding: the appeal of an exit strategy

It's an incredibly tough time for NGOs and charities, and many are having to rethink the way they do their work and secure funding. The UK not-for-profit sector faces an acute funding squeeze and the financial crisis has left many donors under pressure, particularly the big corporate foundations.

There's also pressure on NGOs to adopt a more entrepreneurial approach. Charities are being forced to explore new business models where enterprise plays a bigger, if not central, role in providing funding. At the same time, people are becoming more thoughtful about the charities they support, both in everyday life and in business.

We've noticed this at Allen & Overy in recent years when deciding which organisations to fund and offer pro bono support, and in choosing our global charity partner. While the enthusiasm for teaming up with a charity or NGO is as great as ever, people here worry about three things in particular. What proportion of donations actually gets spent in the field; how we can use our own skills to help create real change; and, above all, if the benefit we're providing is merely short-term or part of a genuine effort to find long-term solutions. In other words, are we helping to nurture short-lived dependency or creating something genuinely sustainable?

AfriKids, a child rights NGO which focuses on the communities of Ghana's remote upper east region, offers some answers. A majority of Allen & Overy staff chose it this summer as our new global charity for two years.

What attracted us to AfriKids was not only its cause – working in an area where one in nine children dies before the age of five and where most people are surviving on about $300 (£186) a year – but also its ethos and business model.

AfriKids – with some 170 employees, all but 13 are in Ghana rather than London – has set itself the goal of winding down its UK operation by 2018. From a business perspective, it's an incredibly bold strategy. But given all the challenges faced by the UK not-for-profit sector right now, it certainly looks like a compelling one.

AfriKids has a strong belief in rigorous financial controls and high levels of transparency. Perhaps more importantly, it insists that the projects it supports derive from the community itself, rather than be imposed from abroad, must be based on real local need, and must work towards becoming self-sustaining.

All of its projects are driven from the ground up. It's also setting up several social enterprises in Ghana to fund operations there, including a busy and self-funding hospital, an ethical trading and a planned eco-lodge that will not only attract tourists, but also provide training and employment. Then there is AfriKids Squared, a global consultancy, advising charities on how to reach their goals in the most efficient way. The consultancy income is used to fund AfriKids' work.

As part of the partnership, Allen & Overy is lending skills and time to help AfriKids extend the reach of its microfinance initiative from 700 to 6,000 women and help them plan the 2018 wind down. We're also supporting the Next Generation Home, a project housing and educating orphaned, abandoned or neglected kids forced to live on the streets. The aim is to raise them as employable adults who can live independently.

The results of the work are clear to see. The number of people registered for national health insurance scheme has spiralled and now 60,000 patients are being treated at the AfriKids hospital each year.

A school we visited is educating nearly 700 children with just seven teachers. There's a night school for street children and an IT academy is beginning to support itself by providing paid-for secretarial services.

There are good business reasons for AfriKids' success. The approach it takes is not that far removed from that of a private equity fund. It works on the ground to identify projects that answer local challenges, finds the right local partners, helps define targets and financing needs and plans an exit strategy, backed by rigorous business planning. It's a model that's working with AfriKids, and though a small organisation, perhaps larger development agents could learn a lesson or two here.

David Morley is senior partner at international law firm, Allen & Overy