Romania, August 15, 2003


Gabriela Gruia

Sustainability has long been a major concern for foundations around the world. For organisations in Central and Eastern Europe this is an issue that has arisen in the last decade, and is becoming increasingly important in light of the expected withdrawal of foreign donors in the future. Non-profit organisations, whether grantmaking or grantseeking, are exploring ways to increase their financial sustainability. Endowments are one important tool of the survival kit. How does the current legal and economic environment affect endowment building in Romania? Where can they be placed in the wider picture of sectoral development? What are the challenges and perspectives? These are some of the questions that this article seeks to answer.

Does the Legal Environment Allow for Endowments?
There is no specific legislation related to endowments in Romania. The possible sources of income for associations and foundations are stated in Government Ordinance 26/2000 on Associations and Foundations. Specific sources of incomes (for both associations and foundations) listed in the ordinance are: "donations, sponsorships and bequests [�], interest and dividends resulting from placement of available funds within the legal framework, [�]". The law does not suggest any other specific limitations for the use of certain types of funds in a certain way. Although the law on associations and foundations does not seem to specifically refer to endowments (as a specific type of donation), it allows for both receiving of donations and for investment of available funds, while interest and dividends are specifically stated as income sources for associations and foundations.

However, the current legal environment lacks any tax incentives for building financial reserves with investment income. There is little opportunity for Romanian foundations, and NGOs in general, to invest in securities and other financial instruments. One of the major issues is access to secure and stable investment vehicles and the financial management skills critical to long-term financial success. The banking system is developing into a stable environment; however, currency problems, as well as the general economic, legal and financial context make investments risky at times.

Are Endowments a Realistic Option?
Although not restricted by law, endowments in Romania do not yet benefit from a favourable environment. There are several obstacles to be overcome and they are not limited to the legal and financial frameworks. A major impediment is the overall economic situation, which ultimately is reflected in the sources for endowments and working reserves. Moreover, Romania is not in the fortunate situation of the Czech Republic, where the government allocated 1% of its revenue from privatisation to foundations for building endowments. Last but not least, philanthropy as a mentality is still in its incipient phases in Romania.

"When considering whether endowments are a realistic option in Romania, some of the key questions that come to mind include: Given the general need to develop philanthropy in Romania, would it be premature to try to raise endowments? Is the climate for giving sophisticated or rich enough? Are there any realistic sources? Are the avenues for investment safe and beneficial? Is there enough know-how in the NGO sector about developing and managing endowments? Given the enormous and immediate needs in Romania, would it be justifiable to raise funds for endowments rather than addressing immediate needs? My sense is that the response to most of these questions would be far from an overwhelming "yes". I would, therefore, suggest that NGOs strengthen collaboration to address the need to develop indigenous philanthropy, and that they focus on developing working reserves. At the same time, the NGO community could develop their know-how regarding endowments by learning from NGOs in other countries in the region so they become well-prepared for any possible and appropriate future opportunities," says Lenka Setkova, former Program Officer at the Charles Stewart Mott Foundation.

Are Working Reserves an Alternative?
Endowments and working reserves are not an either/or. Working reserves are an element of financial good practices; working reserves thus form a part of the sustainability strategy for any forward-thinking and professional NGO. "In order to ensure their future and to become sustainable, Romanian donor organisations as well as NGOs have to start building working reserves. The challenge consists in investing these funds, due to the fact that there are not many investment oportunities for NGOs in Romania, besides bank deposits and treasury bonds," notes László Potozky, Director of the Environmental Partnership Foundation. Aside from the limited investment opportunities, another challenge is the possible lack of financial skills. Robert Thomas, Director of the Project on Financial Sustainability of the NGO Sector in Central and Eastern Europe for the EastWest Institute, advises NGOs in Romania to invest their money in low-risk instruments.

Clearly, some of the building blocks that are necessary for building endowments are not in place. While the legislative system does not prohibit endowments, neither does it actively encourage them. At the same time, investment is hampered by a lack of opportunities, as Mr. Potozky points out, as well as insufficient general economic growth further restricting such opportunities, and a lack of understanding of the specific needs of NGOs on the part of the governmental, banking and commercial sectors.

What Can Romanian Civil Society Do?
Endowments are not the answer to sustaining NGO sectors anywhere in the world. They may be a source of potential income for NGOs - but only one source; moreover, both endowments and working reserves are part of the wider issue of sustainability. None of this, on the other hand, can be separated from the wider picture of sectoral and professional development of NGOs in Romania. For strategies on endowments to be effective, the sector needs to start preparing now: donors, individually and collectively through the Romanian Donors' Forum, need to begin to educate and explore, to start laying the groundwork; at the same time NGOs need to work on issues of cohesion, advocacy and, not least, marketing and image.

"Two key factors to financial sustainability are a favourable legal environment and economic growth. Romania lacks both of these ingredients. There is, however, reason for hope. The Romanian Donor's Forum is a professionally run organisation that attracts support from NGO leaders and others dedicated to the role of the non-profit sector. This vehicle allows committed, intelligent people to gather and explore innovative solutions to the challenges that face the NGO community. The future of the non-profit community rests on their ability to develop effective relationships with members of the public and private sectors and demonstrate the value of their contributions to the citizens of Romania. I remain optimistic that these dedicated servants of society will overcome the current obstacles and achieve success," says Robert Thomas.

Civil society organisations (CSOs) as a whole have an important role to play in creating an enabling environment. They may not be able to create the necessary macro-economic conditions for endowments, but there are other steps that can be taken. Among them, learning is crucial. The NGO community in Romania could develop its know-how by learning from NGOs in other countries in the region, suggests Ms. Setkova. "Funding vehicles in countries like the Czech Republic, Slovakia, or the Western countries have developed through a long process. Romania also has much to learn from itself. There are traditions of philanthropy that are re-emerging and we can also begin to identify the shoots of new models of philanthropy. The research which the Association for Community Relations and Allavida are undertaking currently will enable CSOs to recognise and use these to build their own sustainability strategies," says Jon Edwards, Programme Manager at Allavida.

The need to work on Romanian philanthropy, as pointed out by Ms. Setkova, has to be seen in the context of the development of the sector as a whole. This cannot be separated from the need for Romania to develop economically - and for the government to develop a legislative framework which not only supports, but actively encourages philanthropy at a micro (public giving) as well as a macro level (which can include endowments). It is part of the recognition which needs to be reinforced at all levels of government that civil society, through NGOs and others, is a vital element of Romanian society and can be a partner in development; also, society in general needs to be made more aware that NGOs make a positive contribution.

Gabriela Gruia is Coordinator of the Romanian Donors' Forum in Bucharest.
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The author would like to thank Jonathan Edwards of Allavida for his kind assistance in the preparation of this article.

First published in SEAL (Social Economy and Law Journal), Winter 2002-2003. See => .
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