(Illustration by Laura Marshall)
Both funders and nonprofits have long seen due diligence as a vetting exercise that primarily supports decisions to fund organizations or not. Yet when funders set about due diligence in the traditional way—assessing financial health, governance structures, and legal compliance through rigid, standardized procedures—they can overlook the realities in which nonprofits operate. This approach, which stems from a widespread corporate mindset, perceives risk primarily as a threat that funders should identify and mitigate, if not avoid. It also exposes a fundamental contradiction in the sector: Funders that adopt due diligence practices of the corporate world are often reluctant to embrace the same level of risk that profit-driven organizations take in pursuit of financial return. Due diligence then becomes a binary risk assessment based on criteria that are detached from the environments in which grantee partners operate, when it should be a meaningful exploration of organizations’ potential. And while its intent is rightly rooted in accountability, it has evolved into an overly complex process, particularly for grassroots organizations operating in resource-constrained or politically sensitive contexts.
As the philanthropic and development sectors’ awareness of these limitations has grown, so has consensus that funders need to fundamentally rethink the purpose and value of due diligence frameworks. What if funders viewed due diligence principally as an opportunity to develop deeper relationships with grantee partners? By shifting the focus from scrutiny to support, could philanthropy use due diligence as a catalyst for nonprofit growth? What would this transformation require from philanthropy? And what kind of practical changes could funders apply to their own compliance processes to ensure that their funding is effective and delivers meaningful impact?
Drawing on regular exchanges with nonprofits, peer funders, consultants, and researchers, AmplifyChange—a UK‑based funder supporting sexual and reproductive health and rights across Africa, South Asia, and the Middle East—identified three shifts philanthropy needs to make to meaningfully transform compliance practices. These include using new terminology, taking a strengthening-oriented approach, and adopting a different perception of risk.
1. A Shift in Language and Attitude
Deliberately training due diligence assessors to approach their work with empathy and respect can transform the assessment process into a constructive and trust-building experience. Placing the focus on learning, rather than ticking boxes and identifying weaknesses, reframes due diligence as a conversation where funders pay as much attention to organizations’ strengths as they do to areas for growth.
The language funders use throughout the process is therefore important. Jargon that emphasizes failings rather than opportunities for growth can create confusion and anxiety. It can also demotivate grantee partners and exacerbate power imbalances. Rather than “due diligence,” for example, funders can use words that demonstrate a genuine interest in potential partners, such as “getting to know your organization better.” They can also replace words such as “gaps,” “shortcomings,” and “findings” with more supportive terms, such as “areas for growth,” opportunities for improvement,” and “recommendations.”
Assessors should also strive to deeply understand an organization’s internal practices and culture. Many organizations have policies on paper that they rarely apply. Instead of yes/no questions, for instance, funders can incorporate open questions that allow potential partners to explain how they operate in detail and provide examples to help elucidate intent. Including meetings or calls in the process also gives organizations the chance to explain their processes and practices more fully.
Finally, whenever feasible, funders should engage locally rooted due diligence consultants who can offer deep contextual expertise, including knowledge of local nonprofit laws, applicable regulatory requirements, and local language fluency. Their involvement creates an environment where organizations feel more comfortable sharing information openly and candidly. It also indicates that funders recognize their limited understanding of the local context and are taking steps to address it.
In several African and South Asian countries, for example, it has become increasingly difficult for nonprofits to receive foreign funding without meeting rigorous registration and banking requirements. In one case, an organization based in Bangladesh completed its due diligence assessment, with a recommendation to the funder to approve the grant. However, it subsequently became clear that the organization did not hold the appropriate registration to receive foreign funding.
Hiring a due diligence consultant with strong local expertise from the outset could have prevented false hope and subsequent disappointment, and saved both parties considerable time and resources. This situation also presented a significant reputational risk for the funder, as it could have suggested gaps in its due diligence approach.
2. A Shift in Approach Toward Learning Together
When due diligence identifies areas where organizations’ structures and processes could benefit from improvements, funders should consider taking a strengthening-oriented approach that embeds local context.
Consider a low-capacity grassroots organization operating in a fragile setting—a conflict‑affected country or a country under an authoritarian regime. The organization works in an environment where corruption is widespread, formal banking systems are unreliable, staff face serious safety risks, their operations are subject to intense scrutiny, resources are scarce, and recruiting qualified personnel (particularly in finance and compliance) is extremely challenging. A traditional due diligence process would likely flag this organization as high risk and unfundable. Reasons may include the absence of robust governance structures, a heavy reliance on manual bookkeeping with unexperienced finance staff, a lack of essential financial policies and procedures, and weak internal controls environment.
Integrating these contextual realities into the assessment process helps funders identify the organizations most capable of driving lasting and meaningful change. With appropriate financial and human support, these organizations can strengthen their resilience by adopting tools and practices that help them navigate profound uncertainty. A strengthening-oriented due diligence approach, then, would ask: What support would enable this organization to thrive and effectively accomplish its mission? Generally, the answer is grantee-led, adaptable, and long-term capacity-building plans, which may include hiring an experienced consultant to support the implementation of new policies and processes, providing board and staff training, or acquiring an accounting system.
This approach helps lay a strong foundation for effective and lasting partnerships, but it should also extend far beyond the due diligence phase. By offering day-to-day support, being available to answer questions about donors’ compliance requirements, providing access to guidance repositories, and delivering capacity-building opportunities such as in-person and in-country convenings, funders can demonstrate their ongoing commitment to the organizations they invest in.
The evolution of Conseils et Appui pour l’Education à la Base (CAEB), an organization in Mali that supports community development and humanitarian programming, illustrates the success of this long-term, learning and strengthening-oriented approach. Since AmplifyChange provided CAEB with a $10,000 grant in 2017, CAEB has grown to manage its own regional fund, Dambe Fund. To implement improvements identified during its due diligence process, CAEB allocated part of its initial funding to organizational strengthening: staff training, acquiring IT systems and equipment, developing essential policies, reinforcing its governance structure, and participating in AmplifyChange’s in‑country convenings and virtual training opportunities. Over time, CAEB secured more than $5 million in long‑term funding from AmplifyChange, giving it the stability it needed to build a strong team of programming and finance experts, and making it a highly robust organization capable of attracting support from other donors. Before becoming a grant maker itself, CAEB staff shadowed the AmplifyChange team to learn from them and later adapted AmplifyChange’s internal processes to their local realities. This approach is especially strategic in countries where structural and security constraints limit access for US and European funders.
Another approach to continuous learning is actively soliciting feedback from partner organizations. Although many funders do this, feedback from nonprofits often suggests that funders do not always consider or fully understand their perspectives, particularly when there is no follow-up. Creating structured and dedicated channels for open dialogue—whether on platforms like Circle or WhatsApp, during in-person meetings or workshops, or via a survey provider—helps funders understand the evolving challenges and aspirations of grantee partners, and refine their operational workflows, internal processes, and decision-making accordingly. It also strengthens trust and transparency. These conversations should go beyond assessing the mechanics of the process itself and open up forward‑looking dialogue on topics such as opportunities for non‑financial support; issues related to equity, inclusion, and power dynamics; and long‑term impact and learning.
Engaging with other donors is also a powerful way to strengthen internal processes and uncover innovative grant‑making approaches. Practical, example-driven conversations—for instance, exchanging experiences on developing a common due diligence framework, exploring how artificial intelligence can support compliance functions, or comparing practices around risk‑tolerant funding models—can be especially valuable. Funders operating outside the region they fund should consider meeting with regional and local grant makers about their due diligence and financial monitoring processes to understand on-the-ground realities and considerations they may otherwise overlook.
3. A Shift in Risk Perception
Philanthropy must also acknowledge that grantee partners working in complex or hostile environments bear significant risks, including physical and security risks, psychosocial and well‑being pressures, community and reputational risks, and operational and financial vulnerabilities. Funders genuinely committed to achieving meaningful impact must be willing to embrace these risks rather than shy away from them. Doing so requires a shift in mindset, from risk aversion to risk-sharing, and a willingness to support organizations that may not meet the conventional standards of compliance but are nonetheless essential within their communities.
To be effective, funders need to develop thoughtful, proactive risk-mitigation strategies in close collaboration with in-country partners, whose local knowledge is invaluable to shaping solutions that truly fit the context. For example, formally registering an organization focused on LGBTI+ issues in Ethiopia is legally impossible and criminalized. If a funder requires that all organizations working on this issue are legally registered before it provides support, none will qualify—even though they might be the key to changing social norms and legal reform.
Openness to alternative approaches, particularly those shaped by local insights, helps funders build trust from the outset, and many practical and compliant options exist—including fiscal sponsorship, funding channels outside traditional banking systems like Wise or Amanacard, and support for legal pathways to register in neighboring countries. These forms of flexible support not only allow nonprofits to operate in restrictive environments but also give them a chance to grow, strengthen their governance and internal controls, and ultimately become more resilient. In these cases, embracing risk is not an act of recklessness; it is an organizational, strategic imperative.
Supporting the development of civil society organizations is essential to ensuring that they remain robust, credible, and impactful within their unique contexts, and the first step toward making that possible is a thoughtful due diligence process. Transforming due diligence requires more than a few small tweaks; it demands a fundamental reorientation of language, behavior, and strategy among funders. But when it is reframed as a collaborative process rather than just a prerequisite for funding, it becomes a very powerful tool.
Read more stories by Geraldine Moreno.