Donors support faith-based organizations whose missions and work cohere with their religious values. Might such donors located in the local community be less likely to donate to a hypothetical Madrasa, an Islamic seminary providing K-12 education, which receives funding from non-local sources, specifically the federal government or foreign donors? We examine this question using a survey experiment in Lahore, Pakistan. Because some Madrasa students have indulged in acts of terrorism, the government of Pakistan has offered Madrasas financial assistance to secularize their curriculums. Most Madrasas, however, have refused government funding because they fear it will harm their reputations in the local community for piety and religious training. Alongside, several foreign donors also provide funds to Madrasas, some to aid governmental reform efforts, and others for religious reasons. Based on the survey of 530 respondents, we find that acceptance of government funding does not diminish the respondents’ willingness to donate to the hypothetical Madrasa. Additionally, we find modest evidence that willingness to donate diminishes when the Madrasa accepts money from donors in Saudi Arabia and the United States (but not Germany).
This paper employs Oliver Williamson’s transaction cost approach to assess contracting. We find that donor contracting with global non-profit chains is conducive to NPO opportunism due to the asset specificity of the contracts, infrequent contracting, and the uncertainty of outcomes. These risks are further exacerbated by the weak enforcement mechanisms available in many developing countries. Williamson’s framework predicts that these risks would tempt donors to resort to the muscular approach, where they would exercise maximum control over the non-profit chain. Although competition would be a safeguard against the muscular approach, the donor landscape suffers from collusion and is monopsonistic. Our analysis suggests that while the current contracting and oversight arrangements might serve the donor procedural objective to exercise control in a sector marked by information asymmetries, these arrangements can undermine the primary objective of donors, namely responsiveness to beneficiaries, and ultimately, improved beneficiary welfare. We illustrate our conceptual analysis with short case studies of three Ugandan NPOs.