Nongovernmental Organization (NGO): Definition and How It Works

Nongovernmental organizations (NGOs) are crucial in addressing global humanitarian challenges. These mission-driven entities operate independently from government control, focusing primarily on social, humanitarian, and environmental issues. There are about 1.5 million NGOs in the United States alone. Both in the U.S. and internationally, they are found wherever humanity’s challenges are greatest.

While their name suggests complete independence from government institutions, many NGOs receive some government funding alongside private donations and other revenue sources. This creates shifting dynamics based on levels of state support and the wishes of major donors.

This article explores what they are, how they operate, and their evolving role in international development and social change.

Key Takeaways

• Nongovernmental organizations (NGOs) play a significant role in international development, aid, and philanthropy.
• NGOs are nonprofits and may run budgets of millions or billions of dollars each year.
• NGOs rely on a variety of funding sources, from private donations and membership dues to government grants.
• Advocacy NGOs work to influence public policy.
• Some well-known NGOs include the American Red Cross, the Salvation Army, and Amnesty International.

What Is a Nongovernmental Organization (NGO)?

An NGO is a mission-driven entity that operates independently of government control, focusing primarily on social, humanitarian, or environmental issues. While most NGOs are nonprofit, they may receive funding from various sources, including government grants, private donations, and international institutions.

The term “NGO” was introduced in the United Nations Charter in 1945, highlighting their role as voluntary citizen groups working for the public good. Since then, NGOs have become influential actors in international development, advocacy, and humanitarian aid.

According to the World Bank, NGOs can be broadly categorized into two main categories:

• Operational NGOs: These organizations focus on designing and implementing development-related projects.
• Advocacy NGOs: These organizations promote specific causes by raising awareness, lobbying, and influencing policies. They work to shape the social and political landscape around particular issues.

These organizations operate at all levels (from local to international) and work to address issues such as poverty, human rights, health care, education, and environmental protection.

Types of NGOs

The acronym “NGO” serves as an umbrella term encompassing a diverse ecosystem of groups that have evolved to address specific needs and operational niches. As the nongovernmental sector has grown in complexity and reach, various subtypes have emerged that reflect differences in scope, funding sources, governance structures, and relationships with other institutions:

How Are NGOs Funded?

Financial sustainability remains a persistent challenge for many NGOs, driving innovation in funding approaches. Organizations increasingly combine conventional funding sources (bilateral and multilateral aid) with unconventional methods like microenterprises and impact investing.

Private donations from individuals, corporations, and philanthropic foundations often form the backbone of many NGOs’ financial structures. These contributions may range from small individual gifts to substantial grants from major funders like the Gates Foundation and Ford Foundation. Membership dues provide another reliable revenue source, particularly for organizations with strong constituent bases or professional affiliations.

Note

NGOs often engage in both operational and advocacy activities, combining direct action with efforts to influence broader policies and practices.

Many NGOs also receive significant funding through government grants and contracts. Despite their “nongovernmental” designation, these organizations often carry out programs aligned with government priorities in international development, humanitarian assistance, or social services. Large international NGOs may secure funding from multiple government donors, including agencies like the U.S. Agency for International Development (U.S.A.I.D.), the U.K. Department for International Development, and their counterparts in other nations.

The scale of NGO finances varies dramatically, from small community-based organizations operating on minimal budgets to international giants managing portfolios worth billions of dollars annually. BRAC, often cited as the world’s largest NGO, gives an example of the scale involved, with about 100,000 employees.

Government Support for NGOs

While some NGOs maintain strict independence from governments—Amnesty International stands out in this regard—others operate in close partnership with government bodies while still preserving their nongovernmental status. Government donors may have self-interested motivations, such as enhancing diplomatic relationships, projecting soft power, or improving their international image through association with humanitarian work. However, some critics point to government-organized NGOs (GONGOs) as examples where the line becomes so blurred that it constitutes no difference at all from government agencies.

Nevertheless, many receive funding from governmental sources without compromising their autonomy. This distinction is important—accepting government grants or contracts doesn’t automatically transform an NGO into a government mouthpiece or propaganda outlet. (Authoritarian regimes habitually trace down the smallest donation, no matter how indirect, to claim an NGO is but a tool of that state.) Most reputable NGOs maintain strict operational independence, regardless of funding sources.

Government funding for NGOs exposes these organizations to other political vulnerabilities that can undermine their stability and effectiveness. The Trump administration’s attempt to dismantle U.S.A.I.D.—a major government agency that has channeled billions in funding to NGOs globally for decades—illustrates this risk dramatically. As the administration moved to close the agency, the consequences weren’t just political and legal; thousands of NGO programs worldwide were jeopardized.

“The U.S. government’s decision to end thousands of aid programs will have devastating consequences,” said Tjada D’Oyen McKenna, CEO of Mercy Corps, an international humanitarian NGO, in a press release. “These programs not only saved lives, they prevented conflict and instability, and helped communities recover from crisis, reducing long-term reliance on aid.”

Thus, while government funding doesn’t necessarily compromise an NGO’s mission or independence, it creates relationships that political winds can push aside, often with little warning or recourse. This reality highlights why many NGOs pursue diversified funding models, combining government support with private donations, foundation grants, and corporate partnerships.

Below, we’ve broken down some of the major governmental and intergovernmental sources of funding for NGOs worldwide, along with the acronyms most widely used:

How To Form an NGO

Establishing an NGO requires careful planning, legal compliance, and a clear vision for the organization’s impact. The process begins with defining a specific mission and developing a detailed strategic plan that outlines realistic goals and implementation steps. This foundational work is crucial for the organization’s long-term sustainability and effectiveness.

The next phase involves assembling a committed board of directors with relevant expertise and passion for the cause. This leadership team should contribute diverse perspectives and skills while being unified in its commitment to the organization’s mission. Once this governance is in place, founders must select a name that reflects the organization’s purpose and draft comprehensive articles of incorporation and bylaws that will guide future operations.

Registration requirements vary significantly by country but generally involve submitting documentation about the NGO’s structure, leadership, and mission to the right government authorities. In most jurisdictions, this process includes filing specific forms with local or federal agencies and paying moderate registration fees. The complexity and timeline for this process can range from a few days to several months depending on the country’s regulatory environment.

After successfully registering, many NGOs apply for tax-exempt status, which provides substantial financial advantages and greatly improves their ability to attract funding. In the U.S., organizations typically apply for 501(c)(3) status by filing Form 1023 with the Internal Revenue Service (IRS). The application process often requires many hours to prepare and includes detailed information about the organization’s governance, finances, and programmatic plans.

Achieving tax-exempt status creates a dual benefit: the NGO avoids certain tax obligations, and donors can claim tax deductions for their contributions. However, this status comes with ongoing compliance responsibilities, including maintaining detailed financial records, submitting annual filings to regulatory authorities, and adhering to specific regulations regarding political activities and private benefit distributions. These accountability measures help ensure that the organization remains true to its charitable purpose and operates with transparency.

The Bottom Line

NGOs are an essential force in addressing global challenges. Operating at the intersection of public service and private initiative, these mission-driven entities navigate complex terrain, balancing independence from government control with the practical realities of funding partnerships, regulations, and operational challenges.

In both the U.S. and globally, NGOs have established themselves as essential players in complementing government efforts, driving change in humanitarian and development sectors, and addressing gaps in social services. Their adaptability has enabled them to respond rapidly to emerging issues, often going to places and working with populations traditional governance structures have abandoned.