Short answer: a restricted grant may be used only for the purpose, budget lines, period and conditions agreed with the donor. Unrestricted funding gives the organization wider discretion to spend in support of its mission. The label matters, but the signed agreement and approved budget control the real answer.
What makes a grant restricted?
Restrictions may apply to the project, location, beneficiaries, activities, cost categories, dates or results. A donor may fund a youth livelihoods project but exclude capital equipment, work outside one county or expenses incurred before the agreement starts.
Do not assume that “project grant” automatically means every project cost is allowed. Read the call, award letter, agreement, budget and amendments together.
What unrestricted funding can do
Unrestricted funding can help an NGO pay for needs that keep the mission working: leadership, rent, finance systems, fundraising, safeguarding, technology, reserves or early programme design. It is not money without accountability. The board must still approve spending, financial controls still apply and the expenditure must serve the organization’s lawful purpose.
| Question | Restricted grant | Unrestricted support |
|---|---|---|
| Who decides the detailed use? | Donor terms and approved budget | Organization within mission and controls |
| Can funds move between lines? | Only within stated flexibility or approval | Usually wider discretion |
| How should it be tracked? | Separate project records and reporting | Organization-wide records |
| What happens if plans change? | Check amendment rules before spending | Use governance and budget controls |
Five questions to ask before accepting funds
- What exact purpose and period are funded?
- Which costs are excluded or capped?
- How much budget movement is allowed without written approval?
- What evidence and reports are required?
- What happens to unspent money at the end?
Example: if KES 2 million is restricted to training 200 farmers, using part of it to repair the NGO’s office may breach the agreement even if the repair is important. Ask for an approved budget revision before changing the use.
How to manage both safely
Assign a fund code, preserve the approved budget, review actual spending monthly and store every written approval. Management accounts should distinguish restricted balances from funds available for general use. This prevents an apparently healthy bank balance from hiding money that is already committed.
Grant terminology varies between donors and countries. The Grants.gov terminology guide is a useful official U.S. reference, but your donor’s documents remain controlling.
Next step: use the free Grant Budget Sanity Checker to test whether costs, assumptions and restrictions are visible before submission. For other readiness tools, visit the Africads Grant Funding Toolkit.
