The use of restricted funds creates a mixed response from charities. Donors like them because they can be specific about what the money is used for whereas charities would prefer to use the money without restriction to give them more flexibility. Both have valid arguments but in fact restricted funds have a very useful place in charity funding.
There are many examples of new charities being set up following a high profile case, the most recent being baby Charlie Gard where over £1m has been raised and a new charity is being set up to help babies with similar issues to Charlie.
Whilst this is laudable my greatest concern is that a new charity absorbs both time and administration costs. There are more often than not existing charities with similar aims and objectives who already have the infrastructure and who thus can ensure that a larger percentage of the funds raised can be applied directly to charitable expenditure.
The argument goes that the setting up of the new charity gives the founders far more control over how the money is used but the whole point of a restricted fund is that the donors can still exercise that control to greater benefit. In any event the sector is littered with examples of "Founder Trustees" with a personal stake in the charity who lose sight of the broader picture. There are many successful examples too but if they really want the money raised to be most effectively used, why not make use of the economies of scale provided by an existing charity and work with them?
From the charity's point of view they struggle with funding because it is harder to fund general overheads than a specific project as donors want to see "their" funds used on "their" project. However, it is perfectly legitimate to allocate some overhead, particularly staff costs, to restricted funds when based on direct attribution to projects, either by time allocation or some other relevant basis. Clearly some overheads cannot be legitimately allocated to restricted funds but in truth, particularly with smaller charities where staff have varied roles this is quite possible.
So both donors and charities can be more flexible to make the best use of available resources.