In the framework of The Third Bank | Encyclopedia of Knowledge Enrichment for the Nonprofit Sector and our commitment to gain knowledge from a wide cultural and academic diversity, we present to our readers this translated and edited text from German, published by Center for Philanthropy Studies (CEPS) affiliated with the University of Basel, prepared by the prominent researcher Georg von Schnurbein.

The importance of this material lies in its provision of a historical and intellectual perspective on the emergence and development of nonprofit organizations (NPOs) in Europe, recalling prominent models such as the International Committee of the Red Cross and educational and welfare institutions established since the 18th century.

Publishing such studies reflects the Third Bank's message in diversifying sources and languages, embracing global experiences, while connecting them to the context of the Saudi nonprofit sector that is making rapid strides toward empowerment and professionalism under the Kingdom's Vision 2030.

What are Nonprofit Organizations (NPO)?

Some time ago, a Swiss radio station posed the question: What is the oldest nonprofit organization in the country? The answer was: The Catholic Church. This answer directly reveals the difficulty of defining the concept of a "nonprofit organization" and the boundaries of this concept between what is religious, social, or civil.

One possible way to define nonprofit organizations is based on exclusion: they are not entities aimed at the market for profit, nor are they directly part of government organization. However, this definition is broad enough to include even the church.

When we move to more specific criteria, the questions become related to the internal structure of these organizations, their funding methods, and the areas of their activities. Here, scientific attempts have emerged to formulate an accurate definition, the most notable being put forth by researchers Lester Salamon and Helmut Anheier in 1992, where they defined five basic criteria that must be met for an entity to be called a "nonprofit organization":

  1. It must be private and not governmental.
  2. It must have a minimum of formal organization.
  3. It must enjoy a considerable degree of autonomy.
  4. It must not distribute profits to its members or any other parties.
  5. It must partially rely on voluntary work.

This definition does not only focus on the negative aspect (that is, the exclusion of the market and the state), but adds essential structural elements that distinguish this sector and establish it as a standalone entity, combining independence, organization, and voluntary participation.

The Emergence of Modern Nonprofit Organizations

If we take this definition as a basis, the history of nonprofit organizations does not extend to distant eras, but rather begins just before the emergence of the modern federal state in Switzerland, closely linked to the ideas of the Enlightenment Era.

In the late 18th century, a number of European cities saw the emergence of what were known as assistance societies, which sought – in line with the Enlightenment idea based on the pursuit of happiness – to empower all citizens of the city to achieve a better and more dignified life.

Among the most prominent of these societies:

  • The Swiss Society for the Public Good established in 1810.
  • The Society for Good and Public Benefit in Basel established in 1777.

These two models established over the decades social and educational institutions that played pivotal roles in society, including: schools, libraries, kindergartens, health care facilities, and even banks and insurance companies.

These experiences formed the real beginnings of modern nonprofit organizations, bringing together humanitarian goals and sustainable institutional organization.

Different Legal Forms

With the formation of civil society in the 19th century, the basic forms that still characterize many nonprofit organizations today emerged. Alongside socially oriented associations, there also emerged:

  • Sports and cultural clubs,
  • foundations (Stiftungen) that focus on financing community issues,
  • cooperatives (Genossenschaften) that were established as a tool to help individuals help themselves, such as: Landi or Raiffeisen banks.

Over time, the legal landscape evolved, and nonprofit organizations came to exist in various forms:

  • associations,
  • foundations,
  • cooperatives,

but they were not limited to that, as new entities also began to appear such as:

  • nonprofit limited liability companies (gGmbH),
  • nonprofit corporations (gAG).

This expansion in legal forms reflects the flexibility of the sector and its ability to adapt to the demands of modern societies without losing its essence, which is serving the public good.

The Development of Nonprofit Organizations Over Time

It is naturally difficult to divide a diverse and complex sector like the nonprofit sector into clear time stages, as this may involve a lot of simplification. However, if we look at the relationship of this sector with the development of the modern state, it becomes possible to draw an approximate picture of its historical trajectory.

In the Swiss context, the development of nonprofit organizations since the establishment of the modern federal state can be described through four main stages:

1. Non-State Emergence (circa 1800–1860)

The first nonprofit organizations emerged in the early 19th century from the heart of civil society, either to organize private activities such as sports and cultural clubs and musical choruses, or to provide support for the poor, such as assistance societies, orphanages, and care facilities.

These initiatives were often spearheaded by individuals from the upper bourgeoisie, along with priests and nuns. Since most social obligations at the time were carried by families or the church, the state had little role in establishing or managing these organizations.

Funding came from donations, membership fees, and from institutions and the church, which enhanced the sector's independence from the state.

2. Semi-Governmental Stage (1860–1920)

With the development of the federal state since 1848, nonprofit organizations began to grow in size and influence, especially in social and cultural areas. They were no longer limited to local work; instead, they turned towards forming federations and organizations with national and international roles.

A prominent example is the International Committee of the Red Cross, established in 1863. It not only engaged in civic activity but also drove countries to adopt new laws and global humanitarian standards.

In the social field, these organizations contributed to urging the state to share the increasing costs arising from the effects of industrialization. However, many social and educational tasks remained in the hands of private organizations, which effectively set the first standards for care and education.

A notable instance is that the American Rockefeller Foundation established in France after World War I an organization to improve health standards, which later led to the establishment of the French Ministry of Health.

3. Integration with the State Stage (1920–1990)

Throughout the 20th century, especially after the two World Wars, the relationship between the state and nonprofit organizations strengthened. With the expansion of the welfare state, governments took on more social responsibilities, yet the nonprofit sector remained a key partner in implementation.

The relationship here became one of integration: the state funds and sets the frameworks, while nonprofit organizations provide services on the ground. Thus, a kind of functional division emerged between the state and civil society.

4. Influence on the State Stage (since 1990)

The last three decades can be described as the golden age of nonprofit organizations. They have received unprecedented financial resources, and the number of qualified workers and volunteers has increased, leading to a significant leap in the size of this sector.

The nature of the relationship with the state has also changed:

  • On one hand, the emergence of new public management has professionalized the relationship in service provision.
  • On the other hand, nonprofit organizations began exercising direct influence on the government decision-making process.

In the last ten years in particular, lobbying and advocacy activities have strongly emerged. It became possible – through influencing the allocation of public funds – to achieve results much greater than what could be accomplished through relatively limited private donations.

This historical overview illustrates that nonprofit organizations have not been mere marginal entities, but have played essential roles in shaping modern society, beginning with simple civic initiatives, through establishing care and education institutions, to their current capacity to influence legislation and public policies.

This long development shows that the nonprofit sector is not a secondary sector; rather, it is a genuine partner in development, keeping pace with shifts in the state, society, and economy, and sometimes even driving them towards adopting new, more just, and humane standards.

In the Kingdom of Saudi Arabia, where the nonprofit sector is experiencing unprecedented growth under Vision 2030, these European experiences can be leveraged to understand the dynamics of the relationship between civil society and the state, develop more sustainable funding and management models, while enhancing the impactful role of Saudi associations and institutions in societal and economic decision-making.

The publication of this translated material from the University of Basel through the Third Bank aligns with our mission to open up to knowledge sources from multiple languages and cultures, linking them to the local context in a way that enriches the experiences of those working in the Saudi nonprofit sector and enhances their capabilities for innovation and impact.