Disintermediation, or re-mediation, is nothing new in the charity space.
The market for charity donations had long ago experimented with direct donation model – donations going directly to the beneficiary.
The principle is simple. Any money collected then gets paid out to the specific beneficiary chosen by the donor – in as intact and admin-light form as possible.
To simplify the proposition for the donor, administrative and operational costs are supported by other means via corporations, foundations and other structural funding. This means that 100% of the donation (more or less) should reach the chosen cause, rather than being diluted and siphoned off along the way: “Direct Donation”
Our interest, in this post, is to briefly critique this trend from the standpoint of improving the donor experience.
Kiva.org, was an early trailblazer here, aiming to help donors fund projects through loans to people without access to traditional banking systems.
Through surfacing available microfinance transactions, prospective donors choose projects, which are provided as beneficiary loans – and then assuming the project is successful, the beneficiary repays the loan. 100% of donor payments go towards supporting Kiva’s loans. Funds for Kiva’s admin and operational costs are held separately to donor funds and raised through other means.
The direct engagement of the donors here though is a bit of an illusion here as they aren’t so much funding their chosen individuals but instead reimbursing lenders for transactions that have taken place – most loans are in fact pre-disbursed.
The beneficiary will have already received the money before the “crowdfunding” begins. For a donor-accountability purist, Kiva are playing a little fast and loose with concept of donor accountability. Furthermore, there is a suspicion that only projects with secure funding or whose Field Partner has a solid record appear to go ahead.
That said, these issues haven’t hindered Kiva. They’ve reached over 1.4 million lenders and granted $845,100,000 to almost 2 million borrowers since 2005 – with an apparent loan-repayment rate of 98.35%.
HandUp, is a more recent social crowdfunding startup working predominantly with the homeless. It operates with greater impact-transparency and arguably clearer donor accountability. Again, a Direct Donation model is evident as 100% of the donation goes to the beneficiary thanks to corporate subsidies. Its model for raising operating funds is through discretionary ‘tips’ from donors.
On this model, donors choose to directly support specific people and the individual cases and needs they put forward, and build highly personal relationships with the people they support as they convey a message to the beneficiary, as well as receiving (privacy-protected) messages back through the platform.
The way HandUp works means that funds are put toward smaller, often more specific, personal and often tangible needs – college funds say, laptops or much more basic subsistence costs.
But where HandUp really excels perversely, is in mediation!
Although HandUp is a B-corp, its causes are verified by registered local charities (co-called Partners) who act to recruit ‘Members’ (their beneficiaries) and help them redeem their funds from HandUp and use them as proscribed.
At the time of writing they have given out $1.23 million to 29 partners and are working in 26 cities, having helped almost 2000 members – that’s an average of $600 per press helped. Shared out in 2-3 tranches per member, as they reach key funding need- thresholds.
There are risks here though! In some, if not most, cases HandUp may simply be creating as an administrative overhead to local charities who are actually providing both the local services and the staff time to help their nominated members to access their new funding. HandUp is arguably just acting as a rather over-engineered, over-mediated Foundation.
The hope though, is that given its growing brand power and fundraising leverage, HandUp’s funding will be truly additive; that the costs of platform integration and education will be diluted over time; and that the new level of accountability – both financially and experientially will build trust and social cohesion. As well as transforming real deserving lives.
As HandUp grows and matures as a platform brand in its own right, it will be interesting to see whether contributions actually try to bypass its direct accountability proposition and just give to HandUp’s own ‘national fund’. These stand and around a 4% level today. This will tell us some interesting things about donor psychology. And the power of brands.
Finally, GoFundMe is arguably the most visible and successful example of a Direct Donation model. And it focuses much more firmly on the beneficiary…
Although not strictly limited to charity fundraising, the majority of its campaigns are individual and charitable causes. Not only do 100% of donations go to the beneficiary, although goals can be set, there are no deadlines and achievement isn’t mandatory before allocation. There is no ‘Return Rule’.
Projects thus get all the money they raise regardless of whether they reach their desired target and whenever they come in. It does deviate slightly in that the runner of the campaign runner gets charged a small fee per donation – which in effect is taken from the donation. Although the donor themselves is never charged the claim that projects receive 100% of the donation still rings slightly hollow.
That hasn’t stopped millions of users raising over $2billion for good causes since 2010.
Across all these approaches, the Direct Donation model ensures that, most importantly, the cause remains the sole beneficiary of any donation.
Research suggest that donors do tend to give more money to projects operating a Return Rule, the fact is that over time, less of those causes reach their goals and many projects go unfunded.
Whether a Return Rule like Kiva wins; or a Direct Donation model like GoFundMe remains to be seen. We are watching the ‘space’ with interest.
Alex is a Digital Content Coordinator at Copper