Kiva, Donor Idealism, and Why Most People Just Don't Care About "Investing in Nonprofits"

There is a fierce conversation happening right now around the difference between the perception and reality of how a Kiva loan works. The debate has prompted some pretty excellent commentary, particularly from Sean at Tactical Philanthropy. Unfortunately, I also think it highlights a fundamental misperception about why average givers behave the way they do.

First, the background. A number of posts lately by the likes of microfinance experts David Roodman and Tim Ogden have pointed out that the story Kiva tells to lenders about its process is a little different than what's going on. People's perception is that a developing world entrepreneur comes to a microfinance institution (MFI), the MFI approves them and requires a Kiva loan, Kiva goes out and finds us, and we fund the loan. In reality, the MFI's make the loans and then give Kiva the information about the borrower, which goes on the website.

The interesting thing is that the criticism is not about the method that Kiva uses. There is basically 100% agreement that its the most efficient, responsible way to do it. The problem is with the communication, and whether what Kiva is promising is different than what they are delivering. Perhaps more importantly, the question is whether donors are naive, idealistic, and deluding themselves about what they should expect.

The problem, theoretically, is that donors want their dollars to go directly to "the problem" rather than to paying for the nonprofit intermediary. This is definitely a huge issue of narrative - one which has been dramatically exacerbated by nonprofits who, in the absence of good strategies for measuring their impact, have too often turned to measure of inputs like percentage spent on overhead as an indicator of quality.

Sean suggests that the answer is, in part, that the nonprofit field's narrative needs to undergo surgery and focus on "investing" in high impact organizations. He says, "I would argue it is simply a process of changing the narrative. Personally, I can think of nothing so satisfying as investing in an outstanding nonprofit and vesting them with the power to make tough decisions. I don’t need them to reinforce my misperceptions to gain joy from the gift, instead the joy in my giving comes from becoming a part of the community that gives rise to an outstanding organization that actually has an impact on the world."

I think this is exactly the way that people who consider themselves "donors" - family foundations, people using donor advised funds, big givers, etc - can and should behave. I think that these "engaged" donors are open to this sort of narrative shift.

Unfortunately, I also think that it is totally counter to the psychology of the average giver who doesn't consider themself a "donor." This is the group that makes up - by far - the largest part of philanthropic giving, and I think that however well intentioned it is to think that you can shift their narrative to "investing in great organizations," it just ain't gonna happen.

The question is about motivation. Why do people give? An economist would tell you that the value of the dollars they give is less than the value of the feeling they get from contributing to something good. I think that's exactly right, and the important piece is feeling.

The vast majority of small donations happen because of a feeling. Something in their guts twists and turns at the injustice of the world and they do something to resolve the feeling. Someone they love is pouring their heart into a cause and they have an opportunity to support that. It's not selfless - it's the opposite, but in a good way. It's a small act of sacrifice that, when taken as a part of a larger whole, actually makes people feel more connected to others.

These feelings are the things, I believe, which get most people to pull out their wallets and make donations. The tough reality is that they are not subject to the rational calculus of a grant making institution (or individual who behaves like one). They want to know that what they're donating to is real, and that their money is going to go where they think it will, and that it will actually have an impact, but all of that is prerequisite to the giving, not a compelling reason to give.

The hard truth of relying on individual donations is that nonprofits are, at the end of the day, mostly barriers to the emotional reward, which is almost always related to the notion that you are helping some other human being lead a happier, safer, healthier life.

The impulse to give is embedded deep in our social DNA. The imperative to charity is a part of every major religion not by chance but because of how we understand the connection between a commitment to a higher being (outside of ourselves) and a commitment to others (beyond ourselves).

Nonprofits almost always have to do a bit of bait and switch. They make you angry about a particular injustice, and then when you're at your most enflamed, they present themselves as the answer. This is of course fine, but it also highlights something about the psychology of individual givers. What gets them fired up is not an institutional structure, but real people experiencing a real problem, and the notion that they can have a hand in doing something better.

What's more, I think people are savvy. I've felt for a long time that the language of "investing in effective nonprofits," or "thinking about investment instead of donation" is more or less doomed to fail when it comes to the masses of crowdsourced givers - an increasingly important piece of the philanthropic pie. While it may be nice to have that "investment" framework to think about positive growth and change over time, it also feels like a bit of a semantic trick; a wolf in sheep's clothes that is, at the end of the day, just a different way to try to capture donor dollars for nonprofits. I know of a number of organizations - some of which I like very much - who are trying to apply this language to get more young people involved in nonprofit work. The normal response that I've seen is deep distrust of anything that focuses on a shift in language instead of a shift in action.

We all want to feel like we caused good to happen. I just don't think that the wide array of donors who fund most of American civil society will ever be particularly receptive to the message that no, it's actually just the professional class of organizations that create change, but we'll take your money to do it.

Is it a big problem? Yes. Is the need for donors to feel that emotional reward often a stumbling block for effective action on the ground? Probably. Is it a problem that is here for good? Almost definitely yes.

At the end of the day, I think that all we can do is help great organizations find better, more compelling philanthropic experiences.

(Photo: "Charity" by Sir J Boehm, 1874. Photo by mira66)