Sunday, January 27, 2008

The problem we'd all like to have...or would we?

There is always a bit of a wink and a nod when philanthropists, foundation staff, or foundation board members tell other people what they do - "We give money away" or "We put capital into making society better." Often the other person will wink and nod and say, "I'll take some" or "Gee, tough job" or something to that end. And then the philanthropist falls back on the old canard (credited to John D. Rockefeller), about it being easier to make money than to give it away, or, as was recently noted in the gossip column of the San Francisco Chronicle:

"I was doing all this philanthropic stuff, and then I just thought, f- it, it's just a lot easier to make money."
Man chatting with woman, overheard at Fillmore and Sacramento

But sometimes, as in the case of as reported in today's New York Times, the level of interest in giving money away actually does become a problem. Rob Walker's Consumed column in the Times Magazine is titled, "Extra Helping" and it looks at what happens when the "supply" of people that want to loan funds to entrepreneurs through Kiva overwhelms the "demand" side - the number of vetted entrepreneurs and their projects/enterprises.

Walker looks at the media attention that Kiva has received and seems to focus on the growth in supply as a result of a great system, good PR, and terrific media attention. He also touches on the fact that Kiva issued more than $2 million in gift vouchers over the holidays, and needs to make sure they have viable investment opportunities available when donors come looking to cash those in.

Walker hints at, but leaves us hanging, on a couple of other key parts of this equation, so here are my questions after reading the piece. They fall into two categories, demand and supply (for and of capital, that is).

  • It is hard to find and vet "safe" investable entrepreneurial projects around the world - the due diligence is time consuming, has many layers of reporting, and involves real humans, not just "inventory" - are there more efficient ways to share information on these opportunities (in both Kiva's sweet spot - social enterprise - and the rest of the social good industry - meaning public benefit companies, nonprofits, NGOs, and in some cases public sector options - see donorschoose, for example)
  • How can the system move to a next tier of funding for these enterprises - from initial angel funding such as Kiva provides to early stage social venture capital for SMEs, for example?
  • Kiva's temporary solution - get more investors by capping the size of individual investments - is an interesting twist. Is it good for the enterprises in the long term or not? What does it mean for Kiva in longer term to have to package many more small gifts into investments? Greater diversity and reach of support, but much more work on each deal.....?
  • Why are donors so interested in this model? Is there something sustainable in their interest and, if so, how can it be expanded to other sectors?
  • Does the interest rest on the global nature of the enterprises, or could domestic emerging markets be served by a Kiva-esque system?
  • What do we know - and what do we need to know - about the capital suppliers who use Kiva that will help us better understand 21st century philanthropy and social enterprise ?
Last night I was on a panel with two venture capitalists talking to the board of a foundation. The topic was "philanthropic capital markets" - how they work, how they are changing, where this foundation might fit into them, and what else we need to know. Given the Kiva story and the great discussion last night, as well as lots of other interesting work, I guess it is time to update the book. Which I'd like to do through a wiki - (Code 2.0 is a model of what I have in mind). Anyone want to help?


Michael Moody said...

Thanks for this post. I had many of the same questions today reading that piece, and wondered too about whether Kiva's solution of capping was good at a field level--do we want more donors giving less (who might then start giving more elsewhere down the road), or do we follow the rule that says never say no to money when it is offered (esp. by new donors).

Answering this comes down to the issue of knowing more about the donors who make up the increased supply. Are they attracted to Kiva and only Kiva, so they won't migrate their other giving elsewhere if they can't give all they want to Kiva? And if they go elsewhere, do they look for the same due diligence as Kiva, or might they be willing to give through another site (even a microfinance branded one) that feels as trustworthy, and has the nice photos and stories also, but doesn't promise the same due diligence? If so, what would this mean long term? As I said, we need to know a lot more about those donors to know how to make sense of what's happening.

Still, it's a good problem to have, I think. (Some might disagree, esp. if this does indeed lead to more giving to less careful sites).

Thanks for framing the questions so well.

-Michael Moody

Anonymous said...


I would love to contribute. I have looked at the question of philanthropic marketplaces primarily from a technology perspective but I like to think I have been nuanced in my thinking :) .

-Steve Wright