The Long Tail of Philanthropy

by Fred Stutzman
June 25, 2007

Web 2.0 technologies are impacting many of our lives in interesting ways. Whether it be the broadening or deepening of friend relationships with social networks, or the sharing of our thoughts and opinions with blogs, many of us have been impacted by the Web's social revolution. The Web is evolving into a tool that fundamentally feels right to humans, and many people are taking note.

One of the more interesting areas where we see the impact of Web 2.0 tools and methodologies is in the online philanthropy space. Of course, organizations dedicated to doing good have been involved with the Web since their earliest days--the Web's unique ability as an outreach and fund raising tool has proved very attractive to these organizations. With the advent of the social web, however, we are seeing new and interesting developments in this space, which I'll explore in this article.

Using Networks To Do Good

Forward-thinking philanthropic organizations have long relied on networks to sustain their missions and accomplish their goals. Networks are required to mobilize, to spread information, and to raise the funds necessary to move organizations forward. The Web has long fostered the creation and maintenance of networks; even before Web 2.0, our web communities were inherently network-centric. With the advent of Web 2.0, the notion of the Web as a set of connected networks became more prevalent; as a result, philanthropic organizations are using the Web in new ways to organize those looking to do good.

Browsing the home page of Change.org, I am asked "What do you want to change in the world?" and presented a search box. Below, a list of issues is displayed as a tag cloud--issues such as universal health care, stopping child abuse, and protecting civil rights appear prominently. The purpose of Change.org is to bring together individuals who share a common issue or interest, and then provide them all the tools necessary to go forth and work on their cause. From the Save Public Broadcasting page on Change.org, I can find out about fellow supporters of the issue, explore educational resources, find politicians friendly to my issue, and find organizations to which I can donate.

Project Agape, a similar organization, seeks to take advocacy to the next level by embracing the viral concepts of the internet. They recently launched the Causes application on Facebook, which has proven to be one of the most popular applications on the platform. Using Project Agape's Causes, one can share the causes they support, while recruiting fellow supporters and donations. In a sense, this makes the philanthropic process somewhat like a networked game--Changes allow you to easily display your achievements in friendly competition with your others in your network.

Of course, this is but a small sample of the many organizations using the Web to lower barriers to do good. For example, San Jose, California-based Cnow.org uses the Web to connect prospective donors with charities that match their interests. Cnow leverages friend networks to connect individuals to donor organizations, at the same time making the donation process effortless. As charities embrace Web 2.0, we see them opening doors to a new class of potential donor--the long-tail donor.

In this article, we're going to explore this long tail of philanthropy, and how philanthropy is being changed by Web 2.0. We'll take a special look at an organization named Kiva.org, which has a website that enables individuals to extend microloans around the world.

The Long Tail of Philanthropy

Kiva.org is a website that connects entrepreneurs who need small loans with individuals who will lend them money. The entrepreneurs are from all over the world, and the loans are generally very small--they are called microloans. To illustrate this process, I'll introduce you to a recipient of microcredit, Theresah Alipyah. Theresah is an entrepreneur who lives in Ghana, in a village named Katapo. She sells porridge in Katapo, providing sustenance to her fellow villagers and an income to support her family. I came into contact with Theresah via Kiva, where I found her requesting a loan of $700.00 for working capital. Within days, I was joined by 15 fellow lenders, and we jointly loaned Theresah the money for her business.

Figure 1. Theresah Ayipah. Photo: Kiva.org

Kiva connects networks of lenders with those in need of loans. This is a distinctly long-tail approach to philanthropy, as it looks beyond "big" loans, instead concentrating on markets for smaller loans. For every business looking for a large loan or infusion of capital, there are likely thousands of entrepreneurs who could benefit from a small loan of $1000 or less.

Kiva embraces additional Web 2.0 practices; for example, Kiva takes advantage of personalization by aligning lenders with their areas of interests. Do you want to fund a food vendor, blacksmith, brick maker, or salon owner? Do you want to fund in Africa, Eastern Europe, or Latin America? Kiva provides all of these options to you, letting you loan where your interests lie.

Exploring Microcredit

Figure 2. Muhammad Yunus. Photo: USAID

In the 1970s, the economist Muhammad Yunus envisioned a new way for lending capital to find itself in the hands of the poor. Yunus espoused the power of the small business loan; he saw it as a way to provide entrepreneurs the necessary step up required to expand their businesses. With these loans, entrepreneurs would be able enhance their businesses and income, while building credit and paying off the loan.

Figure 3. Grameen Bank logo

Yunus founded the Grameen Bank, an organization that has distributed over $6 billion in microloans throughout the world. Grameen's philosophy was simple--provide loans for businesses, collect payments often, and use community capital to secure the loan¹. For his work, Yunus and the Grameen Bank were awarded the Nobel Peace Prize in 2006.

Rather than requiring collateral to secure a loan, microloan providers turn to the community to evaluate creditworthiness. A community will nominate a recipient or recipients of a microloan based on their reputation and trustworthiness in the community. This nomination process works remarkably well; if a loan recipient defaults, the entire community is penalized by a reduction in overall creditworthiness. This leads to a very rigorous vetting process, with communities putting forth the best and most trustworthy loan recipients.

Kiva and Microcredit

If you've ever gone into a bank to get a loan, you know that you're generally asked to provide collateral. Many of us have provided our house or car as loan collateral; it is often nearly impossible to get an unsecured (no collateral) loan. However, many individuals in poverty-stricken regions do not have the collateral or credit to secure loans. This inability overlooks the loan-worthiness of the earnest poor, and furthers the cycle of poverty.

Kiva utilizes the Web to bond networks of individuals to provide funds for microloans. In doing so, Kiva works with partners to actually fulfill the microloans. These partners are non-profit NGOs such as the Kraban Support Foundation, the organization that provided Theresah Ayipah her loan. These partners screen community members, provide their dossiers to Kiva, distribute the loans and collect the payments. Partners also collect interest--remember, this is a loan, not a charity. The interest provides the partners with capital to sustain their organization and send employees into the field.

The individuals you see on Kiva have all been vetted by the partner organizations. Browsing the menu of loan-seekers, you can choose someone that fits your interests. There is often a wide range of entrepreneurs, from all over the world, seeking loans on Kiva. How does one decide to whom to loan? Kiva recommends that you spread your loaning portfolio around. This diversification means you can touch many lives positively with a very limited amount of money. Of note: Kiva's repayment rate is 100 percent, so I certainly wouldn't worry too much about losing your money.

Beyond Kiva's laudable repayment rate, there is another remarkable factor of the service: all of the funds donated through Kiva go directly to entrepreneurs. That is, there is no "overhead" or "tax" charged by Kiva for mediating the loan. This practice is quite atypical in the non-profit world. To cover their overhead costs, Kiva employs a few strategies. First, with your loan, Kiva asks for a donation--generally around ten percent of the loan's cost. In addition, Kiva is sustained by grants and donations; for example, they recently received $345,000 from the W.K. Kellogg Foundation. Finally, Kiva has an exclusive deal with PayPal providing free payment processing, a task that would have traditionally created great overhead costs.

Yaa Kumah

In a village named Nkurankan in Ghana, Yaa Kumah is a beadmaker who supplies both foreign and domestic markets. When Yaa Kumah went looking for a loan to expand her business, Kumah Beads, she turned to the Kraban Support Foundation. Kraban turned to Kiva, and within a few days Yaa Kumah's loan request was posted to Kiva.

Figure 4. Yaa Kumah. Photo: Kiva.org

In just a matter of days, 23 people pooled the $900 Yaa Kumah needed to expand her business. Yaa Kumah's lenders were from the United States, the United Kingdom, Denmark, Sweden, Canada, Germany, and New Zealand. Some lenders were first-timers, others had diverse, mature portfolios. Some of the lenders were children, one was a charitable dog (more likely a dog with a charitable owner), and others were couples or families. On Yaa Kumah's Kiva site, all of her lenders are able to track the loan's disbursement and ultimate payment. Just as the best part of gift giving is watching your gift opened, there's something special about joining together as a community to fund a loan and watch its progress.

Lots of Little Differences

The philosophy behind Kiva and microlending is refreshingly simple: if you can make lots of little differences, those little differences will add up to one big difference. In fact, this is a message we're seeing again and again as charitable organizations embrace Web 2.0. Charities and non-profits everywhere are leveraging Web 2.0 technologies to connect supporters of causes, to lower entry barriers to giving, and to foster a new level of charitable engagement with the Web. We are seeing lessons of entrepreneurship applied to giving, as charities embrace personalization and viral messaging. With a mix of technology of creative thinking, the techniques and methodologies of Web 2.0 are creating a host of new ways for those seeking to do good to connect with charitable organizations.

These are but a few of the many inspiring examples of the creative thinking going on in the "Charity 2.0" space. Kiva, Cnow, Change.org, and Project Agape stand out as examples, but there are many more for you to choose from. As you explore how charity is embracing Web 2.0, you'll likely find many innovative ways to make a difference--whether it is in your neighborhood, or halfway around the world in Ghana. Have fun exploring the space--there are a lot of new ways for you to do good with the Web.

¹Economist.com story on Muhammad Yunus and Grameen Bank, October 19, 2006

Links and Resources

• Change.org
• Project Agape
• Cnow
• Kiva.org
• Frontline documentary on Kiva
• NPR story on Kiva