Tuesday, August 12, 2008

Charity Sites That Let Donors Call the Shots

Charity Sites That Let Donors Call the Shots
  Aug 12, 2008 Wall Street Journal  

By Tyler Hill

When Warren Buffett pledged to give assets worth about $30 billion to the Bill & Melinda Gates Foundation, a nonprofit that promotes global health care and educational causes, in June of 2006, he could rest assured that he'd have control over how the money was spent. Not only could Buffett stipulate exactly how much of his money the foundation would dole out every year, but he was also named a trustee of the foundation.

Clearly, not everyone is going to receive the same level of clout as a billionaire like Buffett. In fact, the average donor has very little power over where the money they give eventually ends up. Even some of the most responsible charities spend a quarter of all the money they receive on administrative costs, according to Ken Berger, CEO of charity watchdog Charity Navigator.

The thought is disconcerting to some donors, who would much rather believe that their money was going directly to, say, buying textbooks for disadvantaged youths or toward funding AIDS research. Organizations like Charity Navigator and the American Institute of Philanthropy, both of which scour the tax forms of nonprofit organizations, can help you find out just how efficient and accountable a charity is with its money. But if you want to exercise the kind of control that deep-pocketed philanthropists enjoy, consider donating to one of a new breed of charities that allow donors to browse descriptions of specific projects online and fund them, in whole or in part.

Among the most well-established in this group are Kiva.org, DonorsChoose.org and GlobalGiving, according to Rick Cohen, membership and technology director at the National Council of Nonprofit Associations. The opportunities these organizations offer run the gamut. GlobalGiving, for example, sponsors projects ranging from AIDS prevention in India to energy saving in the United States, while Kiva.org allows philanthropists to finance microloans to entrepreneurs in poor countries.

After putting money toward these organizations' projects, donors receive updates that track the impact of their contribution. "Having that control is something that a lot of [donors] feel very attracted to," says Cohen. It's especially true for new donors.

At organizations like DonorsChoose.org, which lets donors provide money and supplies for public school classrooms, the concept seems to be working. Of the 73,000 people who've made contributions on the site thus far, 70% have never donated to a public education charity before, according to CEO Charles Best, who founded the charity in 2000 after a stint teaching at a public school in the Bronx. "Until recently, you had to be a millionaire if you wanted to choose a project that you were going to bring to life," he said.

Since its founding, DonorsChoose.org has given out over $23 million to classrooms hosting a combined 1.3 million students. The organization purchases the supplies requested by the teacher and then compiles thank-you notes and photographs to send to the donor. To cover its own expenses, DonorsChoose.org asks donors for an "optional fulfillment fee" — typically somewhere between 15% and 25% of the donation, depending on the needs of the school — which nine out of 10 donors opt to pay. Kiva.org also collects an optional fee, while GlobalGiving takes 10% of all donations.

Of course, this type of strategy doesn't work for all charitable organizations. Allowing donors to put restrictions on how exactly money is allocated can prevent an organization from funding mission-critical programs when it needs to, says Berger. "You really can't run the organization if all the money is going to go to this or to that," he says. Berger recommends giving unrestricted gifts to responsible, efficient charities that spend at least two-thirds of their revenue executing their mission.

As for this latest breed of charities, "the hope is that [a new base of donors get] involved in these things and then get involved in more substantial things," says Daniel Borochoff, president of the American Institute of Philanthropy.