# Donor illusions

There’s an persistent conflict in international charity:

• It feels great to be able to say, “My donation helped THIS person.”
• But it’s rarely – if ever – practical for that sort of connection to be real.

As a result, international charities tend to create “donor illusions” by implying that donations can be attributed more tangibly, reliably and specifically than they really are. Some charities are more purposefully misleading than others, and some have more prominent and clear disclosures than others, but we feel that all of the cases below end up misleading many donors.

Kiva.org: making a loan
Illusion: You pick a developing-world entrepreneur who needs a loan. You lend money to that entrepreneur, interest-free. With you, s/he wouldn’t have gotten the loan.
Reality: The entrepreneur you’re viewing in your browser probably already got his/her loan and is probably paying significant interest on it. What you’re really doing is sending money to a microfinance institution that uses it as it sees fit (including for loans to less creditworthy people).

Details at GiveWell Board member Tim Ogden’s summary of the recent Kiva debate.

Illusion: through an organization such as Save the Children, your money supports a specific child.
Reality: as Save the Children now discloses, “Your sponsorship contributions are not given directly to a child. Instead, your contributions are pooled with those of other sponsors to provide community-based programming for all eligible children in the area.” See this David Roodman post (starting with “The Kiva Story”) for the interesting, scandal-ridden history of this practice.

Heifer International: giving livestock

Illusion: your donation pays for a cow for a specific developing-world family, helping it earn a better living.
Reality: as the fine print says, “Gifts made through this catalog represent a gift to the entire mission.” The entire mission generally includes a lot beyond livestock, including difficult projects like rural extension services.

Other donor illusions are more subtle. More on this in a future post.

• James Edward Dillard on November 8, 2009 at 2:25 pm said:

I don’t feel like those are illusions… When I give money to Amazon, I don’t expect to get the EXACT book in the picture, but instead a book that is like the book in the picture. It would be impractical in terms of service, delivery, supply chain to do it any other way.

People should give based on outcomes (a person receiving a loan, a child receiving education or food), not knowing exactly where their money goes… That’s silly, like dictating to Nike that you’re fine paying $100 for the shoes, but you only want money to go to cost of new materials. They’d laugh at you. Non-profits like Kiva face the same issues that these for-profit companies like Amazon do (quality control, supply chain, service delivery), yet we have this silly idea that donors should be able to control exactly where their money goes and present non-profits as dishonest when they make practical business decisions. • James, I agree with you regarding how nonprofits should run and what’s logical. I think the difference is that an Amazon purchaser understands the reality you’re describing, whereas a donor generally does not. If donors know what they are getting, then: • Why do people through Kiva instead of making gifts straight to Kiva’s MFI partners? These gifts would be tax deductible, and thus would allow a bigger gift. • Why have past child sponsorship programs involved signed thank-you notes from specific children, faked in some cases? (See links above.) • Jeanne Panossian on November 9, 2009 at 12:15 pm said: A perspective from the micro level. I know you mostly talk about the big boys, who I really don’t play with, but I’d like to offer a perspective from someone who runs and fund raises for a very small non-profit. Why do organizations do this? Because it works. Because Donors demand it. It takes extraordinary ethical fortitude to openly tell people how complicated your organization is, normally a donor has made their basic decision in the first 15 to 30 seconds of a conversation, and in fact I have been repeatedly interrupted in the first minute with the question “Can’t I just sponsor a (fill in the blank with vague not-specifically-sponsorable thing such as a “servicemember” or “family” or “unit”). I used to try to explain what we do, now I only do so if asked. I have come to the mental compromise (between misrepresenting sponsorship relationships and only taking donations from people who really understand us) of often stating my organizations legitimate goals in a Barney-style simplified way and then holding my tongue while smiling expectantly. I hate doing this, but truth be told, my recipients are worth the extra funds it brings in and fundraising is not about me having the warm and fuzzies. I love so much more when someone will let me talk about what we do and more importantly WHY we do it that way. • Bill Huddleston on November 12, 2009 at 2:33 pm said: If the donors don’t understand, it’s the responsiblity of the entire non-profit sector to educate them. Below is from a post on my blog, but it directly address the broader issue of donor education. Non-profits Are Not Businesses, Part II: Program vs Operating Costs Give While You Live and Give Without Strings November 12, 2009 By Bill Huddleston In part I, I said that: The non-profit sector has done a spectacularly lousy job of explaining what it does and how it does it, and has spent fifty years convincing the American public that “administrative expenses” are bad and that “program costs” are good and now complains about how hard it is to get unrestricted funds. Let me elaborate on this point, because I do think it is “chicken and egg question” – which came first, did the donors request to know the percentage of administrative costs, or did the non-profit in an attempt to compete for funds, say “Our administrative costs are lower than the other guy’s.” What a dumb thing to say. Only in the non-profit world do we push the “how” of a service or good as the means of convincing donors or grant-making organizations to fund us. Think about it for a minute, when you go to get your car repaired, you presumably go through these steps: 1) You take it to a garage or dealer that you either have direct experience with, or was recommended by a friend, or you looked it up on the web. 2) You describe the problem with the car (your need). 3) Their mechanic diagnoses it, and calls you back with the recommended solution and estimated cost. At this point you make your decision, and there are only 3 possible choices: 1. You have them fix it. 2. You decide their price is too high and you might be able to get it fixed somewhere else cheaper. 3. You decide that the problem is not as critical as you thought and you can live with it for some amount of time, whether the ultimate solution is to get a new car, or to have it fixed later. Notice, nowhere in this decision process did you ask these questions: 1. How much are you paying your mechanics? (I only want the cheapest mechanics possible to work on my car.) 2. What brand of tools and diagnostic equipment are you using? (I don’t want to pay for the use of modern tools and computer equipment, my grandfather was a mechanic and he didn’t need any new-fangled gear to fix cars). You can substitute almost any service or good you want and you can have a similar sequence: Dentist – I only want the old drills used (you know the slow, loud, painful ones from your childhood). Coffee server: What brand of coffee roaster/maker are you using, I’m only going to pay for one that’s cheap. What the non-profit sector does not do well, is to make the case as the difference between “What & Why” versus “How.” “What & Why” should matter a lot to the potential donor, that is why you are talking to them, and why they are considering giving you some of their money. Your mission resonates with them in some way, whether because they or a family member or someone they know has had direct experience with your organization, or they just have heard about you and care about what your organization does. The things that truly matter to donors are “What does your organization do?” and “Why do you do it?” If you answer those two questions, and you can certainly say, “Ten dollars a month helps us do ________ for the _________ in our community, or overseas, or in ________ this part of the country. In a rush to compete against other non-profits, many non-profits then also answer the “How question” – even if it hasn’t been asked. What’s said is “We keep our overhead costs low so more of your money goes to program.” What’s not said is this, even if it is true: “Keeping our “overhead low” means that we pay our staff a barely living wage, and have 30% turnover because as soon as someone has any outside needs (home, family, etc.) they can’t afford to stay here.” The fact that 30% turnover keeps the program from ever being as successful as it might be, is never mentioned. In the 21st century, the distinction between “overhead” and “program” costs is meaningless. Ask the potential donor or funder if they use the telephone, e-mail and the computer in order to do their job, and if they work in an office do they sit on a chair and work at a desk, because given the emphasis on “low overhead” all those things are bad. Then ask them to keep track for 3 days of how they spend their time: are they using the phone and computer for personal, work, or civic functions, and that they need to submit the detailed timesheet with this to their supervisor. The fact that in our modern society we still use accounting methods that were developed 7000 years ago to count crops and cattle is a subject for a different article, but it’s worth mentioning. All marketing experts will tell you that your customers (donors) can be educated as to what’s important and why they should choose you and your product or service. Just because it’s for a non-profit and the direct benefit to the donor is harder to describe, it doesn’t mean that it’s not real. The non-profit sector although it likes to although it likes to talk about the importance of collaboration, is often very close minded when it comes to fundraising. It views the world has having a “money pie” of a set size (charitable giving) and competes mainly against other non-profits for a slice of that pie. My contention is that the charitable pie can grow, and that the real competition for the donor’s dollar is not between two different non-profits, but it’s competing for attention among other discretionary spending, including sports, cable TV,$4 coffees, \$200 shirts, toys, etc.

A lot of the problems that the sector faces, and believe me, I know that this is a particularly tough economic time, would be helped if this attitude and direction were encouraged: “Give While You Live and Give Without Strings.” If you don’t trust our organization to do what we’ve been doing, and have been successful at, that’s fine – choose some other organization, but if our mission does resonate with you, don’t hamstring us, we appreciate your unrestricted gift and you are making a difference by helping us meet our mission.

Bill Huddleston
http://www.cfcfundraising.com
Blog: http://www.cfctreasures.wordpress.com

• James Edward Dillard on November 17, 2009 at 12:36 pm said:

Holden —

Was speaking more in terms of what I wish was rather than what actually is.

I think Kiva does a good job of acting as a clearinghouse and keeping costs low (MFI’s don’t have to give them any percentage of the money that Kiva raises for them)… they’re providing significant value by being a hub, and also, the money that is being given to them IS actually funding for the person in the picture to get a loan… just not in the order that people assumed. That’s waaay different than faking a child’s thank you note (which I agree is unethical).

That said, I think we hold non-profits to way to high of a standard (in general) by expecting them to explain all of the ins and outs of how they work before we give. Back to the Nike example — Nike’s advertising “lies” all the time. No matter how many pairs of their shoes I’ve bought, I still haven’t become Michael Jordan… Am I wrong, or is this the equivalent of MFI’s using the best examples of their service as the face for the entire organization?

In my mind, the solution is to create less fuss about transparency and ask more questions about outcomes. To be honest, I could give a crap if a child’s thank you note is faked (even though I think it’s unethical) if the organization is making huge impacts in the lives of children (and can prove it). Then again, if an organization is making huge impacts in the lives of children, it should just take the total cost of the organization and divide that by the number of children it serves and claim that as the cost needed per child — and sell based on outcomes.

• James, I also would be happy to judge nonprofits solely by what they accomplish and for how much. Unfortunately, it is too often impossible even to get a start on answering this question – and in the meantime, donor illusions greatly exaggerate what you get for your donation by zooming in on “your money” and on the best-case scenarios.

The recent discussion of UNICEF provides a particularly concrete example of how donor illusions exaggerate what you get for your donation, but I think similar issues apply to the other donor illusions we note.