Kiva: A great idea that isn't exactly what it seemed - how to find a charity you can support

The online micro-finance charity Web site Kiva rose to be a shining non-profit success story in the recession years. It marries the trendiness of social entrepreneurship with an almost perfect combination of online applications. If you haven't used the site before (and, full disclosure, I've been donating above-average amounts for about a year), try it.

It's hard not to be fascinated and compelled by the hundreds of people in mostly developing countries (U.S. candidates were added this year) telling their stories, asking for not much more of an investment in their business than we fat Americans spend on lunch at Subway. I've made loans to budding clothing sellers in Mongolia and Tajikistan; a struggling restaurateur in Cambodia; and a nascent women's' transportation cooperative in Pakistan. One borrower, a young man from Ukraine with a wife and child who wanted to expand his cab company, actually paid me back in full. I took the money and gave it to another entrepreneur. It's quite a feeling to personalize charity in this way. And from a non-profit perspective, it's a Holy Grail, a killer app, a nano-Nirvana: It makes the donor happy, and keeps dollars coming in.

Except I found out recently that's not how Kiva actually works. Not quite.
And I'm not too happy about it. Neither, as it turns out, are a lot of other people. Discussions have been bubbling online for months. The short explanation is that Kiva is sort of like a Heifer International, those folks who send you a holiday season catalog with pictures of cuddly farm animals you think you can personally buy to donate to people in a poor village -- when in reality you're contributing to a general fund. (Kudos to Heifer's Web site for being far less calf-centric than its catalog). On the Kiva site, most of the loans have already been made to the entrepreneurs. You're just "backfilling" the micro-credit lender's risk. To Kiva's credit, it has made its explanation more clear on its Web site, using language like: "Most Field Partners then use the Kiva lender funds to backfill the loan they've already disbursed to the entrepreneur," though that still sounds a little bit B-School for most of us.

So what's really at issue here? One online commentator says camps have formed: Those who have learned what Kiva is doing, and aren't too happy about it, and those who have learned and think it's OK. There are others who say, move on, already, the sponsor-a-child charities have been doing this for decades. After some thought, I'm going to keep donating to Kiva. Here's why.
  • It's trying to be more upfront about how its system works. A lot of charities aren't.
  • It's found a successful model that, however incrementally, addresses one of the most painful issues of our time: The disparity in wealth between the handful of first-world countries, and everyone else.
  • Intentionally or not, Kiva's had to become very transparent about how its money is spent, and that's the most important question to ask about all charities. How much of your dollar goes to overhead, and how much to the people who really need it?
The reality is, charity scams are everywhere. There are some basic things to do to protect yourself: You should never believe an e-mail that rolls into your box after some natural disaster asking you for money. Even if you recognize the name of the organization. For instance, the Red Cross has had its identity compromised by African scammers. And the same people who create convincing phishing e-mails pretending to be PayPal, Citibank or eBay can fake charity scams as well.

But more to the point of what we were discussing earlier, it's all about who gets how much of your charity dollar. Fortunately, the Web provides two great ways to perform due diligence before you give: Charity Navigator, which lists topics as diverse as how to avoid the donate-a-junker-car offer (seek a charity that actually uses the cars, or deal directly with the charity itself) to some great lists, like: 10 Highly-Paid CEOs at Low-Rated Charities, to 10 Charities Drowning in Administrative Costs. By the way, Kiva is too new for Charity Navigator to have rated it. Heifer Foundation gets two out of four stars, Heifer Project International three out of four.

And then there's Guidestar, the professional-grade research tool, where you can search out charities and review the tax documents that non-profits are required to file by law, such as the often-revealing Form 990. This little treasure can, in fact, yield such information such as the history of Americans for Balanced Energy Choices, which sounds like an environmental group, but was, in fact, funded by the coal industry, used to go by the name Center for Energy and Economic Development, and, today is known as the American Coalition for Clean Coal Electricity.

So, if you feel like you need to take more control over your charitable giving, you have some tools. And make sure you read all the fine print when something seems, well, too good to be true.

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