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If that screenshot made you squint, here’s the transcript: I tweeted: “This economic downturn is a good time for non-profit organizations to think about taking (interest-earning) loans versus donations.” And BuzzHarrisDRC asked: “..Hi Sujeet. Why do you recommend interest-earning loans over donations? I’m curious.” While I love Twitter for keeping me succinct, there are some…
If that screenshot made you squint, here’s the transcript:
I tweeted: “This economic downturn is a good time for non-profit organizations to think about taking (interest-earning) loans versus donations.”
And BuzzHarrisDRC asked: “..Hi Sujeet. Why do you recommend interest-earning loans over donations? I’m curious.”
While I love Twitter for keeping me succinct, there are some times when one must revert to the blog for a long ramble. While my response to his tweet was:
“..The short answer would be: Investments forge relationships. Micro-loans would create “active donors” to benefit the cause.”
..I figured I owed him a better answer. So, Buzz – this one’s for you; and thanks for bringing on the thought process!
Call them micro-donations, call them small-value donations, or call them change under the seat – there’s a reason that you stopped to hand it over to the homeless person, to the donations’ box at the hospital, or to the visibly down-and-out person in front of you in line at McDonald’s. That reason is: You cared. You cared enough to do what you could at that moment, within your means, to alleviate the conditions of someone who wasn’t quite as fortunate.
As Obama once mentioned, his donations were largely small-value donations. He got $5, $10 and $20 a lot more, and a lot before, the celebrity endorsements (he eventually went on to raise half a billion, they say); and it’s that foundation that may have been the biggest driving force to history being made on November 4, 2008.
And then there’s the recession economic downturn. Is saying “recession” really all that bad as it’s made out to be? It is the proverbial elephant in the room that’s stomping on a lot of jobs, isn’t it? I recall that it wasn’t too long ago when California was known as one of the world’s largest economies, and now we’ve got a really, really large budget problem to smooth out that peak from the not-so-distant past.
Hard times mean really cold winters for the less fortunate, and while charity organizations need money to do all their great work, too – they’re really good at stretching the dollar. So much so that I wonder if we could invest in charitable organizations for the proverbial win-win situation. Here’s how:
Instead of donations, charities could accept micro-loans. I imagine this could be $100 and over, and would have a reasonable rate of interest with a caveat favoring the charity. The caveat would be: If the charity does not anticipate being able to return the principal along with the expected interest, it could return the money within 6 months as is. If the charity kept the money past 6 months, then it would be obligated to return the principal with the expected interest to the lender. Or, it could negotiate a recursive loan with the lender to say that – “Well, can we keep it for another year? We’ll compound the interest if you agree.”
The advantages would be:
- The donors would care about getting a return on their investment, and would thus start paying clos(er) attention to that charitable organization. This attention could spur word-of-mouth publicity for that charitable organization, thereby creating more donors / lenders. Effectively, this would be like buying stock; but without the part of “buying a part of the company”. To ensure that your stock did well, you would socialize the company and/or use it’s products as much as you could – and you would get your investment back at the end of the year along with interest.
- The charity would then have a higher fiduciary responsibility to the society it operates in. The increased attention and regular churn of transactions, both inbound and outbound, could help to ensure that its accounts stayed in proper order.
- These charities would have to get creative about monetizing the duration of these loans to their benefit. They could work on investing in the right people, in the right projects and in the right places. Effectively, since these charities would have to “show you the money” within a year, they’d have to work at it.
In any case, the charity would have a larger, if not temporary, operating budget to empower it’s affiliates with. Something like Kiva, but better.
The disadvantages could be:
- If the proposed 6-month exit clause was exercised, then the lender would lose half-a-year’s worth of interest on the principal. However, considering that we’re talking about relatively small amounts (the “micro” part of micro-loans), perhaps it wouldn’t be such a huge loss.
- The larger charities would offer a lower risk to lenders, and thus could lead to the large getting larger, and the smaller ones not getting any interest at all; if you’ll pardon the pun.
That’s that. What do you think?
Update: March 16, 2009
My good friend and wine expert, Jennifer Stinnett; offered an entire post towards the roundtable. Here are a few snippets:
- Donations are tax write-offs … how would a loan to a charity that also provides interest (thus income) provide a tax break?
- Are we really that greedy of a society that we need to now figure out ways to create income off of charitable donations?
- What happened to the “GIVE” part of our lives… do we now have to give but ONLY if we get back?
- Lastly, isn’t this what got us (partly) into this current mess to begin with????
I am all for charities… and all for giving …. but I have a hard time with the concept of making money off of my donation (which really isn’t a donation is it?).
I give to give without the expectation to receive back. I know that life / karma… whatever you choose to believe in will ultimately shine down on me if I keep this thought process first. So with that said, I give to give, period.
Click here for the full text of her response on her site.
Fair point, Jennifer. I guess what got me started along the micro-loans route was that this economic downturn would have us being tightwads, and that’s never good for charities who continue to support those who are facing much harder times. One way to continue charitable contributions during hard economic times is to make that contribution a win-win situation for both parties. Factoring in their strengths in the area of stretching dollars and making the most of what they have, one would wonder if charitable organizations may offer a risk profile comparable to most banks today.
So, on one side of the table; we have giving to charity; and on the other – there’s hard economic times for donors. If it isn’t micro-loans, it has to be something else – I’d hate to see charities start closing their doors to the unfortunate.