While I was in Beijing I tried to inquire if Kiva.org would work in China. As I discussed in my post some weeks ago, Chinese people are not inclined to Charities.
I discussed with many Chinese people (in Chinese) and the answers I always got is this one:
"Chinese people will lend money on a Kiva like system only if this system gives them an interest rate, which is larger than what they get from the bank"
Chinese bank usually give an interest rate of 2.x %. So let's say that a Chinese Kiva should give 3 %.
Chinese and HK people are getting crazy about buying stock to get more profit from their savings. Many people spend their lunch time buying shares online. In Chinese they call it "fry shares" (which means buying and selling shares). This is why, I think they would lend money to poor entrepreneurs if they get enough interest. Otherwise they will not.
In order to know whether this approach is possible, we really need to understand the business model of Micro Finance Institutions and the way they get financed. This is a very complicate topic where different regulations are involved and above this is the field where many international banks are trying to enter.
In this download-able mp3 interview (audio quality is not very good), Kiva founder, Matt Flannery, explains Kiva's business model and their vision about how to become self-sustainable from an economic point of view. One of his ideas is charging an annual fees from MicroFinance Institutions but he does not talk about charging them interest. I am absolutely not an expert on micro-finances and I assume that Matt knows much more about this than anybody else so there must be a reason for that.
On the other hand, it comes to my attention that Kiva currently has no field partners in China. I know that the Chinese experience in micro finance just started in the nineties and some Chinese Micro-Finance Institutions have had some problems trying to be self-sustainable.
I would be very pleased if you can leave me a comment telling me if you think this approach is feasible
I would like to post some ideas about micro-credit that my friend, "The man over there" sent me by mail.
He has been on holidays in South East Asia and has thought a lot about NGO activities, in particular micro credit. He just arrived back from Asia yesterday and will be discuss more about this.
He has been thinking about a different approach from the non-profit Kiva.org may be a Web Alibaba style but that puts in contact mini-investors with mini-entrepreneurs, without being necessarily oriented to altruism but having a more business approach.
These are some of points the has learnt in South East Asia
Normally women are more likely to pay the loan than men, who are usually less responsible.
People who has received micro credits are usually encouraged to lend money once their business prospers extending the micro credit network by the principle that "since I received before I should give now".
The role of tourists in a web micro-credit application may be considerable . In countries like Cambodia Internet is so slow that even reading emails sucks. Don't even think about uploading videos. However, tourists arrive, take photos and make videos that they upload when they are back in their country. The problem is that tourists do not go to remote zones. But there are more and more NGO-tourists (volunteer holidays) who do go to these areas. The are more and more NGO tourist sites such us Responsible Travel. A French friend of mine in Paris has spent several holidays working as a volunteer.
Individuals, who may benefit of a micro-credit, are very difficult to contact because they usually live in remote areas, do not haven Internet access and probably not even phone or a bank account. Therefore Kiva.org needs to deal with proxy organizations (called field partners) like Micro-Credit Institutions or associations (for example, the association of women working in handicrafts in the county of XYZ).
In Cambodia there are many associations and initiatives to help people. They are created by local people themselves. One example of these initialize is mine museums that support economically people affected by mines, blind people that have learned to give massages.
In countries like Vietnam or Cambodia there is a lot of corruption and nothing happens without the government receive their part of the pie. A Polish-American volunteer in Vietnam told me (The man over there) terrible histories. Sometimes foreign aid is wasted, Sometimes local institutions really have money but management is disastrous.
Conclusion
There is a dilemma between:
Western people coming to poor countries to tell them what they need and what they must do rather than letting them express their own need
In contrast with the idea that sometimes these countries do not prosper because they really do not know that they need and somebody must provide guidance
As you know from some previous posts one of the web 2.0 ideas that were seducing me these days was applying the Anglo-Saxon Charity 2.0 (Web 2.0 enabled) model to other cultures such as the Hispanic or Chinese worlds. I have been comparing some Charity 2.0 applications and will post about this soon.
Taking advantage that I am in Beijing for improving my Chinese language skills, I decided to find out which role solidarity plays in China.
American and Northern European people are very involved in Charities. Obviously the reason is cultural: the Protestantism's sense of Charity. Southern Europeans like Spaniards are less generous with Charity causes and the reason is that Charity in Catholicism plays a secondary role in comparison to Protestantism.
But what about solidarity in China? Well I have compiled some facts about this?
I asked a very good Chinese friend of mine in Paris for advice and she replied: "The answer is NO. I am not rich so how can I care about poor people. Rich people are care even less than me" And also asked one of my Chinese teachers and literally said: "China lacks the sense of solidarity"
The fact
The sad fact is that Chinese people in general do not possess such high-minded notions of wealth and Charity. People nowadays are more concerned about the ways and means of making money than such things as the culture of wealth, the ethics of wealth and the responsibility of wealth. Under such social circumstances, most people are self-absorbed in the pursuit of money, comfort, success and the good life, while largely oblivious to the social responsibility of wealth.
Statistics
This lack of the sense of solidarity is supported by different statistics:
Statistics with the Chinese Ministry of Civil Affairs show that Charity donations only accounts for less than 1 percent of China's Gross National Product (GNP) currently, far lagging behind the fast social and economic development of the Chinese society.
On the other hand statistics from the China Charity Federation indicating that 70 per cent of charitable contributions to the Federation came from foreign countries or from the Chinese regions of Hong Kong, Macao and Taiwan, while charitable donations from wealthy benefactors in Mainland China accounted for less than 15 per cent of the total value of the donations.
These statistics are not only related to the economic situation of China. They are related to the Chinese culture itself: A study in the United States shows that Americans from Chinese origin are much less involved in Charities than other ethnic minorities.
The view of the Government
The Chinese government clearly promotes the development of the sense of solidarity among the people of China:
Chinese Vice Premier Hui Liangyu called on the Chinese people to develop their "sense of Charity" (at the awards ceremony of the 2006 China Charity Awards, launched in 2005). According to Hui, "The government should work with non-government organizations and encourage individuals and enterprises to give to Charity"
Furthermore according to the Vice-Minister of Civil Affairs Li Liguo "The space for developing China's Charity works will expand enormously in the coming years?
Tax benefits & Charities
Many experts agree that tax is the single most important factor that is curtailing business donations:
In many Western countries, charitable handouts to certified non-profit organizations are tax-deductible.
In China, the law stipulates that charities are tax-deductible only if they do not exceed 3 per cent of tax payments. Above this demarcation line, donations are basically treated as before-tax proceeds.
Why don't Chinese tax Authorities study the Western model and amend tax laws to stimulate business gifts? That would surely give business leaders more motivation to find outlets for their innate altruism. But it would also create loopholes for deception (according to a Guangzhou-based sociologist)
Conclusion
So the conclusion of this is:
China is not yet prepared for Charity 2.0. But anyway, it may not be the bad moment to start a Charity 2.0 initiative since the sense of Charity is expanding a lot and is expected to continue this way.
To start a Charity 2.0 initiative you really need to start in Hong Kong, where people are more socially aware and where the protestant sense of Charity is more present.
Since the government clearly promotes the idea of developing Charities, getting the support from the government would be an important milestone in any Charity 2.0 initiative. But will be the Chinese government support a foreign project rather than a local one. Probably not.
The other day on Facebook I discovered Wokai.org. Wokai.org follows the example opened by Kiva.org but is focused on China. Co-founders of Wokai are Casey Wilson and Courtney McColgan are experts in China as well as in Micro-finance.
Their site is under construction and they are planing to launch in fall 2007.
We have already discussed here in Globthink (See this post) about the possibility of creating a micro finance application which is oriented to the Chinese general public. I made some research about Wokai and it seems to me their idea (or at least initial idea) is that people in US financed micro-finance projects in China rather than Chinese people lending to Chinese people (as discussed in here).
I congratulate the whole team of Wokai and wish them launch with their launch in the next months
Kiva is a non-profit organization and Internet start-up that has become the world's first person-to-person micro-credit lending marketplace for the poor.
Kiva uses Internet web 2.0 technologies and a worldwide network of micro-finance institutions all around the world to enable individuals in rich countries to lend as little as $25 to help fund small businesses run by low-income entrepreneurs in the developing world.
How does Kiva work?
Loans made on Kiva provide 0% interest to lenders. Kiva entrepreneurs in the third world usually borrow relatively small loans (usually around 2000 USD or less). These borrowers are charged some interest by the respective micro-finance institution handling the individual loan (an average interest rate of about 19 percent, lower than the 35 percent worldwide average for micro-finance loans). Kiva borrowers have a historical repayment rate of almost 100%.
Kiva and Web 2.0
Kiva has the usual 'web 2.0' stuff like RSS feeds, journals with comments (like blogs), face wall that links to user profiles, badges for websites, easy Web payments (using credit card, Paypal), recommendations, and more.
Business Model
Self-sustainability is critical to Kiva. To this end, Kiva supports itself principally :
On the "optional fees" lenders voluntarily pay to the organization in addition to the loans they make.
Raising growth capital from a small group including Silicon Valley angel donors, corporate sponsors and foundations.
Kiva expects to be self sustainable in 2008.
Conclusion
Kiva model is quite a breakthrough in Web 2.0.Consider 100% of your money going directly to those in need and you have almost 100 % chance of geting your money back.
By the way, Kiva is the Swahili word for "agreement" or "unity".
In a previuos post, there other day we discussed about the possibility that a Charity 2.0 start-up might be a for profit organization. Today I would like to discuss about a famous web company that in September 2006 created a for-profit charity: Google
"The ambitious founders of Google, the popular search engine company, have set up a philanthropy, giving it seed money of about $1 billion and a mandate to tackle poverty, disease and global warming.
But unlike most charities, this one will be for-profit, allowing it to fund start-up companies, form partnerships with venture capitalists and even lobby Congress. It will also pay taxes.
One of its maiden projects reflects the philanthropy"s nontraditional approach. According to people briefed on the program, the organization, called Google.org, plans to develop an ultra-fuel-efficient plug-in hybrid car engine that runs on ethanol, electricity and gasoline. […]
By choosing for-profit status, Google will have to pay taxes if company shares are sold at a profit — or if corporate earnings are used — to finance Google.org. Any resulting venture that shows a profit will also have to pay taxes. Shareholders may not like the fact that the Google.org tax forms will not be made public, but kept private as part of the tax filings of the parent, Google Inc. [...]
Google.org is drawing skeptics for both its structure and its ambitions. It is a slingshot compared with the artillery of charities established by older captains of industry […]"
Basically, someone decides to do something like running a marathon, going for a long walk or some other physical challenge (one colleage of mine even joined a trip to the base camp in mount Everest in the Himalayas!!).
Then this person asks around, usually via email, saying 'Please sponsor me in my race against Cancer'. Then people receiving that email may donate some money to the cause, in websites like justgiving. Donating there is a pretty painless process.
After the race/event, you usually get a nice email from the person who started all this, saying 'thanks for your support, here you have some pics of the race, I made it!!!'
One of our approaches to a Charity 2.0 website could involve making the integral process to happen in a website, and generating some more meaningful feedback about what actually happened with the money, or how was the race.
This feedback could take the form of video or other media. The point is to get the donor to be more involved in the process, giving a bigger feeling of ownership about the particular thing to which they contributed! (And so he /she donates again in the future!!)
I have donated several times this way, and lots of people in my office did it as well. This was in the UK but I think this donation model could be exportable to other countries. We could try it out!
If you create a Web 2.0 start-up related to charities, which your legal form should be your company?
For profit organization
Non-profit organization
"The recent Red Cross scandal is a reminder that charitable nonprofit organizations sometimes act poorly. Meanwhile, many for-profit commercial organizations try to do good—by helping poor coffee growers, or providing hurricane relief, or supporting schools. Yet the good-doing nonprofits enjoy tax benefits denied to the good-doing for-profits."
Why should nonprofit enjoy tax benefits denied to the good-doing for profits? "
"That's the question posed by Eric Posner and Anup Malani of the University of Chicago Law School in a working paper published in September (you can download it here). Posner and Malani suggest that the exclusive tax benefits available to nonprofit corporations are both unfair and inefficient. In response, they recommend that the same benefits should be extended to for-profit charities, and to the charitable activities of for-profit commercial firms.
According to the authors, there are three primary arguments used to support the special status of the not-for-profit sector, none of which they believe justifies the exclusive tax incentives:
The public goods theory
The public goods theory suggests that charitable tax benefits encourage citizens to support firms that create public goods, displacing the need for government or tax revenues to do the same job less efficiently.
The authors claim that commercial firms can also provide public goods and services, and would do so more effectively and efficiently in some cases.
The agency theory
The agency theory holds that the nonprofit form removes the lure and distortion of profit-seeking from the pursuit of social good -- especially in cases where the donors or consumers cannot evaluate the quality of the goods or services provided.
The authors believe this problem could be resolved through contract and management structure.
The altruism theory
Finally, the altruism theory suggests that the nonprofit form encourages altruistic individuals to undertake activities that will benefit others. Assuming that for-profit enterprise will ultimately value profit over quality or quantity of production, the nonprofit creates a space for those who value the latter over the former.
The authors dispute this point entirely, suggesting altruism and commitment to quality can be expressed by entrepreneurs in any organizational form.
...
The proposition was provocative enough to make The New York Times Magazine's list of ''big ideas'' for 2006 (available here, if you're a subscriber). And it nudges an already bubbling conversation about the flexibility and future of the nonprofit corporate form.[...]"
Because you give them money but cannot see the result. You do not know what they do with it!
What if every person or organization receiving money, should compulsory publish a video showing what they did with the money?
I have made some research. I will share it with you later on this blog. Currently there are already many online donation tools and social networks on the web and on Facebook but none of them makes use of this approach.
While I was in Beijing I tried to inquire if 
I would like to post some ideas about micro-credit that my friend, "
As you know from 
In a previuos post, there other day we discussed about the possibility that a 
Sponsorships are common in the anglosaxon world. 
If you create a Web 2.0 start-up related to charities, which your legal form should be your company?
Why don't people donate money for good causes?
