The year 2005 will be remembered as a year of monumental generosity that donors demonstrated in the face of natural disasters. It should also be remembered as the year when traditional philanthropy displayed how stagnant and ineffective it really is.
The public response to the natural disasters of 2005 shows there is no lack of funds. In fact, the financial conditions of the various aid agencies have probably never been healthier. The poor, however, continue to suffer. Meanwhile, donors give blindly without demanding the accountability that guarantees results. This is simply unacceptable.
Whatever little attention is given to accountability is usually misplaced. Most donors and watchdogs have become alert to fraud and theft. Fraud and theft are, however, no longer the real accountability issues. We should focus on avoiding waste and ineffectiveness. The problem with philanthropy today is that too much attention is focused on counting receipts and too little on outcomes. Philanthropy, like business, should have a bottom line. Any industry is going to suffer in the absence of clearly defined measures of success.
Approaching philanthropy as a form of investment is an important part of the solution to the problems of philanthropy. There is reason for optimism: Increasingly, donors are treating their giving like their investments. Many philanthropists have begun to see philanthropy as a capital market. They demand the same levels of transparency and accountability that they expect from stock markets. Some have termed this “social investment” or “venture philanthropy.” Geneva Global, and organization created by donors in search of real accountability, prefers the term “performance philanthropy.” Performance philanthropy is a hopeful alternative to traditional approaches to giving, because it is working.
The first step toward performance philanthropy is gathering data on results, not just needs. Geneva Global began a quest to determine “return on investment” for philanthropy more than five years ago. We have learned, through detailed research and the handling of hundreds of grants affecting millions of people each year, great deal about measuring performance in philanthropy.
The most effective measure we have found is prima facie: life change. This is, at heart, what philanthropy is all about – changing the lives of the neediest among us. Measuring life change can be remarkably easy. Income growth, improved nutrition, access to health care, orphans housed, AIDS patients cared for, access to clean water, completion of primary education, and falling infant mortality rates are clear indicators of life improvement that can be readily measured. In fact, it is these exact statistics that show the failure of traditional “blind” giving.
This leads to the next question: How can life change be maximized? Geneva Global has found that the highest return on investment is generated by local, grassroots organizations rather than big national agencies or international non- governmental organizations (NGOs). This should not be surprising. The poor know what they need and are tireless in taking advantage of self-help opportunities. A classic example of this is James Tooley’s research demonstrating the success of locally managed schools in the world’s worst slums. Thus, we find that maximum return on investment comes when funds are invested in the poorest places. These are situations where traditional approaches have most thoroughly failed.
The evaluation of grassroots projects must be based on evidence that each initiative has enjoyed successful performance – that it not only shows “need” but also demonstrates “proven results.” Based on analysis of results from grants given, we have found that there are a number of key performance indicators that predict results. The first is past record. While past performance does not guarantee future results in investing, past performance is a strong predictor of future results in philanthropy. Other key indicators are sustainability of the intervention, existence of thorough project plans with well-defined performance measures, and risk management planning. Project leaders themselves are reliable indicators of future performance, which can be predicted fairly well through demonstrated experience, demonstrated commitment to power sharing and training of others, and extent of networking to other leaders. Nearly 80 percent of projects evaluated and funded over the past five years using this methodology met or exceeded their stated numerical project objectives.
In the past year, for example, donors via Geneva Global placed nearly a million US. dollars in grants related to tsunami relief. These contributions, distributed across more than 20 grassroots projects, will deliver trauma counseling to more than 60,000 affected individuals, restore incomes to more than 90,000 people, and provide medical care to more than 30,000 people. This does not include additional benefits like rebuilding 500 homes and immediate aid such as access to clean water and food. At an even more micro scale, one $40,000 grant provided medical care to more than 4,000 people, trained 200 families to grow vegetables for themselves in temporary housing camps, and provided therapy to hundreds of surviving children who became homeless. In contrast, the total $14 billion provided by governments and private aid agencies has thus far provided medical care and temporary housing to approximately 800,000 displaced people and rebuilt approximately 20000 homes. There is a sharp contrast in the cost benefit ratio of these two sets of figures.
Performance philanthropy has additional benefits. Not only does it maximize results; it also encourages additional investment. When donors are able to follow their money and understand the direct results of their generosity, they become much more committed to the philanthropic process. These committed and involved donors help to energize and expand the field of giving.
The marriage of measurable results and more committed donors is why performance philanthropy is so convincing as a strategy for reducing global poverty and its related consequences. According to the World Bank, half the world’s 6 billion people live on less than $2 a day, and 1.3 billion people – more than 20 percent of the world’s population – live on less than $1 per day. These poverty figures, despite hundreds of billions of dollars of traditional philanthropy, keep growing. The number of people living on less than $2 a day grew by 300 million in the last 20 years.
Our experiences show that there are many willing to participate in the noble campaign to end poverty on our planet. Unfortunately, most charitable giving stays inside the wealthiest countries. In the United States, which accounts for the majority of private philanthropy worldwide, less than six percent of monetary giving leaves the United States. Even using one research organizations liberal calculations that include volunteer time and other forms of giving, the total is still less than eight percent. Research from other developed nations produce similar results. A leading reason for this disparity in need and giving has been the lack of reliable information and confirmation that donating abroad actually impacts those who need help the most. Western private donors give great weight to risk and return on investment. When allowed to apply investment strategy to philanthropy, they respond. This is evident in the growing number of givers adopting similar philosophies.
Giving blindly does not improve the status quo of poverty in the world. This need not be the case. Much can be accomplished with relatively modest amounts of money when giving is invested in results rather than in need only. Philanthropists must demand nothing less than real, meaningful and measurable life change for those they seek to help.
Philanthropy: a commitment to human welfare and advancement, usually manifested by donations of money, property, or jobs to people in need
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