Prospering (and Kiva'ing?)

Check out the relatively new website called Prosper.com. It is a peer-to-peer lending

platform that focuses mostly in the US. It follows on the heels of Zopa, which started in the UK.Prosper has sophisticated credit rating tools and interest rates vary depending on supply, demand, and credit risk.

The nice thing about Prosper is the community element. As the site notes:

"Groups are the heart of the Prosper marketplace. A group is organized by a single leader and consists of borrowers who all share something in common. Borrowers request membership or are invited to join a group, and since membership is limited, usually have some connection with one or more group members."

A site called Kiva lets you lend money to small entrepreneurs in developing countries, at no interest. Premal Shah, formerly of Paypal and eBay, recently joined the team as president, and while Kiva still has a ways to go, they have potential.

Clara Miller and George Overholser

Over the past few months I have started talking with Clara Miller, Founder and CEO of the Non-Profit Finance Fund (NFF) in New York City, and George Overholser, a VC and former banker and management consultant who recently joined NFF to found and lead NFF Capital Partners.

Clara has been one of the leading lights in the field of non-profit finance over the past two decades. Now she and George are doing some powerful new work on the capital structure of non-profits, and how non-profits can leverage private sector financial flows, accounting practices, and management approaches to grow their organizations sustainably while sharpening impact.

As their site notes here "We are now in the midst of another
development phase... Our holistic approach to
facilities has led us to expand to address the broader capitalization
needs of nonprofits. Our loans are increasingly being made for purposes
beyond facilities, such as working capital and “ventures,” and we have
added non-debt financial products, including asset-building services
and credit enhancements."

Read some of Clara's articles here and George's here to get a better sense of their thinking.

Update 8/31/06: Clara has been selected by the Non-Profit Times as among the Top 50 Most Influential Leaders in the sector. NPT says (pdf):

"She is arguably the most influential voice in the ongoing effort to reshape thinking and practice about nonprofit capitalization and relationship to debt. She has built NFF into a clear leadership position in the CDFI Loan field and does stellar capacity-building with great intelligence and savvy."

How to get results at 1/5 the cost

The scale of assistance to developing countries called for by many experts can seem overwhelming. For example, UN experts have recently called for $1.5 trillion in funding over the next ten years. But these funds would be allocated mostly in a top-down way via large, often government-driven projects. Community-based projects can deliver better results at much lower costs.

Irrigation provides a good example. A review of the experience in Bangladesh in Scientific American shows that the cost of constructing a conventional dam and canal system is about $2,000 per acre. The World Bank has made several loans for deep-well diesel pumps, bringing the cost down to approximately $375 per acre. But that is still prohibitive for poor households. So a local group called IDE (a project sponsor on GlobalGiving) has launched a campaign that has sold more than a million treadle pumps, which can irrigate one acre for only $66 – about 1/30 the cost of the dam system and 1/5 the cost of the World Bank diesel project.

The reality is that governments are unlikely to come forth with $1.5 trillion in official aid over the next ten years. But that is not a bad thing – because even better solutions can be delivered at much lower cost using GlobalGiving and related market-based mechanisms.

The Dumbness of Crowds?

Here is an excellent piece from Edge.org by Jaron Lanier.

Jaron argues that we should not get carried away by too facile an interpretation of the wisdom of crowds idea. He correctly points out that well functioning systems require a balance of bottoms-up and top-down approaches, along with both individual and collective action. Markets (collective action) require some degree of (top-down) government regulation and (individual) entrepreneurs.

"Every authentic example of collective intelligence that I am aware of also shows that collective was guided or inspired by well-meaning individuals."

Note 1: This piece is fairly long, and the first part is focused mostly on Wikipedia, but the most interesting thoughts are in the second part, so hang in there.

Note 2: See related thoughts from me here.

Note 3: Edge.org is a superb site that catalyzes conversations among leading physicists, artists, sociolgists, anthropologies, and others.

Naked Conversations - and Stumbling on Happiness

I just read a book about blogging called Naked Conversations, by Robert Scoble and Shel Israel. It focuses primarily on business-related blogging and how it is changing the way businesses communicate with their customers and other stakeholders. They predict big shifts away from "spinning" messages at audiences toward more genuine conversations where real human beings talk to each other. Let's hope they are right....

Now I turn to a book called Stumbling on Happiness, by Daniel Gilbert, who is a professor of Psychology at Harvard. His thesis is that humans are very poor at predicting things that will make them happy. They buy things that they are obsessed with, only to find that the pleasure fades fast. I heard the author interviewed by Madeleine Brand on NPR recently, and he had a great sense of humor, which I appreciated. Seth Godin says that Gilbert writes like a cross between Malcom Gladwell (author of Tipping Point and Blink) and David Sedaris (author of Me Talk Pretty One Day and other books).

Daniel Gilbert

How much money gets to the ground?

There has been much discussion of the effectiveness of aid and philanthropy recently.

You can think about this issue in two ways - efficiency and effectiveness.

Efficiency is how much of the money gets to the actual project. Here are some thoughts on efficiency:

• Before I left the World Bank, I did an informal survey of my colleagues, and the consensus was that about 25% of the money gets to the actual grassroots on average. The rest is taken up through the costs incurred by various layers that the money goes through, including the central government, provincial government, local government, etc. Note that these costs do not imply corruption, just the costs of reviews, planning, salaries, etc.
• This may sound bad, but it is actually par for the course. Many people do not realize that, according to the Chronicle of Philanthropy, the cost of fundraising via direct mail or telephone solicitations averages about 50-66% of the total raised, leaving. Some organizations do much better than this, but many also do worse! Small organizations have particularly high fundraising costs because of the high fixed costs of direct mailing and telephone campaigns.
• We have taken on a huge challenge at GlobalGiving. We are committed to charging only a 10% facilitation fee. When you add in certain bank charges, this means that we can usually get 85% to 90% of the money to the ground.

Effectiveness is how well the project helps people once it is implemented. Even if you get 100% of the money to the ground, the project is not effective if it is poorly designed. Here is a posting that discusses effectiveness of design.

The Death of Bullet Points....

A friend complained to me the other day about a terrible presentation that she had seen recently. What was extraordinary about the presentation was its ordinariness - a long series of bullet-pointed powerpoint slides that went on endlessly. In addition, the main points were at the end, long after my friend had given up and left the meeting.

Some months ago, Mari pointed me to a great site called Presentation Zen. This is now one of my favorites sites on the web. This site (really a blog) is compiled by Garr Reynolds, who used to be at Apple and currently is at Kansai Gaidai University where he teaches Marketing and Multimedia Presentation Design. The site is basically a compilation and analysis of superb presentations that Garr has seen (along with a few terrible ones). Some presentations use only images, such as this one by Al Gore. I have seen this one in person and can vouch for how powerful it is.

I also like the "Takahashi Method", which basically consists of putting one word, letter or symbol - in giant type - on each slide. I tried this about six months ago, and it had a big effect on the audience.

If you make presentations and are interested in getting your message out and across more effectively, check this site out.

Can it be ALL bottom-up?

People often ask me if bottom-up systems like GlobalGiving can totally replace top-down systems like the World Bank and USAID. Here is a response that I posted in a related discussion on Omidyar.net:

The short answer is that it takes both types of system. The analogy I often use is that of a well functioning economy. The healthiest economies around the world are market-oriented, but they also have significant public sectors.

The numbers vary, but a rule of thumb is that about 2/3 of the resources of an economy are allocated through the private sector, and about 1/3 through the public sector. The private sector is comprised of millions of small and large companies that listen to consumers and try to produce goods and services that consumers want. To flourish, private companies and consumers all need a well run public sector to provide public goods such as policies, laws, large infrastructure, basic social goods (including some education), etc.

Currently the aid sector is dominated by public sector institutions. Broadly, public aid to developing countries is about $80 billion, and private aid (ie regular people, companies, and organizations) is about $20 billion. The ratios are reversed compared to a well functioning market economy. (I worked in Russia for five years, so I saw first hand how badly the public sector functions in a situation like this!)

So I think the goal should be to change this balance and make it 2/3 private and 1/3 public over time. The goal should not be to get rid of the public sector institutions, but rather to have them focus on the policy framework, infrastructure, and other public goods. The private aid sector would focus on the millions of small-scale projects out there, driven by the demands and needs of the people on the ground.

Some ask whether the private aid sector has the resources to redress the current imbalance. The answer is yes, over time - and even faster if public institutions were willing to deeply innovate. Last year, individuals in the US gave away about $200 billion. So there is a lot of leeway to increase the amount of private aid going overseas from its current level of $20 billion.

Our own experience at GlobalGiving is that once people find out that they can find, fund, and follow up on overseas projects, they are very happy to be able to do so. And although it is early days, the fact that a few million dollars have flowed to several hundred projects through our site makes us optimistic that private aid overseas can increase steadily.

In terms of innovating in the public sector, in the year 2000, we did a little experiment at the World Bank called the Development Marketplace. It allowed community groups to submit projects directly, and then allowed non-profit and other private sector people to help make allocation decisions. This program has allocated tens of millions of dollars over the past few years - and has surfaced many superb ideas and backed outstanding community leaders. What if we upped that program to tens of billions of dollars?

Bill Easterly has taken these ideas a step further and suggested that public agencies should be required to give out aid vouchers to community groups around the world. The community groups could then use the voucher to "shop" at different aid agencies for the programs they wanted. Now THAT would shake things up! (And what would happen if private agencies could compete with public agencies for those vouchers?)

"Anyone who says that are not using it is lying."

Earlier I posted about a session at PCForum this year where the founder of Facebook spoke.

More recently I read an excellent article about the rise of Facebook.com by John Cassidy in the New Yorker. In the article, Facebook founder Zuckerberg argues that the secret of Facebook's success is how it gives each user total control over what personal detailsthat they display to every other person. This allows people to form a web of very nuanced networks, revealing different amounts of information to different people - just like they would in real life.

Last night I met with a group of 15 high school students who are interning on Capitol Hill here in Washington for the spring term.

I was stunned that **every single one of them** uses Facebook, and they said that anyone at their school who claims not to is lying. One girl, a senior, said that she had decided that very day to try to go cold turkey and quit, but that she was not sure she would succeed.

Wow.

$6 can change a life

I did a lot of graduate work on cost-benefit analysis, and spent a large part of my early career doing cost-benefit analysis for projects and programs. I got disillusioned because of two big problems.

• Conceptual: There are big problems comapring apples and oranges. These problems are compounded because different people value apples and oranges differently, and different people place a different value on an apple today versus two apples tomorrow.


• Usefulness: I found that despite the tens (or hundreds) of millions of dollars we spent on evaluation at the World Bank, the lessons learned were adopted very slowly.

But it is important not to throw the baby out with the bathwater. Sometimes it is useful to compare costs and benefits at a very general level just as a reality check on where funds are flowing. To this end, we have started doing some analysis on projects funded through GlobalGiving, because we believe it will be useful to donors.

We decided to start with the imperfect metric of "the cost of positively improving one person's life." This metric is very crude, and the data are still limited, but it is a start. Here are the initial results. In the last couple of years, it has cost about $6 to improve a person's life through projects funded on GlobalGiving.

When Eli and I were visiting Geneva Global recently, we found that they were coming up with siimilar cost numbers.

Within this, there are wide variations. For example, economic development projects cost more, and health, education, and human rights projects cost less. As mentioned, these are not directly comparable, because projects in one sector may have a greater impact on a person's life, or that impact may last longer.

Based on what we have to date, we estimate that more than 500,000 people's lives have been improved in some way through the 700+ projects funded on GlobalGiving.

We will continue to work on the numbers and over time will provide more details as we get more data.