What is Donation-Based Crowdfunding?

Crowdfunding as the New Form of Charity

Correlation Between the Rise in Social Media and Online Giving
Donation based crowdfunding. nonprofitorgs/Flickr

Crowdfunding's roots are deep in charity.

Microfinance: the early form of crowdfunding

That's because much of what we know about crowdfunding came from early forms of microfinance. Microfinance, built on much of the real-world experience of Nobel Prize-winner, Muhammad Yunus. Yunus and the Grameen Bank found a successful way to battle poverty in the emerging world -- not by giving charity but by charitable lending.

Microfinance gives local farmers, vendors, and peddlers small loans to help them grow their businesses. After they lend money to individuals, microfinance organizations provide support and guidance to help small entrepreneurs succeed in their businesses, helping ensure repayment of the loans. Microfinance works in places where the population lacks access to traditional banking services. Borrowers are frequently encouraged to join peer groups, which have been proven to help support small businesses and entrepreneurs.

Microfinance comes online: crowdfunding comes alive

The Internet is a perfect tool for microfinance organizations: while local non-government entities can screen applicants looking for loans, the Internet gives access to global capital looking for a home. Plus, the social aspect of media, which makes it very easy to share worthy projects with your friends and family, encourages donating to charitable causes within tight-knit micro communities.

In 2005, Kiva.org opened its (virtual) doors to donors. Working with local partners in numerous countries, donors can use the site to identify worthy entrepreneurs and donate as little as $25 for a loan that's typically paid back within a couple of years.

Those small loans are aggregated together to help create opportunity globally.

Since 2005, Kiva.org has:

  • Donors: over 1 million donors
  • Loans: loaned out over $500 million
  • Repayment rate: has a 99% repayment rate 
  • Global reach: Active in 73 countries 


Size of donation-based crowdfunding market

According to Massolution's Global Crowdfunding Report, donation-based crowdfunding should soon tally over $1 billion yearly.​

The next biggest category is the donation market.  This overlaps with the reward market: many artistic endeavors that use reward crowdfunding also encourage funders to contribute very small amounts of money, typically less than $25, without expectation of a return -- except for the knowledge of having contributed to a worthy cause. Donors often receive a thank you in a program or liner notes. Traditional charities usually request donations to support their overall mission, and then decide for themselves how to allocate the funds. Crowdfunding portals can raise funds for individual projects, meaning donors can give to the project of their choice.

With no shortage of competitors like Crowdrise, there are literally hundreds of donation-based crowdfunding platforms around the world contributing to the social good.

Charities learn how to play the crowdfunding game

With numerous crowdfunding platforms to help donors give money to the charitable causes of their choice, the power of crowdfunding hasn't been lost on charities. In fact, the growth in online giving exceeds the growth in online shopping.

While crowdfunding is still just a small drop in the ocean of the $300 billion given to charity yearly, more and more charities are looking to crowdfunding to address a younger audience interested in socially supporting projects and organizations.

"Giving a small amount of money to a larger project is a way that they can feel like they are accomplishing something," said Cody Switzer, The Chronicle of Philanthropy's web editor.

And while charities are looking to crowdfunding to compete with larger competitors vying for similar donations, donation-based crowdfunding still requires a sound strategy to be successful at fundraising.

Kiva.org' may have been founded in 2005, but crowdfunding is still in its early days. Donors and charities will only benefit as new models for charitable giving emerge as social media and ecommerce evolve.

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