Collaborative finance is a term used to describe a rapidly evolving set of financial tools that allow individuals or organisations to mobilise, move and access funds and financial products using peer-to-peer online platforms without the involvement of traditional financial institutions. Cutting out traditional institutions often allows significant reductions in the cost of services and facilitates the extension of services to under-served geographical locations and communities.
Collaborative finance services currently exist in fundraising, lending, insurance, currency exchange and transfers.
|Collaborative finance in practiceSave the Children raised USD31,110 from 94 donors via the catapult.org platform for a project providing newborn kits for babies born to drought and conflict-affected mothers in Sigaale, Darwish and Masalah displacement camps in Mogadishu. Funds were matched by the Bill and Melinda Gates Foundation. catapult.org focuses on raising funds for projects supporting girls and women, typically an underfunded area. Partners using catapult.org are rigorously vetted and must upload a ‘thank you photo when they reach their fundraising target. They must then provide updates 90 days and a year later. There is no fee for partners and donations are tax deductible for US citizens. Only projects that reach their funding targets receive the funds that have been pledged. See: <www.catapult.org/project/disaster-relief-moms-and-newborns>.
globalgiving.org raised USD1.6 million from more than 11,000 donors in a consolidated appeal for 20 organisations – including local community-based organisations (CBOs) and NGOs – responding to Typhoon Haiyan in the Philippines in 2013 and 2014. globalgiving monitors and reports back to donors on the use and impact of funds. See: <www.globalgiving.org/projects/super-typhoon-haiyan-relief-fund/updates>.
Mobilising private donations for humanitarian response. Crowdfunding platforms allow individuals and organisations to connect directly with prospective donors to market their cases and receive funds. Current crowdfunding formats typically provide regular updates on project implementation and outcomes and fundraisers may also offer ‘perks’ to donors.
Industry estimates indicate that the value of global crowdfunding almost doubled between 2011 and 2012 (from USD1.5 billion to USD2.7 billion), before reaching an estimated USD5.1 billion in 2013.[i]
Cutting the cost of person-to-person transfers (remittances). The reach and cost effectiveness of mobile money may provide opportunities for poor households in remote and underdeveloped financial markets to manage the cost of post-disaster response and recovery. The ability to send money relatively cheaply via the M-PESA mobile money system in Kenya, for example, has led to the increased amount and volume of remittances. This has enabled some households to better absorb negative income shocks. Families without M-PESA experienced a 7% fall in consumption after a major shock.[ii]
Increasing access to financial services. Social lending has grown rapidly, particularly through the kiva.org platform, which links individuals and organisations in need of micro-loans that might be used for various environmental and social outcomes. Individual lenders can identify and select potential borrowers from their ‘pitch’ listed on the website and verified by local counterpart organisations. As borrowers make repayments, funds are credited to the lender’s Kiva account, which they may choose to withdraw or lend to others.
The potential to develop technological solutions to mobilising and moving funds – with concomitant potential cost savings – are beyond doubt. Confidence in these services however, together with uptake and regulation, may lag somewhat behind at present however. Of particular note for humanitarian action:
Not everything appeals to the crowd. Reflecting the bias often found in private fundraising towards more emotive causes, certain needs and types of intervention will inevitably prove more appealing to donors than others. Connecting with potential donors is easier and cheaper via social media but still requires organisations to invest in identifying, informing and engaging potential donors. The ability to manufacture viral fundraising campaigns has proved an elusive dream for many traditional not-for-profit organisations so far.
Connectivity and infrastructure are limiting factors. On the demand side, connectivity is problematic and services operating in developing countries often rely on existing traditional infrastructure to identify and verify potential clients and beneficiaries. For example, Kiva partners with NGOs and CBOs to identify and verify clients and administer loan repayments.
Legislation lags behind technical innovation. Legislation has in some cases struggled to keep pace with new modes of shifting capital via online platforms. In the case of equity investment in particular, there are concerns that inexperienced investors may not currently be well protected under existing legislation in some potential ‘donor’ countries.[iii]
Increasing opportunities for collaboration and engagement. There are many potential applications for collaborative approaches to humanitarian response more widely in being able to match needs with resources and assistance. In contexts where people have high connectivity, citizen and private sector volunteers/givers could and do already offer goods, services, accommodation direct to those in need. The ability to communicate with one’s donors or investors via collaborative finance platform may offer a more lasting and engaged connection with supporters for not-for-profit organisations.
[i] Based on Massolution, 2013 as cited in OECD (2014), Development Co-operation Report 2014: Mobilising Resources for Sustainable Development, OECD Publishing. See: http://dx.doi.org/10.1787/dcr-2014-en.
[ii] Jack and Suri in Cull, R., Ehrbeck, T. & Holle, N. (2014) Financial Inclusion and Development: Recent Impact Evidence, Focus Note No. 92, April 2014, the Consultative Group to Assist the Poor. See <www.cgap.org/publications/financial-inclusion-and-development-recent-impact-evidence>.
[iii] As discussed by Randel, Henon and Stirk in OECD, 2014 ibid.