During dinner with my brother last weekend our conversation turned to microfinance and the fact that it’s not living up to it’s original hype. In fact, rather than being a panacea to all problems, people receiving microloans face many of the same problems we face with credit cards. High interest rates, using one card to pay off another, using borrowed money to pay for things that are not actually necessities. It is starting to appear that it may be better to offer other financial services such as savings accounts and insurance instead of, or in conjunction with, loans. For more on this see David Roodman’s Blog, GiveWell’s series on microfinance, and the Good Practice Guidelines for Funders of Microfinance

My brother, a regular donor to local and international charities, is like so many other donors. He wants to ensure that his donation does the good he intends. As we left the restaurant he stopped me and asked, “What does work?”. This question, or some variation of it, has been asked to me hundred of times by donors over the past five years. Unfortunately, the answer is both simple and complicated.

What does work?

There is no silver bullet, there is no single type of project that is successful in all situations or solves all problems. On the flip side there are few aid projects that are always wrong. Even orphanages, which I have written against in several posts, do have instances where they might be the best solution for that specific situation.

What works are good NGO’s and aid organizations following good aid practices

Unfortunately, the average donor has very little idea what good aid practices are or how to identify good organizations. A recent post from Tales from the Hood discusses this problem:

Despite more Developed World interest in international issues, aid, and philanthropy now than at any time prior, there remains massive, general disparity between what individual citizens who support our work think we do, and what NGOs and aid agencies actually do.

There is a critical need for individual donors to understand aid better so that their funding decisions are based on knowledge rather than the best marketing campaign, the promise of a silver bullet, or the illusion of a person to person connection.

This blog was started out of the need for better educated donors. Unfortunately, determining if the charity is well managed and follows good practices requires understanding and evaluating a variety of factors. No single post or series of posts can provide donors with enough information to confidently chose between the millions of charities vying for their donations .

A charity rating system that teaches donors what works

This has compelled me to develop a different type of charity rating system. One that teaches donors about aid as it walks them through the process of rating the charity themselves. A soft launch of this system is tentatively planned for January.

Just as there are no silver bullets for aid programs there are also no silver bullets for charity rating systems. While this system won’t be perfect for all donors and and all charities, it will give interested donors the knowledge they need to make thoughtful funding decisions. And that’s as close to a silver bullet as I could hope for.