Have you ever donated a couple of quarters to a child’s Trick-or-Treat for UNICEF box or given the bell-ringing Salvation Army guy a few dollars and wondered where your money would go and if it would be spent in a suitable manner?
It’s no surprise that people constantly question how their donations are being used, especially in light of last year’s Invisible Children scandal, in which people discovered that a large amount of donated money was being used to fund the business side of the organization instead of allotting it to the actual cause.
So if there is so much misunderstanding over this type of issue, then what exactly is a nonprofit?
One common misconception people have about nonprofit organizations is that they are all tax-exempt. I’ve heard many use the term 501 interchangeably with nonprofit; however, not all 501’s are actually considered charities. First of all, the IRS defines a 501(c)(3) as the only type of 501 that is charitable, for purposes such as education, religion, etc. Other types of 501’s, like 501(c)(7)’s and 501(c)(19)’s, function as social and recreational clubs and veterans’ organizations, respectively.
One type of nonprofit that has gained popularity over the past few decades is founded on the ideas of microfinancing and microcredit. This is the concept of giving small loans to impoverished people who may not have access to a solid banking system. It has become an especially important tool in boosting the role of the community and small businesses in developing countries.
If microfinancing and microcredit is the way to go, how does it all work?
Kiva, one of the most prominent nonprofits of this type, operates so each donor knows exactly who, where and how their money is being used. For example, Vat, a 46-year-old who lives in the Kampong Cham province in Cambodia, is looking for loans so that he is able to purchase fertilizer, pesticides and seeds for his farm.
Kiva gives a quick history of Vat’s business life and states that his goal is to increase the number of crops he produces in order to increase his family’s overall quality of living. Once Vat has received the $1,200 from various donors who have lent him anywhere from $25 to $500, he will work on paying them back.
At a repayment rate of 98.98 percent, donors are almost guaranteed to get their money back, and can even choose to re-invest that same money back into another person’s business venture. Plus, donors know that 100 percent of their money is going to help someone in need. Kiva raises its own business funds through grants, corporate sponsors and foundations, ensuring that the lenders’ generous actions do not go to waste.
But the truly great thing about Kiva and other microfinancing nonprofits is that they give opportunity to those who have none. It’s like the saying, “give a man a fish and you’ll feed him for a day; teach him how to fish, and you’ll feed him for a lifetime.” When you lend someone money through organizations like Kiva, you’re teaching them how to fish by giving them a tool they can use to change their life. After all, isn’t that what change is all about — simply an opportunity?
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