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Following the end of the Second World War until very recently interna-
tional development assistance aid was mainly provided by two types of
institutions: donor agencies of richer countries and multilateral development
banks whose capital was contributed largely by governments of richer coun-
tries. But between 2000 and 2011, international private giving by US- based
corporate and in de pen dent foundations and individuals more than doubled.
Along with foundations, nongovernmental organizations (NGOs), religious
groups, and charities in the United States contributed $39 billion to develop-
ment causes in 2011. By comparison, the World Bank lent about $43 billion
and the United States disbursed about $31 billion in economic assistance
(World Bank 2011; Hudson Institute 2013). Our chief aim here is to exam-
ine the implications of this dramatically changed aid landscape for global
poverty alleviation as well as for human dignity in international a airs. We
argue that although there remains some uncertainty about the e ects of pri-
vate aid on development and on the motivations of private aid givers, there is
reason to believe that private aid advances the centrality of personal agency
as the focus of donor- recipient aid transactions both for individual taxpayers
and for bene ciaries. For taxpayers, private aid most obviously o ers oppor-
tunities for greater control over funding and allocation that is not possible
through the normal route that o cial aid takes in being transferred from
rich- country taxpayers to poor- country bene ciaries. For recipients, private
aid fundamentally involves dignity- enhancing, person- to- person relation-
ships that often trump sovereign considerations of strategic and commercial
interest in allocating of funds.
CHAPTER 9
The New Global Landscape for
Poverty Alleviation and Development
Foundations, NGOs, Social Media, and Other
Private Sector Institutions
RAJ M. DESAI AND HOMI KHARAS
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190 The New Global Landscape for Poverty Alleviation and Development
Private Aid: New Players, New Directions
Both o cial aid and private international giving have risen strongly in the
United States over the last de cade. In the United States private giving for
international development now exceeds o cial development assistance by 30
percent. Whereas time series data on private giving volumes is limited, the
sheer number of private foundations grew from 40,100 in 1995 to 71,000 in
2005, with more than 650 US foundations making grants for international
a airs (Lawrence, Austin and Mukai 2007; Renz and Atienza 2006). Mean-
while, international NGOs qua dru pled from 6,000 to 26,000 in the 1990s
before increasing again to 40,000 by the end of the 1990s (Keohane and Nye
2000). The growth in private aid is all the more striking because survey data
suggests that public opinion overestimates the size of o cial aid by signi -
cant amounts. In the United States, 69 percent think the US government
gives more than other countries in international aid as a share of their gross
domestic product (Ramsay et al. 2009).
Meanwhile, new global institutions have emerged in the last two de-
cades. Growth in private, nono cial aid is seen at all levels, from the largest
charities, such as the Gates, Ford, MacArthur, Rocke fel ler, and Hewlett Foun-
dations, to transnational NGOs, such as CARE, Oxfam, Médecins Sans
Frontières, and Save the Children, to hundreds of smaller foundations, to the
small- scale philanthropy of millions of individuals who have at their nger-
tips a variety of mechanisms for delivering donations or microloans to devel-
oping countries.
Despite this growth, relatively little is known about the allocation and ef-
fectiveness of private aid. Private aid’s defenders argue that private develop-
ment assistance is more e ective than o cial development assistance due to
lower overhead costs, less susceptibility to corrupt practices, less leakage due to
public- sector ine ciencies, a stronger need- based orientation, and fewer funds
being funneled back to con sul tants and contractors in rich countries, as is the
case for much o cial technical assistance (Dreher et al. 2009; Koch et al. 2008).
Research on the allocation and selectivity of private aid is still of recent vin-
tage; information on the impact of private aid remains in its infancy.
Although evidence on the workings of private aid may be preliminary,
there is reason to believe that private aid, by putting a human face on those
whose dignity will be served through their economic empowerment, advances
the centrality of human agency as the analytical centerpiece of relationships
between donors and recipients. It does this in two separate but related ways:
(1) through a sometimes dramatic shortening of the route between donor and
recipient, thus potentially reducing both transaction and agency costs of aid,
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Raj M. Desai and Homi Kharas 191
and (2) through a reliance on person- to- person relationships that are, increas-
ingly, abetted by social media and internet technology.
The Long and Short Routes
of Development Aid
The new forms of private aid o er di erent answers to the traditional models
of charity. First, o cial aid and private aid face di erent collective action
constraints. For the former, taxpayers who support foreign aid in principle
may be insu ciently mobilized relative to par tic u lar interest groups. Even
philanthropically minded individuals may free ride on the e orts of larger pri-
vate donors. For the latter, private giving o ers an opportunity for individual
action rather than collective action. Aid is an act of altruism. Second, the path
that o cial aid takes— from taxpayers to government co ers to aid agencies to
governments in developing nations to public agencies or private organiza-
tions in the eld— is long and winding. And whether accurate or not, this
course is often perceived by taxpayers in donor countries to be costly and
susceptible to corruption and leakage as funds move from donor countries to
bene ciaries in recipient countries. Private aid o ers a more direct connec-
tion between giver and recipient. Third, donor- country individuals may
want to help and recipients may want input into funding decisions, but both
recognize that they need to act through one or more intermediaries (usually
governments or NGOs)— parts of a global foreign- aid apparatus that may be
simply too insulated or centralized to incorporate the individual preferences
(see, e.g., Easterly 2005; Roodman 2006). Private giving o ers many more
opportunities for choosing the kind of intermediation platform with which
donors and recipients feel most comfortable.
Coordination
The public economics literature suggests that collective action problems may
block private giving for worthy causes because each individual, behaving ra-
tionally, tries to free ride on others’ generosity. Governments can overcome
the collective action problem by taxing everyone and providing grants to the
causes to which individuals would want to give. One common empirical ap-
proach is to test whether individual donations are smaller in areas where gov-
ernment grants are larger. Such crowding out is evidence of collective action
problems at work.
A review of the literature by Bekkers and Wiepking (2007) nds evidence
that crowding out in domestic charities is signi cant. Their summary looks
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192 The New Global Landscape for Poverty Alleviation and Development
mostly at cross- section studies. Garrett and Rhine (2007) analyze time series
for 1965– 2003 and reach the same conclusion. In the long run, cointegration
tests show that increased government spending crowds out charitable giving,
especially in the education sector. In the short run, however, the e ects are
weaker and not signi cant. The authors suggest that it may take time for
individuals to get full information on what the government is doing.
Andreoni and Payne (2008) also con rm the crowding- out e ect in a large
sample of charities. They demonstrate that crowding out occurs through two
channels: classic crowding out (where donors feel less willing to give) and
fundraising crowding out (where grant- receiving organizations reduce their
activity to collect donations). Their evidence suggests that fundraising crowd-
ing out accounts for 68 percent of the observed crowding- out e ect.
This evidence, however, relates to giving through NGOs compared to
government tax- and- spend programs. It does not directly look at new forms
of private giving. For these newer types of private assistance, the premise is
that the act of individual giving gives plea sure directly to the donor— that is,
assuming that giving is altruistic. If so, it would suggest that the collective-
action constraint to international aid is minimal.
The Chain of Offi cial Aid
If one were to follow the money of a bilateral aid transaction, it would look
something like this. Taxpayers in rich countries pay taxes that are collected
by a revenue- raising agency and are then allocated to the foreign aid agency
or department. Within the foreign aid agency, project o cers, through a se-
ries of interactions with their counterparts in various line ministries in devel-
oping countries, design aid programs to be funded that are subject to mana-
gerial approval (and in some cases may require interagency authorization)
before the funds can be transferred to the recipient governmental agency. In
accordance with program design, the recipient ministry may rely on extant
procedures for accounting and use of the received funds (the country sys-
tems approach), or it may establish new, specialized units within the minis-
try for the speci c purpose of managing the use of program funds (the project-
implementation unit approach). In either case, a portion of funds may be
used for a variety of incidental expenses, including salary supplements for
civil ser vice. According to procedures thus de ned, the ministry then allo-
cates the funds to a frontline agency or organization— for instance, a regional
government or a provider of public ser vices. The frontline agency, similarly,
may use some funds to pay or supplement the salaries of speci c sta mem-
bers responsible for administering the funds. Finally, the frontline agency
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Raj M. Desai and Homi Kharas 193
spends the funds remaining on the intended project, such as a vaccination
e ort, a new school, improved sanitation, or other such areas.
Foreign aid delivered through these o cial channels, obviously, does not
provide direct connections between citizens and recipients. Citizens pay their
taxes to the government, which in turn allocates resources to other govern-
ments to fund myriad public programs, among them programs that bene t
poor individuals around the world. There is no face- to- face contact between
an individual taxpayer and the nal recipient, and insofar as taxpayers have
inaccurate perceptions of how their government spends development aid,
there are few concrete expectations of impact, return, or reward.
O cial aid travels a long route, with costs at each stage. The rst stage is
the cost of tax collection when money is transferred from individuals to the
trea sury. In this stage, costs consist of the direct administrative costs of tax
collection as well as deadweight losses from taxation. These costs can be sub-
stantial. For example, Alm (1985) found deadweight losses on US taxes could
approach nine percent. In the second stage, o cial donor agencies transfer
funds to recipient country governments to support speci c development
projects and programs. The administrative costs of these agencies have aver-
aged between 4 to 5 percent according to statistics reported by the Or ga ni-
za tion for Economic Co- operation and Development’s (OECD) Develop-
ment Assistance Committee. The third stage involves costs associated with
transferring the money from the recipient government to nal bene ciaries
through project implementation.
Administrative costs of the project, corruption, and other leakages mean
that only about half the funds actually reach their stated end purpose. One
study, based on surveys in Ghana, Tanzania, and Rwanda concludes that,
“approximately half of the overall amount allocated to clinics and hospitals
did not actually reach them” (Lindelow, Kushnarova, and Kaiser 2006, 30).
Similar gures appear in other studies. According to the Paris monitoring
survey, in 2011 some $62 billion was disbursed by donors to 78 percent of the
recipients who participated in the survey. But only $42 billion was received by
these recipients; between the aid agencies of donor countries and the govern-
ment bud gets of these recipient countries, some $20 billion was lost (OECD
2011). The US Government Accountability O ce (GAO), in its recent analy-
sis of the Millennium Challenge Corporation was able to identify the alloca-
tion of 59 percent of in- country disbursements as transaction costs in the nine
compact countries that are currently operational.1 Of this, 32 percent was for
direct project- related expenses, and 27 percent was for administrative, audit,
scal, and procurement expenses (GAO 2007). Adding all these together,
transaction costs on o cial aid could amount to 60 percent or more.
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194 The New Global Landscape for Poverty Alleviation and Development
Some of the most venerable, older international development charities
traditionally operated in a similar manner. Individuals (sometimes prompted
by tax rules allowing charitable contributions to be deducted from taxable
income) directed resources to an or ga ni za tion (e.g., the Red Cross or Child-
Fund2, with which the taxpayer identi ed or otherwise to trusts, and the
or ga ni za tion in turn allocated resources to various programs and operational
expenses. Some organizations allowed varying forms of sponsorship, where
donors received updates from recipients (e.g., updates from a child recipient)
or selected a level of donation that corresponded to di erent types of the or-
ganizations’ activities (e.g., a donation to allow the charity to purchase vac-
cines). Donors were not typically able to select which child they sponsored
and funds received were not usually earmarked.
These traditional modes of aid delivery were designed to cope with three
principal challenges: Most donors did not have enough information on the
speci c causes of poverty or on the types of programs that could be designed
to address these causes— not just to treat the symptoms; small- scale donations
that might otherwise be fragmented or insubstantial needed to be coordi-
nated; and agency costs needed to be addressed. Aid agencies or some more
traditional charitable organizations provided an institutional basis for reduc-
ing the taxpayer- speci c burden of acquiring information on speci c pro-
gram and project possibilities and, by pooling resources, avoided the coordi-
nation problem that atomistic donor- taxpayers faced.
Private Aid as a Direct Transaction
Private aid in the last de cade, however, has removed the advantage that o -
cial aid (and older private aid) held in overcoming these challenges. In part,
this has been accomplished through the expansion of a par tic u lar type of global
institution that is not an intergovernmental entity but one that is attached to
private philanthropists: the mega- charity. With charities whose endowments
have been established at the bequest of individual billionaires, such as the
Gates Foundation, Hewlett Foundation, and Google Foundation, there is
little coordination problem in making aid- allocation decisions. Regarding the
information challenge, moreover, the operating principle of many of these
larger charities is to direct large amounts of funds to programs and sectors
that individual philanthropists themselves have chosen as priorities. Re ect-
ing the dot- com boom that created the wealth of these new philanthropists,
many hold an abiding faith in the capacity of innovation, technology, and
modern management methods to solve problems of extreme poverty. And there
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is an emphasis on blurring the line between nonpro t and for- pro t ap-
proaches, as the new philanthropists seek to invest in income- generating ac-
tivities. Google .org (a for- pro t charity aiming to address issues of global
health, disease, poverty, and climate change) and the for- pro t Omidyar Net-
work are prime examples.3 Rather than funding a medical clinic, for example,
the new philanthropists invest in biotech companies working on tropical dis-
eases. Rather than fund the distribution of drugs, the new philanthropists
seek to invest in and create incentives for drug companies to operate in poor
regions.
As a consequence of this, there are three arguments to be made that new
private aid may be, on the margins, more e ective than o cial aid. First, pri-
vate aid may be less susceptible to so- called leakage due to corruption and
bribes. Because it usually avoids public- sector ministries or government agen-
cies in recipient countries and is instead transferred directly to frontline
NGOs and development projects, it can avoid problems associated with weak
or fragile public institutions. Second, smaller portions of private aid are typi-
cally spent on overhead costs or on technical assistance that often funds con-
tractors in donor countries. Most foundations and charitable organizations
typically lack a (costly) network of eld o ces with international sta and
instead tend to rely on local sta and partnerships with frontline NGOs. They
also tend to depend more extensively on the input of end- user bene ciaries.
Third, although o cial donor allocations are strongly in uenced by strategic
or commercial relations with recipient countries, private aid allocations ap-
pear to be more heavily in uenced by recipient need and human dignity, as
de ned by Mark P. Lagon and Anthony Arend at the outset of this book.
This is not to suggest that private aid is not without its drawbacks. Al-
though there are certainly reasons to believe that private aid may be more
cost saving and that larger portions of private aid than o cial aid actually
reach the poor, in contrast to the extensive evaluation of o cial- aid e ective-
ness there is very little comparable information on the cost e ciency of pri-
vate aid. Self- evaluations of NGOs may be positive, but these are rarely con-
ducted according to accepted standards of reliable impact evaluation.
Moreover, private aid givers are not subject to the same standards of bud-
getary and governance oversight or accountability as are o cial aid agencies.4
The use of taxpayer funds naturally raises demands for nancial accountabil-
ity, which can encourage risk- averse strategies when compared to private funds,
which can be less risk- averse. Finally, private aid cannot, of course, promote
liberalization, institution building, scal reforms, governance reforms, or any
of dozens of other key elements of an e ective development strategy.
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Crowdfunding Aid
As we have seen, o cial aid, although funded by taxpayers, gives citizens
little say over aid allocations. Compared to o cial aid, private aid is by de -
nition more sensitive to the preferences of philanthropic- minded individuals
who determine allocations across countries and, within countries, across sec-
tors, projects, and individuals; in short, the aid giver is empowered. In recent
years, private development aid has been facilitated by the availability of peer-
to- peer, internet- based platforms, which bundle large amounts of small, in-
dividual contributions for investments, grants, or loans. The bundling of
funds is generally done through internet- based social networks. From the
United States, internet- based companies such as Global Giving, Kiva, Wo-
kai, and Zidisha, have channeled millions of dollars to individuals and part-
ner organizations in developing countries.
Crowdfunded private aid also o ers the promise of a much shorter route
from giver to recipient. Internet- based platforms o er a direct matching be-
tween the two. Although there are some di erences in approach across plat-
forms (e.g., Kiva focuses on individuals or entrepreneurs whereas Global
Giving highlights the worthiness of the projects they are proposing for fund-
ing), all enhance social recognition of the bene ciaries’ worth and catalyze
their agency. Donors contribute directly to those activities rather than to indi-
viduals. In both cases, the ow of funds route is short. The money goes from
an individual to the internet- based bundler, where it is pooled and transferred
to a nancial or project intermediary in the recipient country that then dis-
burses it to the nal bene ciaries. The long route of passing through govern-
ment bureaucracies is avoided.
Private Aid and Personal Agency
From the perspectives of both individual taxpaying donors as well as end- user
bene ciaries, channeling funds through o cial aid agencies has the drawback
that it is the agency, rather than the donor or recipient, that decides what
projects to fund. For some, this may not be a cost but a bene t. If an o cial
agency learns about what works in development, has an active evaluation
mechanism, strong project review and implementation structures, and appro-
priate nancial controls, it may provide valuable ser vices to both the individ-
ual donor and recipient. On the other hand, if the o cial agency chooses
projects on a di erent basis from what individual donors or recipients would
choose or imposes conditions on its giving, there may be agency costs. In the
past, one large source of agency costs came from tied aid, a practice where
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Raj M. Desai and Homi Kharas 197
procurement was linked to the country of origin of the funds. It is unlikely
that altruistic individual donors would care about whether a par tic u lar good
or ser vice was procured from a speci c country, whereas it is more obvious
why a national government may care about such linkages. Estimates of the
cost of tied aid vary, but they averaged between 15 and 30 percent. For some
types of aid, like technical cooperation, the costs of tying may be even higher.
A further source of agency costs comes from di erences in approach about
what makes for an e ective aid intervention. Individual donors and recipients
may have views about project size, sector, and other characteristics that di er
from o cial agency views. The greater the di erence, the greater the agency
costs of transferring aid through o cial channels. To the extent that private
aid establishes— and to a great extent relies upon— the personal connection of
individual donors and recipients, there is reason to believe that new forms of
private aid facilitate the placement of individual agency of both the donor and
recipient as a main driver of e orts to alleviate global poverty.
One approximation of the relative bene t of personal agency over o cial
agency, then, is to examine whether the preferences of individual donors and
recipients match the allocative decisions of o cial aid agencies. There is a
considerable body of analysis of the general e ects of public opinion on for-
eign policy. Although early research suggests that the e ects of public opin-
ion on foreign policy are weak or indeterminate, recent studies indicate that
public opinion often has a mea sur able impact on, for instance, international
security (Hartley and Russett 1992; Hill 1998; Sobel 2001; Wlezien 1995),
trade (Kono 2008; Mans eld and Mutz 2009), and immigration policies
(Facchini and Mayda 2008).
Several authors, similarly, nd that foreign aid increases with public sup-
port for international assistance in rich countries (Lumsdaine 1993; Tingley
2007; Chong and Gradstein 2008). But although there is evidence that public
opinion a ects aid levels, we know little of how citizen preferences shape
aid allocation. Of course, where individual preferences must be articulated
through interest groups, po liti cal parties, or representative institutions, ideol-
ogy and group a liation will lter those preferences for aid allocation. Thus
Tingley (2009), for example, nds that although one would expect conserva-
tive individuals in rich countries less inclined than their liberal counterparts
to support foreign aid, right- wing and left- wing governments show no di er-
ence in aid to middle- income countries. Only with low- income recipient
countries is there an ideological bias, with right- wing governments giving less
aid to these poorer nations. Similar e ects have been seen with respect to leg-
islative voting on aid allocation (Fleck and Kilby, 2001; Milner and Tingley,
2010).
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198 The New Global Landscape for Poverty Alleviation and Development
In the framing of this book, of course, the perspectives of recipients are as
important— indeed, more important— than those of donors. What do the
citizens in recipient countries think of o cial aid? Few, if any, systematic
studies of citizens’ views of aid in recipient countries have been conducted.
O cial donors occasionally run market- research- style surveys, but results are
rarely released to the public. One of the few eld experiments on a nationally
representative sample (in Uganda), for example, nds that citizens do like aid,
want more of it, but want greater say in its use. In fact, 80 percent of respon-
dents reported that they themselves have not directly bene ted from aid, and
nearly two- thirds of participants believed that more than half of aid dollars
were not spent as intended (Milner, Nielson, and Findley, 2013).
Public opinion regarding aid allocation may also shape decisions of foun-
dations, NGOs and other private aid organizations. But private humanitar-
ian and development aid has been little studied by social scientists, and the
limited research that exists has focused exclusively on larger organizations.
Financial rec ords of the most prominent US- based international develop-
ment NGOs, for example, show that these NGOs allocate funds raised from
private sources based on strong humanitarian motives principally to projects
that provide or improve education, health care, safe drinking water, sanita-
tion, sewage, and emergency relief in poor countries (Büthe, Major, and de
Mello e Souza 2012). Information on the allocative preferences of individu-
als however, is non ex is tent. Examining contributions by large numbers of in-
dividuals to international charitable causes can provide a more direct under-
standing of citizen preferences regarding aid allocation.
Taking the example of charitable crowdfunders, we can assume that
crowdfunders who participate in global philanthropy are likely to be repre-
sentative of larger populations of individuals who, in the United States at
least, now account for 75 percent of all private donations to international
charitable causes (Giving USA 2012).
Person- to- Person Aid: The Case of Kiva
Kiva is a nonpro t or ga ni za tion that operates an internet- based, peer- to- peer,
crowdfunding platform connecting microlenders to microentrepreneurs
in developing countries. Founded in San Francisco in 2005, Kiva operates
through its internet portals, through which anyone with a credit card or Pay-
Pal account can lend to microentrepreneurs who post requests online. Pro-
spective borrowers must post their projects through one of several a liated
micro nance institutions (MFIs). Prospective microlenders, once they have
registered, can select projects based on region, country, and project objective.
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Raj M. Desai and Homi Kharas 199
Once the preferred traits have been selected, a microlender is shown a list of
project requests matching the preferred project criteria. Alternatively, micro-
lenders can select most recent projects that have been newly listed, or they
may have the Kiva website randomly select a project. It is this exibility in
matching donor preferences to recipient requests that, through platforms
such as Kiva’s, support personal agency as well as the empowerment and hence
dignity of bene ciaries, along with donors.
Selecting any par tic u lar project reveals more information: the amount of
the loan (up to a maximum of $5,000), the loan duration in months (up to a
maximum of two years), the name and risk- rating of the MFI, the number of
borrowers (if the borrower is a group), the gender of the borrowers, and a short
narrative written by the microentrepreneur as to the speci c purposes for which
the funds will be used. Finally, the project information also includes an indica-
tion of how much of the project amount requested has been funded thus far.
Once a project is selected, microlenders can contribute funds in any
amount (above a required minimum of $25) up to the full amount requested.
Using a PayPal account or a direct payment from a credit card, microlenders
then transfer funds in the pledged amount. Projects accumulate funds from
lenders in this manner until they are fully funded. When microloans reach
maturity, their principal is to be repaid to the original lender’s account; lend-
ers receive no interest, and thus the cost of capital is borne by the lender.
Zero- interest loans, moreover, allow Kiva to operate as a nonpro t 501(c)3
or ga ni za tion under US law instead of as a regulated commercial bank.
Once microlenders choose to lend (i.e., once they become crowdfunders)
they are noti ed periodically of the progress of the microentrepreneurs’ ef-
fort. Kiva’s eld partners may post business journals identifying how the
loan is being used or what e ect it has had on the business own er. This re-
porting is not required, thus the ow of information from recipients can be
erratic and the information provided is very rarely nancially detailed (Bon-
bright, Kiryttopoulou, and Iversen 2008). Nevertheless, Kiva platforms pro-
vide enough information to make a personal connection between the donor
and the recipient. The information enhances social recognition of the recipi-
ent as the other pillar of dignity in addition to agency, as posited by Lagon
and Arend in this book. Yet a key problem for both organizations is to decide
on exactly what (and how much) information to provide to permit informed
choices without overwhelming an individual donor.
Bene ciaries’ agency, of necessity, is not without limits. Kiva restricts both
loan size and time on the website. Until the end of 2007, individual loan re-
quests by potential bene ciaries could not exceed $1,200; that limit has since
been raised to $2,000. The maximum request for group loans remains
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200 The New Global Landscape for Poverty Alleviation and Development
$5,000. All requests by microentrepreneurs must be made through partner
MFIs, and all requests made to Kiva enter a queue. After a preliminary screen-
ing, they are posted on the website for a maximum of thirty days, after which
they are pulled from the site if they have not been funded. Kiva has occa-
sionally had to cap individual lenders’ contributions because of the lack of
fundable projects.
What Motivates Private Philanthropists?
Indirect evidence of the funding preferences of private philanthropists may be
inferred from data on crowdfunded microloans through Kiva. The behavior
of private aid givers has been little examined to date, despite the increase in
private development aid. There are three possibilities: crowdfunders act as
rational charitable contributors, making funding decisions based on project-
speci c risks and incentives; crowdfunders behave like o cial foreign- aid agen-
cies, funding projects based on a combination of country need and institu-
tional quality; or crowdfunders are motivated by the social networks connecting
them to countries in which projects take place. Because Kiva crowdfunders
expect to have their principal repaid, Kiva’s project data a ords us an oppor-
tunity to test the risk- aversion of crowdfunders. Because Kiva’s projects span
some eighty developing countries, we can also examine whether aid owing
through Kiva is as selective as o cial development assistance.
Analysis of funding rates for Kiva projects— on the assumption that faster-
funded projects are more aligned with donors’ individual preferences about
project characteristics— nds weak support for the view that crowdfunders
are risk- averse with respect to microcredit in developing countries. Kiva’s
crowdfunders preferred loaning to women for shorter duration and smaller
amounts. However, they reject the group- liability approach of traditional
micro nance and only weakly prefer lending through lower- risk partner mi-
cro nance institutions. We nd almost no consistent support for the hy-
pothesis that crowdfunders act selectively towards projects based on the pov-
erty or institutional quality of the country.
By contrast, there is strong support for the argument that crowdfunding
is essentially an expressive act that enables individuals to connect with mi-
croentrepreneurs much in the same way that individuals can sponsor chil-
dren in developing countries through a number of NGOs. Again, the social
recognition of the recipient is arguably part of the bene t. In this regard, we
nd the nature of social relations that developing countries are able to rely
upon in richer countries, in par tic u lar, through their communities of mi-
grants has a strong e ect on the funding rates of Kiva projects. Kiva crowd-
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funders prefer to lend to countries that claim larger numbers of more recent,
wealthier immigrants and to which large number of refugees also come. One
possible reason for this is that immigrants themselves participate as crowd-
funders. (Kiva lending, however, is una ected by remittances, which would
be unlikely were immigrants themselves largely responsible for Kiva funding
to their home countries). Another possibility is that immigrant communi-
ties, through their social ties with native- born populations, provide informa-
tion about their home countries to prospective crowdfunders.
In sum, Kiva and its feedback mechanisms and other information are
principally geared towards establishing a connection between people rather
than between sovereign entities or between multilateral organizations and a
sovereign entity. Kiva in many ways is highly representative of the changes in
international private philanthropy that have taken place in the past de cade,
for example, an increasing amount of aid, global accessibility, and real- time
information about recipients and their use of funds.
These ndings have implications for o cial aid policy. In contrast to
years past, the collective- action costs of private aid appear to be minimal,
especially with the proliferation of internet- based crowdfunding platforms.
Moreover, internet technology appears to have superseded the earlier advan-
tage that o cial agencies once held in terms of minimizing the transaction
costs of disbursing aid. Finally, private aid now has signi cant advantages
over o cial aid in promoting personal agency now that private aid givers can
give money to recipients in developing countries in a much more direct way.
Indeed, the rapid growth of crowdfunded, private aid may be attributed to
the attractiveness of this short route to giving.
Not all recipient countries, however, are or ga nized to take advantage of
this spread of private aid. Another obvious conclusion is that aid recipient
countries would do well to or ga nize themselves to take advantage of new forms
of private aid. In some countries like India, MFIs must rst obtain approval
from the Reserve Bank of India before they can borrow abroad— an obvious
barrier to accessing private loans from Kiva. These ndings also suggest that
the design of projects can be ne- tuned to make them more attractive to
donors. As an example, it is probably more e ective to invest in providing
assistance to entrepreneurs to allow them to develop project ideas than to
invest in building the capacity of micro nance intermediaries. Private lend-
ers seem not to care too much about the rating of these agencies.
The phenomenal growth of internet- based giving is testimony to the po-
tential for private aid to reach a scale which can be signi cant in global terms,
an institutional arrangement rivaling in scale that of national institutions’
and multilateral development banks’ funding. What has not been shown is
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202 The New Global Landscape for Poverty Alleviation and Development
that or ga niz ing aid in this fashion is more e ective for development, which
many would argue could more robustly advance the human dignity of aid
recipients in the long term. A comparison of development e ectiveness be-
tween public and private aid platforms is an important direction for future
research. Time and future research will reveal if this represents a new domi-
nant institutional arrangement for aid provision and whether it is e ec-
tive. Yet to the degree it appears to a ect agency of donors and recipients—
connected more directly to one another— this institutional trend is dignity-
building and ought to be facilitated.
Conclusion
In this chapter we have argued that, in the new aid landscape, newer forms
of private aid enhance the personal agency of both donors and recipients in
aid transactions. Donors, who are better able to select countries, sectors, proj-
ects, and in many cases individuals to whom funds (and loans) can be given,
are a orded greater control over allocative decisions. Bene ciaries who can
provide input and information directly to donors are better able to in uence
funding decisions and have greater exibility in the timing and disbursement
of funds, that is, accorded agency. Through these institutions, they are ac-
corded social recognition too, helping them realize dignity. For both groups,
these person- to- person relationships constitute a shorter route than o cial
aid normally takes. The result can economize on coordination, transaction,
and agency costs of o cial aid.
Private aid can make a di erence, but it is by no means a panacea for all
that ails the world’s poor. For all the amounts that have been granted, there
has been little evaluation of the cost- e ectiveness of private aid, and there are
few examples of privately- funded programs being expanded in ways needed
to make a dignity- building dent in global poverty. The history of global
charity has also had its share of scandals involving misappropriations of funds
and theft. And the universe of foundations, charities, educational organiza-
tions, and private and voluntary organizations may be too crowded and too
fragmented to make a real di erence on a large scale.
There are four possible implications of the spread of private aid for the
alleviation of global poverty. First, private aid functions best as a complement
to, rather than a substitute for, o cial aid. Indeed, there are many things that
private aid cannot support in recipient countries; development strategies, debt
reduction, and so on are generally beyond the scope of private aid modalities.
Private aid also raises separate (but related) issues of accountability compared
to o cial aid.
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Raj M. Desai and Homi Kharas 203
Second, private aid is supported by new types of global institutions that
rely principally on multilayer connectedness between individuals— linked
through social networks that, supported by internet technology and social
media, now span the globe— rather than on bilateral or multilateral inter-
governmental relations. Although many of the longer- term implications of
the expansion in in uence of these global private institutions are uncertain,
the private sector has grown from a small player in development assistance to
a major, dynamic force. Yet the world has little noticed. Annually, approxi-
mately 800 press credentials were issued for the World Bank- IMF annual or
spring meetings. Meanwhile, at the Global Philanthropy Forum (GPF), few
if any members of the press were on hand. This lopsidedness is unfortunate.
The fact is that the attendees who meet at the GPF will soon give more aid
to world’s poor than the Bretton- Woods institutions.
Third, although at present private aid is not connected to policy reforms
in the way o cial aid is, it is plausible that the proliferation of private aid
will encourage governments in recipient countries to reform in order to per-
mit individual or group bene ciaries to take advantage of these new forms
of aid. Pressures to permit greater cross- border capital ows, for example,
can be driven by citizens who do not wish to be deprived of the bene ts of
peer- to- peer nancial ows— whether they are remittances, microloans, or
private grants.
Fourth, it is also possible that private aid will make foreign aid more
competitive. For de cades, poor developing nations have faced a take- it- or-
leave- it attitude from international nancial institutions and o cial donors
and were forced to deal exclusively with a par tic u lar o cial bureaucracy on
development projects. Private aid now can o er alternative channels for de-
velopment assistance. But to make this competition work, recipient countries
must be free to choose whether aid is channeled through an o cial govern-
ment project or through a more e cient NGO provider. Recipients of aid
must also be able to rely on benchmarks that compare the e ectiveness of
private and o cial aid programs.
But a competitive aid system also requires a better understanding of
what works and what doesn’t. Neither the demand side— the priority needs of
the underserved— nor the supply side— who is doing what and for which
communities— has been mapped out at the country level. Without that, it is
inevitable that both public and private aid providers will fail to provide sys-
temic change and will fail to help poor nations develop their own capabilities,
both of which are needed for sustained poverty reduction and greater realiza-
tion of dignity in practice. These are the e orts to which the global develop-
ment community should dedicate itself— not to the maintenance of the current
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204 The New Global Landscape for Poverty Alleviation and Development
in exible foreign aid system but to its transformation into a system of global
institutions that are both exible and dignity enhancing for both donors and
recipients.
Notes
The authors thank Mark P. Lagon and Michael Mor t for valuable comments on earlier
drafts.
1. The remaining 41 percent of funds have still not been classi ed by use.
2. Formerly known as Christian Children’s Fund.
3. See the treatment of Omidyar- funded Humanity United underwriting NGO part-
nerships to combat human tra cking in chapter 11 in this book by Mark P. Lagon.
4. On these problems, see Wenar (2006).
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