Crowdfunding 2.0: Can Social Innovators Turn The Model On Its Head?

Story bubbles on world map
Source: Ashoka

When college friends Matt Flannery and Jessica Jackley decided to launch an experimental website to raise funds for small-scale entrepreneurs in Bangladesh, they had no idea of the revolution they would start. Launched in 2003, enabled visitors to see profiles of individual business entrepreneurs (like women basket weavers or smallholder farmers) and give them an interest-free ‘micro-loan’ for as little as $25. Bring together enough like-minded funders, and suddenly you have meaningful amounts of money flowing to business entrepreneurs who have no other sources of financing.

The era of crowdfunding for social causes was born.

Since launch, Kiva has sent nearly US$850 million to low-income borrowers in over 80 countries. The default rate remains less than 3%, making this one of the safest forms of lending to emerging markets, with 75% of the loans going to women.

There is no question that crowdfunding for social causes is here to stay. But are there new ways to mobilize money for social good?

Fortunately, the evidence appears strong.  Two current trends in particular are striking:

Taking crowdfunding into niche sectors

“Crowdfunding platforms are going beyond the ‘We fund everything’ of generic platforms such as Kickstarter,” says Josephine Korijn, a social finance consultant at Chelwood Capital. “There’s real power in specializing in a niche sector, such as solar energy, where a site can establish itself as the ‘go-to’ site, or where it can bring together specialist funders and projects.”

One of the best examples is Founded by former New York high school teacher and Ashoka Fellow Charles Best, specifically focuses on schools as the recipients of its funding. Schools post a project, such as the building of a new classroom or the purchase of equipment, and supporters (parents, alumni and well-wishers) can back the campaigns. Donors Choose has raised over US$430 million to date, reaching almost 19 million students in schools across the United States, and backing over 700,000 projects.