How crowdfunding is helping US charities build trust
18 April 2019 at 4:41 pm
American charities turning to crowdfunding are experiencing an increase in giving because donors think they’re more transparent, new research shows.
Analysis from Indiana University’s Kelley School of Business found humanitarian groups willing to start crowdfunding campaigns benefited from transparency and were able to build trust when they kept donors informed.
Data was collected from nearly 108,000 emergency campaigns over a seven-year period, just over half of which posted at least one update on how the campaign was going.
Research author Jorge Mejia said: “As updates have a positive effect on donations, organisations can increase funding by keeping donors informed on a regular basis about the campaign’s progress.”
Researchers noted donations increased when campaigns provided frequent updates about the organisation’s work.
“Strikingly, we found that the size of the positive effect derived from operational transparency… is much greater than the size of the effect of conventional transparency, from being a certified tax-exempt charity,” the researchers said.
“But not all updates are the same. Operational transparency increases the financial benefits of updates.
“Campaign organisers should focus their efforts on posting work-related updates to describe how the campaign is achieving its objective.”
Mejia noted the research’s timeliness in light of recent charitable giving fraud cases in the US, including the college admissions scandal and questions about the charity status of politicians’ private foundations and religious groups.
“Our paper tackles some of these challenges head on by providing a way to increase the transparency of these organisations online,” he said.
Researchers said crowdfunding was useful for charities like the American Red Cross to solicit donations after hurricanes and wildfires.
But it said other smaller organisations that were quickly created after emergencies could also use crowdfunding, and compensate for their lack of government certification by posting frequent updates about how money was being used.
Receiving tax-exemption status in the US can take months, after which the immediate needs of a disaster have already passed.
Crowdfunding helps organisations accept donations to help with recovery efforts immediately.
The research paper said donors should pay attention to how charities were using donations, shown through regular operational updates.
