The Impending Micro-Donations Revolution

A few years ago Mohammed Yunus became the darling of development agencies as he uncovered a financing method that proved very promising: Microcredit. Despite the high interest rates, many studies showed that poor people banded together to pay back loans and were more likely to reimburse banks than wealthier people. The problem arose several years after the concept became popular. Banks needed to charge extremely high interest rates to be profitable on such low loans. Sometimes the poor couldn’t pay back and accrued interest make the loan unbearably expensive.

In India many reports describe cases where a sense of strong shame befalls the borrowers that cannot pay back as they are harassed by bank representatives. The community members payback the loan for the shamed and indebted and the relentlessly pressure them to payback the community. The shamed as a response, sometimes are pushed as far as to commit suicide for the unbearable ostracizing and shame brought to the family and community. But what is one to expect; this is how money and banks work - wealth is created in the debt of others.

Kiva then arose and became a popular Peer 2 Peer microcredit platform, where westerners can chose to support entrepreneurs in developing countries by lending them a certain amount of money. Yet what happens when the borrower can’t pay back? Kiva partners with existing micro-finance institutions which are called field partners. According to the Kiva “about” page :

"The Field Partner collects repayments from Kiva entrepreneurs as well as any interest due and lets Kiva know if a repayment was not made as scheduled. Interest rates are set by the Field Partner, and that interest is used to cover the Field Partner’s operating costs. Kiva doesn’t charge interest to its Field Partners and does not provide interest to lenders. Kiva also gives Field Partners the option to cover currency losses."

The same problem appears again in case a loan cannot be paid back - interest accrues and field partners (not Kiva) are responsible for recovering the loan. This is not a charity, and failure cannot be accepted as part of the system. There is no forgiveness mechanism. Then comes a crowd-funding platform like kick-starter that allows for funds to be raised for various types of projects, without expecting repayment. In effect, this is web based patronage. The problem is that Kick starter and the like fund projects that have yet to exist, and require participations that are quite large, of at least 5-10 dollars.

There’s no point rereading that last sentence. I did imply that 5-10 dollars is a high amount to pay online for the sake of charitable support. I understand that to get a project up and running, higher amounts are needed than would be necessary to write a blog article (i should know), podcast or vlog etc. But for the creators of original content that doesn’t require important investments, it is dificult and very rare for them to find revenue from their creations.

Let me explain. During the renaissance, affluent people would feel refined and classy by supporting the arts. They would take under their wing an artist they appreciated (think of Michelangelo or Don Juan) and have him only worry about creating his next masterpiece. Today, there are 50,000 new blogs are created every day, 24 hours of video are uploaded on youtube every minute, a day, and there is no need for me to expand on how the opportunities for various kinds of artists that exist online are being taken care of. But all this is FREE. The creators most often receive nothing. Sometimes, they have sponsors and can make a living at the cost of their neutrality as they accept gifts from sponsors. Yet, in effect they have no patrons.

Enter the Micro-Donation concept. More precisely, a redefining of the threshold constituting a “micro-donation”. The idea is simple: instead of having one person donate 1 million dollars, have one million donate 1 dollar. Barrack Obama after all managed to raise 6 million dollars from micro-donations ranging from 5 to 10 dollars. Micro-Donations, as proven with M. Obama, will be the future tool of patronage. Street performers have lay out a piece of cloth, a box, or a hat etc. where the public can show support by placing a few cents, a few dollars or euros if lucky. Micro-donation is that recipient for the online “performer” or provider of original content.

The difference is that this online performer doesn’t have a sidewalk and a crowd to limit his exposure potential. Lady Gaga’s “Bad Romance” video was seen over 180 million times on youtube; i doubt you could fit that many people in the biggest concert hall in the world!. Now, imagine that this youtube button had a donation service, where viewers could give out as low as 5 cents and up to however much they chose to give, and that roughly 5% of the viewers paid out something. Approximately 8 million people would have paid on average 10 cents which translates in 800,000 dollars in revenue, from a video that is supposed to be free. Lady Gaga’s video is also the video that has been most seen on youtube; so this case would be extremely unusual. She also makes a LOT of money with her other venues, MP3 sales, and cd sales etc.

None the less, the more popular vloggers, podcasters, bloggers and other original content producers out there have a dedicated fanbase. These fans are looking for ways to support their chosen unknown and humble artists, but until recently there was no way to do so in a manner allowing for high volume of small donations to be given out. What was needed is essentially a facebook “like” button that would both like the content in question, and patron it with a small sum of money.

The patron in us needs to come out, and in an overcrowded field of content creators, we aspiring patrons, need to mark our difference by rewarding the works we find better. Not only does this strengthen a sense of individuality, but it also strengthens a sense of belonging and community. Though having a fanbase to please serves as a strong motivation for artists of all kinds, money is a tangible source of motivation and can be very appreciated.

Platforms for micro donations have started to bud and flower since 2010. It is a recent phenomenon and is only likely to gain more traction. In the next article I will expose the current developments of micro-donation platforms along with their strong and weak points.

01/20/11 at 5:50am
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  1. tostaycool posted this