We try to make donating as easy as possible on our site. It only takes a few clicks to go from browsing listings to funding them. However, the basic premise of socialmarkets is that your involvement does not end when you donate…rather, it just begins.
SROI is our end-game, but before we can start talking about a donation’s social return, we have to talk about how it first flows to a non-profit from our site. Most significantly, we have to decide if donated dollars show up as restricted or unrestricted grants.
Restricted grants are pretty much what they sound like: money that can only be used to pay for a specific project (e.g. an after-school program) or purpose (e.g. office supplies). Restricted grants require more administrative overhead for the non-profit, but donors are free to ask for them, and non-profits are free to turn them down.
There are many arguments for and against using restricted donations (see a good sample at this discussion at Tactical Philanthropy.) We may eventually offer the option of restricting donations, if for no other reason than that our donor community wants us to. However, at the time of this writing, socialmarkets sends donations without formal restrictions. When a user funds a listing, the funds sent to the associated non-profit are earmarked - but not officially restricted - to the associated project.
To some extent, this is a matter of trust. We generally believe that commitment to mission, rather than additional accounting hurdles, is what keeps non-profits spending the way we expect them to.
To some extent, this is also a matter of scope. socialmarkets’ focus is more on outcomes than the projects that produce them. From our perspective, projects are just proxies for the set of outcomes they produce, so we don’t feel strongly about managing their administration.
The final - and arguably most compelling - justification for not restricting funds is also the most practical: restricted grants don’t really work. Dennis R. Young, in his book Financing Nonprofits sums up the problem like this:
“as long as a recipient was already spending at least as much of its own resources on the designated activity as the amount of the grant, it can effectively convert what appears to be a restricted grant into an unrestricted cash equivalent.”
Consider a $1000 grant restricted to the purchase of office supplies, given to a non-profit with a $5000 office supplies budget. The non-profit will spend the same $5000 on supplies it was always planning to, now using the $1000 restricted grant and only $4000 of the money already budgeted. The extra $1000 is free for them to use without restriction.
I should note that this argument takes restricted grants at face value. It does not consider their less obvious but no less significant function: they make donors happy. Some donors may enjoy asserting additional control over their donations through their restriction, irrespective of whether that control is real or imagined.
socialmarkets takes such intangible benefits seriously. We value SROI precisely because it incorporates both tangible and intangible factors. In much the same way, we may turn to our users rather than our research to decide the issue of restricted grantmaking.
