Doing due diligence on a charity

Recently I was re-reading this Stanford Social Innovation Review article from last fall called Money to Grow On, which highlights some guidelines on which steps to take and what to look for in conducting due diligence on a nonprofit before giving a gift.  Since SVG conducts due diligence on Chinese charitable projects on behalf of our donor clients, we resonate with these suggestions and find them particularly apt in the China context, where due diligence is often overlooked due to a myriad of reasons.  Opacity and lack of information in the sector are primary barriers, but as local philanthropy is still in its early stages, often times givers are not as concerned with results as they could be.  Here are the summarized guidelines the article recommends:

First Round of Due Diligence

1. The organization addresses a critical need. 

2. The organization has strong leadership. 

3. The organization has strategic clarity. 

Second Round of Due Diligence

4. The organization’s programs are demonstrated successes. 

5. The organization’s programs are cost-effective. 

6. The organization has grown successfully. 

The Deal Breakers

7. The organization does not have a sustainable funding model.

Reading through these, a reasonable question is then, "how many nonprofit groups in China actually pass muster on all these categories?"  And the answer is, probably not many right now.  Our experience has told us that the second round of questions tend to be the painful ones, even before the third round dealbreaker question.  Yet how many donors really believe that giving in China is risk-free?  That is not why they give to China in the first place.  The key is knowing on the front end what the organization's needs and challenges are and being willing to grow with them.  With an "investing" mindset over a "donation" one, we have seen donors help grassroots nonprofits here grow significantly in their cost-effectiveness and building a track record of successes.

-- Grace