Closure of Popular Poverty-Fighting Charity Raises Big Questions

Unitus

By Ben Gose

A decade ago, Unitus set out to accelerate the commercial investment in microfinance—to prove that banks and other investors could earn a return on their loans while helping impoverished people move on to a better life.

And by most accounts, the Seattle charity has succeeded, not only in the work it does with its 23 partner organizations in developing countries but also in adding some spark to the entire microfinance world, which now provides billions of dollars to poor people eager to start their own businesses.

On July 2, the charity declared victory—and promptly announced it was laying off its entire 40-person staff.

The charity’s decision to wind down its sole program shocked not just employees—who were expecting the charity to continue on in microfinance, although perhaps with a different focus—but also donors to the charity. One supporter of Unitus had been negotiating a large gift to the charity in recent weeks but was ultimately told the money was not needed, according to a source familiar with the negotiations.

The unusual announcement has reverberated beyond microfinance and piqued the interest of many nonprofit experts. The questions they are asking: Is this one of the best examples to date of a charity preserving philanthropic capital by calling it quits when the job is done? Or is a more sinister reason lurking behind the positive spin in the charity’s press release?

'Why Aren’t They Sharing?’

The announcement of Unitus’s closure came just before the long July 4 weekend—which to some observers calls to mind a “bury the news” ploy used frequently by for-profit corporations.

The vast majority of Unitus’s employees will be gone within a few weeks. Most of the charity’s employees work in Seattle, but Unitus also is closing offices in Bangalore, India, and Nairobi, Kenya. Brigit Helms, the charity’s chief executive, who was hired just nine months ago, will serve as an adviser to Unitus as the charity figures out what to do next.

The charity isn’t holding a meeting to celebrate its accomplishments in microfinance—it isn’t even letting Steve Schwartz, the charity’s former public-affairs manager, talk about them. A small public-relations firm in Utah is now handling journalists’ calls for Unitus.

“If this is a success story, then why aren’t they sharing information on the success story to help us learn?” says Holden Karnofsky, of GiveWell, a site that evaluates charities. GiveWell declined to recommend Unitus to donors even before the recent announcement because Mr. Karnofsky believed the charity had not adequately answered his questions about program effectiveness.

Preserving Integrity

Unitus was founded in 2001 by seven entrepreneurial business executives, and its board members today say they have simply made the kind of difficult decision that happens all the time in the business world.

“We have always thought of Unitus as a project and that when we completed the project, we would have the integrity to say we were done,” says Joseph Grenny, one of the seven founders, and the chair of Unitus’s board.

Mr. Grenny and a fellow

board member, Dave Richards, describe the decision to eliminate the staff as painful but say they want to preserve as much money as possible for the charity’s next stage.

What that will be is not yet clear. The news release announcing the exit from microfinance says Unitus plans to invest its remaining assets — it had nearly $11.3-million as of December 2009 — in “new early-stage, poverty-focused philanthropic activities.”

Mr. Richards, who writes a blog called defeatpoverty.com. says one reason for laying off the entire staff is that the number of employees required in the future will be “much smaller,” and they will need a different skill set than the existing staff.

“This doesn’t happen very often in the philanthropic world,” Mr. Richards says. “Why it doesn’t is an interesting question.”

Do Small Loans Work?

The field of microfinance gained momentum throughout most of the past decade, especially after Muhammad Yunus, the founder of the Grameen Bank, won the Nobel Peace Prize in 2006. But in the past year, several papers by scholars have questioned whether microfinance is actually helping to lift recipients of loans out of poverty. Last August, The Wall Street Journal published an article that suggested that microfinance in India, one of Unitus’s biggest markets, is undergoing a bubble similar to the subprime-mortgage debacle in the United States.

Some wonder if the abrupt closure at Unitus suggests the charity’s own microfinance operation is stumbling amid these headwinds.

“Microfinance has great promise and a fantastic mission,” says Deyan Vitanov, chief executive of Philanthropedia, a site that ranks charities based on recommendations by experts. “The question on everybody’s mind is, does it work?”

Mr. Grenny said Unitus has “never been in better financial shape” and that the broad debate over the effectiveness of microfinance had no bearing on the charity’s decision to close its program.

In its microfinance program, Unitus provides consulting services to its microfinance partners, working with them on strategic direction, human resources, and information technology and helping them secure funds to make loans. Unitus also awards grants to some of its partners and has spun off an investment bank and two for-profit equity funds.

The charity’s microfinance partners, which include SKS and Ujjivan in India, and Pro Mujer in Mexico, have grown seven times faster than the industry average, according to Mr. Grenny. Since 2001 Unitus has directed $40-million in donations and almost $30-million in “investment capital” to its partners.

Mr. Grenny says Unitus will meet the commitments it has made to its 23 microfinance partners.

Philanthropedia recently canvassed 130 experts to identify the top charities doing work in microfinance, and Unitus tied for sixth. “My initial take is that we’ll probably have to remove them,” Mr. Vitanov says.

Some existing donors to Unitus also appear to have been caught off-guard.

The Omidyar Network has made two grants to Unitus since 2005, totaling $11.7-million. Kelly Mason, a spokeswoman for the network, says she is not sure what will happen to any funds from the grant that have not yet been spent.

Source: philanthropy.com

Category: Payday loans

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