Baba Amte

I was talking to my dad this morning and he told me that Baba Amte had died. Baba Amte was a well known social activist in India. He was best known for his work with leprosy patients. It all started one day when the young Baba Amte had an encounter that changed his life:

Lying before him was a man in the last stages of leprosy. The dying man had no fingers. ... he forced himself to return and feed the man. He also put up a bamboo shed to protect him against the rain. That man, Tulshiram, died in Baba's care and irrevocably changed young Amte's life.

He went on to found Anandwan, the Forest of Joy. Anandwan was a place where leprosy patients were treated and then rehabilitated. Baba Amte believed that "Charity destroys; work builds". Thus, it was important to give these poor patients a sense of dignity and self-worth by making them productive members of society.

Once the leprosy-affected persons were fit enough to leave the hospital they ceased to be 'patients'. They became working members of the community, busy in the fields or workshops where a variety of products were being manufactured. This made Anandwan a virtually self-sufficient 'village'.

He went on to found many more centers for leprosy patients, and later became active in the Narmada Bachao Andolan (an effort to prevent the building of dams on the Narmada river that would displace millions of people).

Baba Amte won numerous awards recognizing his efforts, including the Magsaysay Award and the Padma Vibhushan (India's second highest civilian medal). He was 94 when he died. He is survived by his two sons continue the work that he began.

Donor-Advised Funds

Some time ago I had a post on using ETFs to invest your money. In this post I'm going to write about a really convenient way to give away your money! I'm talking about Donor-Advised Funds (also known as Charitable Gift Trusts).

What are Donor-Advised Funds?

A Donor-Advised Fund (DAF) is like a charity: contributions to it can be deducted on your taxes in the same way that contributions to a charity can be deducted. You can open a DAF account at many brokerage firms (e.g., at Schwab, Vanguard, and Fidelity). Money contributed to your DAF is an irrevocable gift, i.e., it's not yours any more. However, you can advise the Fund management to make grants to charities that you select. While the final decision regarding such grants lies with the Fund management, they will follow your advice as long as the grant is to a registered US charity. (There are some minor caveats such as that the grant cannot fulfill a pledge you may have made to a charity; remember it's not your money any more.)

Why would one want to use Donor-Advised Funds?

There are lots of good reasons why DAFs make a lot of sense. Here are some that made sense to me:

• Simplify stock or mutual fund donations
  Suppose you have a stock or mutual fund in which you currently have a significant long-term capital gain. For example, suppose the shares are currently worth $5,000 with a $2,000 long-term capital gain. Now, suppose you decided that you wanted to donate $5,000 to charity this year and get a tax deduction for the donation. You could sell these shares and donate the proceeds and deduct $5,000 on your taxes. But doing it this way, you'd still have to pay capital gains taxes on the $2,000. So what you want to do is to donate the shares themselves (without first selling them).
  
  But donating shares directly to a charity is a little complicated, specially if you want to donate to multiple charities. So instead, you donate the shares to your DAF, and then advise the DAF to donate the proceeds to the charities of your choice. It has exactly the same effect: you can deduct $5,000 and you don't pay capital gains taxes and you can distribute the money easily to as many charities as you like.
  
  This strategy is particularly useful when you consider donating shares of mutual funds that you built up over a long period of time using dollar cost averaging (DCA). While DCA may have got you some benefits, it also lands you in tax hell (you have to figure out the tax basis to compute the capital gains). If you donate shares in such a mutual fund (instead of cash), you instantly get rid of this tax hell.
  
  
• Defer the decision on which charity to donate to
  It is the end of the year right now and you might be doing some tax planning. You may have decided to donate a certain amount to charity. But which charity should you donate to? With holidays coming up, you find you don't have the time to research the various causes. No problem: donate to your DAF now and decide on the actual charities later. That gives you the time to make the right charity choices, while getting you a tax deduction this year.
  
  Note that money donated to a DAF can be invested in a variety of mutual funds, ranging from money market funds, to bond funds, to stock funds. (Each DAF provides you with a list of choices.) So you can have your money grow inside the DAF before you finally advise the DAF to donate money to a charity.
  
  
• Estate planning
  As part of your will or trust (you do have a will or trust, specially if you have children, don't you?!) you may have directed a portion of your estate to some charities. But as time passes you may want to change the charities to which you want to leave your money. Instead of having to go back and modify the will or trust, you can simply leave your money to your DAF. You can leave instructions for the DAF on what needs to be done with money contributed to the DAF once you're no more. And you can easily change these instructions.
  
  
• Convenience
  Contributing to the DAF and having it disburse money to various charities is really very convenient. All these DAFs have good websites that allow you to contribute to the DAF, set up grants to charities, and get online reports on your account. You don't have to follow up with individual charities at the end of the year to get receipts---you only need the one receipt from the DAF. The convenience alone is worth a lot.
  

What are the costs?

For all the benefits outlined above, there are some costs. DAFs charge a small annual fee (Schawb's version charges 0.6% of assets or $100, which ever is larger). The capital gain tax savings alone can make up this fee.

All in all, Donor-Advised Funds are a convenient way to organize your charitable giving. If any of the above situations apply to you, I highly recommend you go to your brokerage firm and open a DAF account with them. It is most convenient to open the account with your own brokerage because it simplifies and speeds up the transfer of shares from your brokerage account to your DAF account.

How to Change the World

I'm part way through reading this wonderful book: How to Change the World by David Bornstein. This is a book about social entrepreneurs. Social entrepreneurs solve social problems on a large scale. Their ideas improve people's lives and these ideas are implemented across cities, countries, and in some cases the world. The book describes the work of many social entrepreneurs:

• Fabio Rosa took up the cause of rural electrification in Brazil. He realized that poor rice farmers had a big problem: rice needed a lot of water, but the rich farmers who owned all the dams and irrigation channels set the price of water (relative to production costs) at triple the world average. Artesian wells could provide cheap water, but they needed electricity. But Brazil had done a very poor job of rural electrification. So this is the cause that Rosa took up. He systematically attacked all the problems holding back rural electrification (ranging from technical to political). And like a true entrepreneur, he wasn't just about the vision; he delved into the details, always looking for solutions to the problems. And he succeeded in transforming the lives of a lot of poor farmers.
  
  
• Jeroo Billimoria took up the cause of child protection in Indian cities. She set up Childline, a
  
  ...twenty-four hour helpline and emergency response system for children in distress.
  
  It started in Bombay in 1996 and spread to 30 cities by 2002. "Childline," says Billimoria, "is not a charity service... It is a rights service." It provides number, 1098 (said as ten-nine-eight), that any child can call with any problem and Childline will help them.
  
  
• Erzebet Szekeres took up the cause of assisted living for the disabled in Hungary. At the time, the only option for severely mentally disabled people in Hungary was to be institutionalized, with all the horrors of such places. Szekeres has
  
  ...created a network of 21 centers across Hungary that provide vocational training, work opportunities, and assisted living to more than 600 multiply disabled people. Her facilities have shaken up the mental health and disability establishment...
  
  
• And many more stories.

These stories are wonderful and inspiring. But the book is really about the amazing individual that is the common thread to all these stories: Bill Drayton. Drayton invests in social entrepreneurs!

Drayton was profoundly influenced by Gandhi:

What most fascinated Drayton about Gandhi were his "how-tos": How did Gandhi craft his strategy? How did he build his institutions? How did he market his ideas? Drayton discovered that Gandhi, despite his other-worldy appearance, was fully engaged in the details of politics, administration, and implementation.

In other words, it's about the details, not just the vision.

Drayton founded Ashoka, an organization that seeks out and funds social entrepreneurs. In this sense it is a venture capital firm! Drayton believed that seeking out and supporting social entrepreneurs was the key to social change:

The way to promote innovation was to nuture idea champions. "Let's find these people," he said. "We should be investing in them now---when they are shaky and lonely and a little help means the world."

Drayton seems to have mastered the art of finding high quality social entrepreneurs around the world. As a young Ashoka staffer put it:

I saw the Bill had deeply thought through the question: "How do you find these people?"

All in all, an amazing book about an amazing man and the amazing people he's funding. You cannot read this book without wanting to rush out and support Ashoka---we certainly started sending a portion of our donations to Ashoka after reading this book.

Commencement speeches

Until very recently my favorite commencement speech was Steve Jobs's speech at Stanford. In this speech he tells three stories from his life. They are all great stories, but I found the first one most compelling. In it he talks about how he dropped out of college and happened to attend some calligraphy classes:

If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

Again, you can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

I love this sentiment: focus on doing what you love to do; the rest will take care of itself.

Any way, earlier this week my favorite commencement speech switched to being Bill Gates's speech at Harvard. I have long admired Bill Gates for the fine work of the Bill and Melinda Gates Foundation. And his commencement speech lived up to this fine work. It starts by saying:

I left Harvard with no real awareness of the awful inequities in the world.

But decades later when he finally learnt about the seriousness of the problem, he was faced with the same challenge that we are all faced with, albeit on a significantly larger scale:

For Melinda and for me, the challenge is the same: how can we do the most good for the greatest number with the resources we have.

He goes on to describe the work that the Foundation has been focusing on before issuing a compelling call to arms to the members of the Harvard community to step up to their responsibilities to the world:

My mother was very ill with cancer at the time, but she saw one more opportunity to deliver her message, and at the close of the letter she said: “From those to whom much is given, much is expected.”

When you consider what those of us here in this Yard have been given – in talent, privilege, and opportunity – there is almost no limit to what the world has a right to expect from us.

What a wonderful sentiment. We are all so privileged. Are we doing enough with our gift?

Ravi Kuchimanchi and AID

Recently I had the pleasure of meeting with Ravi Kuchimanchi. Ravi and I were classmates at IIT-Bombay more than 20 years ago. Much more importantly, Ravi is the founder of the Association for India's Development (AID). AID describes itself as a "... volunteer movement committed to promoting sustainable, equitable and just development" in India.

Ravi founded AID in 1991 while he was still a doctoral student in Physics at the University of Maryland. I asked him how it started. Ravi said that he'd always been interested in doing something to help development in India. One day he decided to do something about it: he sent an email to a host of friends suggesting that they all agree to contribute $10 per month to fund a school in a village that had no school. When he sent this message Ravi didn't have any particular village in mind. But this email got people pretty excited, and soon somebody suggested a village that didn't have a school. And that started things off.

AID is quite a remarkable organization. It works with grassroots organizations and initiates efforts in a variety of different areas including education, livelihood, health, women's empowerment, and social justice. I remember reading that AID was one of the first relief organizations on the ground following the tsunami in southern India.

One of its distinguishing characteristics is that much of its volunteer corps is highly educated, often in science and engineering. This means they make an effort to get to the root cause of a problem before coming up with a solution. I asked Ravi for an example of such analysis. He gave me many such examples, but here's a nice one.

In spite of significant government investment in rural electrification, a large number of villagers in rural India live without electricity. A superficial analysis of the situation might suggest that this is caused by poverty. But a more detailed analysis shows otherwise. Most of these villagers who lack electricity use kerosene lamps to provide light in their homes. Kerosene lamps are not an efficient method for generating light---burning kerosene generates a lot of heat. One can generate equivalent, or more, light from an electric bulb for less money. So these villagers are more than capable of paying the monthly electricity bills to light their homes.

The problem turns out to be corruption: the villagers need to bribe a low-level official to have an electricity cable run from the main line (often running outside the home to a street lamp) to the home. And it is the bribe that is unaffordable. Once AID understood this problem, they assisted villagers by helping to prepare applications for a group of 50 or more homes. When the low-level official asks for a bribe, they threaten to take the case to a high-level anti-corruption officer. This leads to a negotiation where the low-level official agrees to provide electricity connections to poorer people without a bribe, as long as he can still get bribes from the rich! AID has used this strategy successfully in a large number of villages.

In addition to its development work, AID is now starting to fight corruption. It uses 2 landmark legislations as its tools: the Right to Information Act and the National Rural Employment Guarantee Watch. Ravi told some very interesting stories of how AID is using these laws; their work is a good example of the maxim "Knowledge is Power".

We have been supporters of AID for some years now. But as I told Ravi, it is easy to write checks; it is hard to be on the ground and do the work that AID's volunteers and staff do. I wish them the very best in their efforts.

Clinton at the Global Philanthropy Forum

I heard Bill Clinton speak last Friday at the Global Philanthropy Forum. I was so taken by his speech that I decided that I had to blog about it. I'm going to try to summarize the main points that I took away. But there's no way I can do justice to his eloquence. You can watch his whole speech on Google Video here to get the full effect.

In his speech, Clinton essentially posed and answered 5 questions (I only remember 4 of the questions...).

1. What is the fundamental nature of the 21st century?

Clinton's answer was interdepence. This is just globalization and "flat worldness" that people like Tom Friedman have been talking about.

2. Is this interdependence good or bad?

Clearly this interdependence has been very good for a lot of people. But it also has a bad side. Half the world doesn't participate in the benefit that this interdependence brings. The divide between the haves and the havenots is growing. Lots of things are worsening: population explosion, climate change, resource depletion, deforestation, oil depletion, top soil loss.

3. What can we do about it?

His answer to this critical question was that we need to build integrated communities with empowered people. He said that successful communities have three characteristics: (a) they give their members the opportunity to participate; (b) the members have a shared responsibility for achieving a common goal; and (c) members have a strong sense of belonging. He gave some simple examples of successful communities: a company like Google, the Tennessee women's basketball team, etc.

He pointed out that having a strong sense of belonging is critical. He noted that the terrorist bombings in England created a lot more angst in the UK because the terrorists were home grown; these were people who were part of the British community but did not have the
sense of belonging to that community.

He said that it was essentil to have some sort of a security strategy in this world. But that wasn't enough: "you can't kill, jail, or occupy all the people who disagree with you" (he repeated this multiple times to great effect). So you have to make deals with people you disagree with; you have to practice politics; you have to build a world with more partners and fewer adversairies. This is much cheaper than going to war.

He said that we know how to make partners. We know how to educate kids, end hunger, help farmers, help countries avoid the use of destructive energy use policies. We know that cell phones empower people. We know how to help with health care, climate change and resource depletion.

He said that saying you have to make deals with people you disagree with sounds like a terrible thing to do. Until you think of the options: you can't kill, jail, or occupy all the people who disagree with you. It's very much like Churchill's comment on democracy: it's the worst form of government except for all the rest!

He pointed out that before the tsunami, the US approval rating in Indonesia, the largest Muslim country in the world, was at 20%. But after the tsunami the approval rating went up to 60%. What caused this change? The US army was in the vanguard of bringing aid to the people. The Indonesians began to associate US army helicopters and uniforms with aid packages. Not with war. And this is significantly cheaper than war.

4. Who does it?

He said we all need to do it. We can't wait around for our government to do it.

The Clinton Foundation's work

After he discussed the above questions, Clinton started talking about what his foundation does. One of the big things they do is to organize markets. For example, they've organized the market for medicines. As a result, they got the price of AIDS drugs down to something like $139 per person per year from about $3500 per person per year. They're doing the same thing with medicines for kids. He talked about UNITAID, a French led effort to purchase drugs for the developing world. There are no longer financial barriers to keeping these children alive (though effective health care infrastructure still needs to be built).

He talked about organizing fertilizer markets in Rwanda. They went out and negotiated a deal with fertilizer companies. These deals, much like the deals made with drug companies, had three characteristics: low margin, high volume, certain payment. Then they negotiated a decrease in microcredit interest rates so farmers could buy the fertilizer.

All this work is about organizing and enlarging markets. Nothing empowers people like an organized, understandable market. Can this work with climate change? He's going to try. He pointed out that Denmark grew its economy by 50% without increasing its energy consumption!

He ended by asking everyone to do something about these pressing problems: "It's not as if we have anything more important to do"!