Online Appeals and Online Donations: The Case of a Web-based Microfinance Organization 1

Chih-Wei Hsieh
University of New Mexico
505-277-1797
chsieh@unm.edu

Kun Huang
University of New Mexico
505-277-7757
khuang@unm.edu

ABSTRACT

We examine how fundraising appeals posted online by a web-based microfinance organization,

Wokai, affect online donative behavior. Through the analysis of 155 fundraising appeals and

their corresponding donation responses, we attempt to identify the determinants of online

donations. We focus on the size of loan request, recipients’ personal story (cause of need,

business plan, microfinance experience, and loan repayment plan), and pictures of recipients

(relevance to personal story). We hypothesize that these message cues will affect donative

responses (number of donors). OLS regression results reveal that two variables of online appeals,

loan size and repayment plan, are major predictors of donative behavior in the case of Wokai.

1
This is merely a working draft and does not contain the final conclusion of the research project.
 INTRODUCTION

Microfinance is the provision of financial services to the economical poor, who have

been largely excluded from banking services due to the high costs of servicing small loans and

the high risk associated with clients with little or no income (Bhatt & Tang, 2001; Brau & Woller,

2004; Morduch, 2000). Lacking access to adequate financial services, the poor virtually have no

chance to lift themselves out of the poverty. Microfinance aims to offer a solution for this

dilemma. Recipients of microfinancial services are often self-employed and work in a variety of

occupations, including agriculture, fishing, herding, small or microenterprise, and service

industry, while some are wage labor (Robinson, 1996). These low-income people share a

commonality: They desperately need financial assistance to change their own lives.

The revolution of microfinance has taken place in many developing and underdeveloped

areas (Bhatt & Tang, 2001; Robinson, 2001). For example, a nonprofit organization, Wokai, was

found in 2007 by Casey Wilson and Courtney McColgan 2 to assist the Chinese poor to work

their way towards financial independence and self-sufficiency. Starting with the idea that

everyone deserves a chance, the organization hopes that, given the opportunity of microfinance,

people who live in poverty in rural China can start their own business, accumulate savings, and

eventually earn a stable income to pay for education, healthcare, and other expenditures in their

families (www.wokai.org).

Researchers have noted that many microfinancance institutions rely on external donations

and subsidies to fund their operation (Gutierrez-Nieto & Serrano-Cinca, 2010). Likewise, Wokai

relies heavily on the support from donation. What makes the Wokai case intriguing is its heavy

reliance on the crowd-funding website (www.wokai.org, launched in Nov 2008) as a major

fundraising avenue. Crowd-funding emerged about a decade ago as a way for artists, filmmakers
2
They were students at Tsinghua University in Beijing as Wokai was founded.
and musicians to raise donations from a community of online supporters ( Loten, 2011).

Similarly, Wokai listed small business projects that will be carried out by poor farmers in China,

set a funding target for each project, and try to raise donations from its online supporters (see

Figure 1). In two years’ time, the website has already raised $348,824 in online donation from

6,932 contributions 3 and made 785 loans to local entrepreneurs in China to help them start small

businesses (www.wokai.org, accessed on May, 19, 2011). Wokai’s strategic use of its website is

consistent with researchers’ observation that the rapid diffusion of Web technologies throughout

the nonprofit sector has brought with it considerable potential for organizational change, such as

marketing, fundraising, accountability (Hackler & Saxton, 2007; Saxton & Guo, 2011; Saxton,

Guo, & Brown, 2007). We build on this research insight and investigate the following research

question: How online fundraising affect online giving?

This paper examines how donors respond to fundraising appeal messages on the website

of Wokai. Hypotheses are drawn from relevant research in communication, economics,

marketing, sociology, and social psychology. Since studies (e.g. Bendapudi, et al., 1996; Fisher

et al., 2008; Goering et al., 2009; Stiff & Mongeau, 2003) indicate that both rational and

affective appeals play a role in donative behavior, the variables selected for the study fall into

three categories: rational appeals (i.e. the size of request, recipients’ business experience and

plan), credibility appeals (recipients’ past experience with microfinance and loan repayment

plan), and affective appeals (i.e. recipients’ personal story, visual images of recipients, and the

images’ relevance to personal story). We attempt to probe if these message cues will affect

online giving in terms of the number of donors giving to a particular recipient/project.

3
These donors are from 58 different countries.
 HOW WOKAI WORKS?

As aforementioned, Wokai heavily relies on the support from online donation. It posts

profiles of qualified local entrepreneurs and their loan requests on its website (see Figure 1).

Figure 2 provides an example of an online fundraising appeal. . Borrowers can express their

financial needs (the amount of loan) and provide a description of their stories (e.g. a biography

sketch, an introduction of family situation, and a statement of loan’s purpose) and a group of

online donors will each donate small amounts of money to support the loan request .

Figure 1. The Online Listing of Loan Requests(Retrieved May 19, 2011, from

http://en.wokai.org/loan)
 Personal Story

Loan Information
Borrower’s Photo

Number of Donors

Figure 2. Example of Online Fundraising Appeal

(Retrieved May 19, 2011, from http://en.wokai.org/loan/128039505950923)

Appendix A illustrates the flow of funds work from when a recipient applies for a loan to

when a recipient receives donation. Due to this unique online crowd-funding practice, we are

able to examine how fundraising appeals (case descriptions and stories) affect donative behavior.

THE RELATIONSHIP BETWEEN APPEALS AND DONATIONS

Philanthropic processes often comprise fundraising appeals that are carefully planned and

designed to increase donors’ motivation for giving and convince them to contribute in various

forms, such as money, possessions, time, attention, aid, encouragement, emotional support, etc.

Studies show that a large majority of all donation acts occurs in response to a fundraising appeal.

For example, Bryant, Slaughter, Kang and Tax (2003) find that 85% of donation acts among

respondents in the 1996 Independent Sector survey on Giving and Volunteering are made

following an appeal for a contribution. Other survey studies also find that fundraising appeals for
charitable contributions are associated with increased donative behavior (Bekkers, 2005; Lee &

Farrell, 2003; Simmons & Emanuele 2004, Tiehen 2001), although findings of Marx (2000) did

not support such an association.

Researchers further investigate if different types of fundraising appeals have distinct

effects on philanthropic and donative behavior. For instance, Goering and her colleagues (2009)

categorize fundraising appeals into three forms: rational appeals (arguments based on logical

reasoning through the presentation of facts), credibility appeals (arguments based on the

credibility of the writer) and affective appeals (arguments targeting the reader’s empathy).

Studies (e.g. Bendapudi, et al., 1996; Desmet & Feinberg, 2003; Fisher et al., 2008; Goering et

al., 2009; Stiff & Mongeau, 2003) indicate that rational, credibility, and affective appeals play a

role in donative behavior. However, none of their research conclusions was drawn from the study

of online appeals—the focus of this research project. Because online donation is the most

economical way of helping people meet crucial needs and over half of the adult internet

population is between 18 and 44 years old (Jones & Fox, 2009), the online fundraising context

may be different from other fundraising practices. Thus, the question pertaining to the

relationship between online appeals and online donations needs to be addressed and still waits to

be answered.

This paper examines how donors respond to fundraising appeal messages on the website

of Wokai and identifies key visual and written message cues that contribute to donative behavior.

Drawn from the knowledge of the effects of fundraising appeals, we build our research model to

probe if these message cues will increase donative responses (number of donors). The variables

selected for the study fall into three categories: rational appeals (i.e. the size of request, recipients’

business experience and plan), credibility appeals (recipients’ past experience with microfinance
and loan repayment plan), and affective appeals (i.e. recipients’ personal story, visual images of

recipients, and the image’s the relevance to personal story). Hence, we hypothesize that, in

terms of the overall donation distribution:

H1: Rational appeals for charitable contributions will draw online donations toward them.

H2: Credibility appeals for charitable contributions will draw online donations toward them

H3: Affective appeals for charitable contributions will draw online donations toward them

METHODS

As we note above, we seek to investigate the research question: How online fundraising

affect online giving? Our study addresses “underdeveloped” themes identified by the study of

philanthropic and donative behavior using multiple research methods to identify the causal

mechanisms of online donations. Empirical studies on donative behavior often rely on laboratory

experiments or simulation studies (Fisher et al., 2008; Goering et al., 2009). This paper, by

contrast, attempts to answer the proposed question based on the analysis of actual online

donative behavior instead of experimental results. The following explains the research approach

and procedure and measures employed in this paper.

Figure 4. Analysis of the Borrower and Loan Information

Research Approach and Procedure

The information used for data analyses (including case descriptions, pictures of recipients,

and loan information) was collected from the website of Wokai (www.wokai.org). The data

covers the period from November 2008 to April 2010. The analyses of data were performed

using a combination of different research methods, known as mixed-methods. Thus, data

analyses were divided into two phases: First at all, the content of 155 fundraising appeal

messages (both written and visual) were collected and analyzed. We first downloaded all appeal
messages and save them in Word documents and then performed coding in ATLAS.ti for each of

them in accordance with appeal messages disclosed in a particular case (see Figure 3). The

purpose of the first phase is to identify characteristics of each message as well as attributes of

each recipient. The second phase addresses the relationship between 155 fundraising appeals and

their matching online donations. The analysis of the relationship is performed by using ordinary

least squares (OLS) regression. Several control variables (such as gender, age, the word count of

a personal story, and the number of borrower’s photos) will be entered in the regression analysis.

Figure 3. Example of Coding

Measures

Consistent with research findings that rational, credibility, and affective appeals play a

role in donative behavior (Fisher et al., 2008; Goering et al., 2009; Stiff & Mongeau, 2003), we

concentrate on the three facets of appeals in online charity fundraising business. These factors of

online giving are measured by a set of variables respectively:

 Rational Appeals. Rational appeals are a precise presentation of facts and arguments of

charitable contributions that creates the foundation for online donations. Thus, this dimension of

fundraising appeals is measured by the amount of loan request, business plan (type), and

repayment plan (coded as “1” if mentioned).

Credibility appeals. Credibility appeals address potential donors’ concern regarding the

recipients’ trustworthiness and feasibility of their proposed business projects. We believe that

this can be made known via providing a brief summary of the microfinancing track record of a

borrower as well as the photo(s) of a borrower at work. If a local entrepreneur possesses a

successful past experience with microfinance (coded as “1” if mentioned) and displays a photo

that was taken at work (coded as “1” if yes), donors may perceive the loan recipient’s sincere

interest in conducting her/his own business.

Affective appeals. This facet of fundraising appeals targets the donor’s sense of empathy

and attempts to arouse the motivation of donative behavior on the end of readers. This has been

widely used in many fundraising campaigns. In the case of Wokai, borrowers are people who

live in poverty with no exception. However, they certainly differ in the level of adversity in life.

Some are more miserable and unfortunate than others as they experience devastating natural

disaster (such as earthquake) and loss of property or family members. Each of these adverse life

experiences is coded “0” if it is mentioned in a case description.

 FINDINGS

Descriptive Statistics

To test proposed hypotheses, the information of 155 fundraising appeals and their

matching online donations was collected from the website of Wokai. Consistent with previous

observations on microfinance is that most of those Wokai loan borrowers are conducting a small-

scale, family-run business. The majority (65.8%) is farmers who produce a limited amount of

crop and/or livestock, and the rest are manufacturing workers or owners of a retail store, a

restaurant, a taxi, or a pharmacy in rural China. Of these 155 microloan recipients, 82.6% are

female. The disproportion is neither a mistake nor a surprise, according to Zuo and Bian (2001).

Their research indicates that Chinese women prefer domestic responsibilities than their male

counterparts. In addition to other income sources, these entrepreneurial women attempt to make

more money to improve their families' living conditions using microloans.

Table 1 diaplays more information about these loan recipients. Most borrowers were in

their early or middle adulthood, only 2.6% are at age of 60 or above. In regard to the size of loan

request, 62.6% of them would like to apply for a microloan of $600 (approximately 4,000

Renminbi), 36.1% requested $450 (approximately 3,000 Renminbi) or fewer. 8.4% mentioned a

repayment plan. For instance, one stated that, “ I can pay back the loans with the money I’m

earning as a laborer on the streets…I believe that in few years time we can make big, positive

changes in our household as well as lead a happy life.” In terms of prior experience with

microfinance, 94 out of the 155 recipients were first-time microloan borrowers; the rest had

applied for and used microloans from Wokai or other financial services. For example, one

borrower disclosed, “We have benefitted from micro-loans since 1995…want to borrow a 4,000-

yuan micro-loan to fix the pigpen and to buy three pigs to raise.”
 Table 1. Demographic Characteristics of Loan Recipients

Frequency Percent
Gender (Missing = 0) *** ***
Female 128 82.6
Male 27 17.4
Age (Missing = 25) *** ***
20s 16 10.3
30s 44 28.4
40s 39 25.2
50s 27 17.4
60s or above 4 2.6
Loan Size (Missing = 0) *** ***
$150 (1,000 RMB) 1 .6
$300 (2,000 RMB) 29 18.7
$450 (3,000 RMB) 26 16.8
$600 (4,000 RMB) 97 62.6
$890 (1,000 RMB) 2 1.3
Business Type (Missing = 0) *** ***
Farming 102 65.8
Manufacturing 9 5.8
Sales 30 19.4
Other 14 9.0
Loan Repayment Plan (Missing = 0) *** ***
Yes 13 8.4
N0 142 91.6
Experience with Microfinance (Missing = 0) *** ***
Yes 61 39.4
No 94 60.6
Photo at Work (Missing = 0) *** ***
Yes 133 85.8
No 22 14.2

Statistics in Table 2 show that the mean age of our research sample is 41.49 years old.

Table 2 also reports that the average number of donors who contributed to a microloan fund is

10.02. In addition, each online appeal message collected for this research contains 1.53 pictures

and a case description of 250.46 words in average.

 Table 2. Statistics of Continuous Variables

Variable Min. Max. Mean S.D. Skewness Kurtosis

Age 22 65 41.49 9.948 .056 -.546
Number of Donors 1 29 10.02 6.181 .677 -.004
Number of Pictures 1 5 1.53 .776 2.145 6.471
Length of Description (Word Count) 93 505 250.46 75.093 .678 1.140

Table 3. Correlation Matrix

1 2 3 4 5 6 7 8 9 10 11 12 13
1. Gender (1 = Female) 1
2. Age -.184* 1
3. Number of Pictures -.104 .024 1
4. Length of Description (Word -.026 -.123 -.169* 1
Count)
5. Number of Donors .001 -.015 -.204* .096 1
** **
6. Loan Size -.148 .228 .019 -.101 .225 1
7. Business Type (1 = Farming) .540** .047 -.146 -.044 .003 -.042 1
* *
8. Repayment Plan (1 = Yes) -.045 .144 .064 -.197 .158 .081 -.073 1
9. Experience with Microfinance .300** .031 -.039 .139 .133 .134 .363** -.196* 1
(1 = Yes)
10. Photo at Work Site (1 = Yes) -.041 .053 .087 .030 -.098 -.016 -.121 -.077 -.013 1
11. Nature Disaster (1 = Yes) .137 -.118 -.207** .015 .126 -.038 .231** -.006 .138 -.163* 1
* **
12. Loss of Property (1 = Yes) -.072 .045 -.027 .087 .134 .144 -.071 .188 -.120 .040 .435 1
13. Divorce/Death/Sickness in -.001 .115 -.137 .160* -.040 -.095 .083 -.072 -.083 -.014 -.054 -.106 1
Family (1 = Yes)
Notes: * significant at p < .05; ** significant at p < .01
Correlation Matrix and Regression Analysis
Table 5 reports the correlation matrix. Most of the correlation coefficients are low, with

the highest one at .54. As we examine the relationship between donative behavior and its

explanatory variables, a positive correlation is found between the number of donors (r = .225, p

< .01) and loan size and between the number of donors and repayment plan (r = .158, p < .05).

However, the number of picture is negatively correlated with the number of donors (r = -.204, p

< .05).

Table 4. Regression Results

Dependent Variable Number of Donors

M1 M2
Control Variables
Female -.021 .013
Age -.001 -.063
Number of Pictures -.194* -.182*
Length of Description (Word Count) .104 .132
Independent Variables
Loan Size .208*
Business Type (1 = Farming) -.072
Repayment Plan (1 = Yes) .229**
Experience with Microfinance (1 = Yes) .142
Photo at Work Site (1 = Yes) -.085
Nature Disaster (1 = Yes) .076
Loss of Property (1 = Yes) .100
Divorce/Death/Sickness in Family (1 = Yes) -.007
2
R .050 .210
Adjusted R2 .020 .129
F 1.657 2.592*
N 130 130
Notes: * significant at p < .05; ** significant at p < .01

Regression results presented in Table 4 support the measurement of correlation

coefficient discussed above. Having the number of donors as the dependent variable, two models
were tested: M1 includes only control variables in the model; M2 includes control variables and

predictors of online donative behavior, including variables of rational, credibility, and affective

appeals. When only control variables are included (M1), the model is not statistically significant

and R2 is low (F =1.657 and R2 =.05). When variables of online appeals are added, the model

(M2) becomes statistically significant and explains significantly more data variation (F = 2.592

and R2 =.21). The results displayed in Table 4 indicate that rational appeals, not credibility or

affective, have a significantly positive impact on the number of donors who make a contribution

to a microloan fund. Both loan size (β = .208, p <.05) and repayment plan (β = .229, p <.01) are

positively associated with the dependent variable. The variance inflation factor (VIF) test shows

that there is no multicollinearity problem in our models. All VIF values are below 2. Other

regression assumptions are met as well.

DISCUSSIONS

Microfinance offers a possible avenue to make a significant difference in the lives of

millions of low-income people in the world. However, existing literature is still in its infancy

pertaining to how fundraising appeals affect donative behavior in the web-based microfinance

industry. Empirical studies on donative behavior may shed light on the research question, but too

often research conclusions are drawn based on laboratory experiments or simulation studies

(Fisher et al., 2008; Goering et al., 2009). This paper, by contrast, attempts to answer the

proposed question based on the analysis of actual human behavior instead of experimental results.

The results of hypothesis testing suggest that the presence of rational appeals leads to

increased donative responses in the sample of 155 Wokai microloan recipients. Nevertheless, it

would be wrong to conclude that neither credibility nor affective appeals has an impact on online

donative behavior. There are many reasons may contribute to statistical insignificance. One
likely reason is that Wokai and its field partners always screen loan recipients before posting

loan requests online. Disqualified applicants may have been filtered out and only trustable

borrowers remain on the list. The 98% repayment rate proclaimed by Wokai also enhances the

credibility of this web-based microfinance organization and its loan borrowers. Another possible

reason is that those recipients are all people who live in poverty for years and would like to

reverse the cycle around them. There is hardly any difference among them in terms of the level

of adversity.

In conclusion, this study is a preliminary effort in revealing how online fundraising affect

online giving. It is our hope that this study would contribute to scholarship by enhancing the

understanding of donative behavior. While fundraising becomes a concern of these web-based

charitable organizations, findings of the paper may help to create success strategies to appeal

potential donors.
Appendix A. The Flow of Wokai Funding

Step 1
Wokai works with Field Partners, who are accredited microfinance institutions, to upload recipient
profiles in need of fundraising

Step 2
Contributors select recipients online and donate through Google Checkout, which sends donations to
Wokai's bank account in the US

Step3
Wokai transfers donations from its US bank account to Field Partner's accounts in China and then The
Field Partner exchanges the donations into Chinese yuan and puts the funds into a Wokai designated
bank account

Step 4
The Field Partner distributes the funds to borrowers y (the Field Partner may pre-issue the loan before
receiving the contributions from Wokai)

Step 5
As the recipient begins to repay his or her loan, the Field Partner deposits the repayments into a Wokai
designated account and records repayments on Wokai's website

Step 6
Once the recipient's loan is 100% repaid, Field Partners post new recipient loan requests, and
contributors select which recipient's loan to fund next at that Field Partner
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