Program-related investments add to array of finance tools for philanthropists

by Astrid Zweynert | azweynert | Thomson Reuters Foundation
Tuesday, 8 May 2012 16:20 GMT

* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.

With program-related investments, philanthropists can let their money grow while getting capital to charities, social enterprises

By Astrid Zweynert

LONDON (TrustLaw) - With fewer dollars to go around due to the economic crisis, philanthropists are increasingly turning to options beyond simply giving money to charities.

Program-related investments (PRIs) allow them to let their money grow while doing good by providing a source of capital for charities or social enterprises that may take a market-based approach to solving social problems.

PRIs are not new and have been used extensively by larger organisations, for example the Ford Foundation and the Bank of America Charitable Foundation, but many foundations are still to make full use of them.

This may be the result of a lack of knowledge about PRIs, limited demand compared to grants, or questions about legal or tax-related requirements associated with making this type of investment.

“Strategies to maximize your philanthropic capital – a guide to program-related investments”, launched on Tuesday, seeks to help overcome barriers to using PRIs by providing a basic reference for private foundations and legal advisors about regulations, processes and documentation requirements.

The guide contains information and guidance in navigating questions about what qualifies as a PRI, what types of documentation are required and when external legal counsel may be needed. It also offers samples of legal documents that could help in developing, negotiating or managing a PRI.


Given the economic downturn, a wider range of potential donors have become interested in PRIs, including smaller family foundations and individual donors.

Rather than make a one-time gift, a foundation or individual might give a loan through a PRI to an entrepreneur in the developing world or to a charity providing low-cost housing.  

Unlike grants, PRIs are expected to be repaid, usually with a modest rate of return below prevailing market rates. The return can then be invested again in other charitable causes or social enterprises.

PRIs, which range in size from as little as $1,000 to several million dollars, can be made for all kinds of charitable purposes, including affordable housing, community or economic development, health clinics, social services, sustainable agriculture and childcare centres.

PRIs are particularly useful when grants alone are not enough to bring a solution to scale, and when a time-limited infusion of capital is needed to jumpstart, grow or sustain a social or charitable enterprise.

Here are some examples of how PRIs have been used:

* The Erich and Hannah Sachs Foundation purchased a five-year, $200,000-certificate of deposit in the Santa Cruz Community Credit Union in California to expand access of low-interest loans and financial services to residents and small businesses in local farming communities

* The Skoll Foundation made a $2.5-million PRI to Root Capital to help fund a loan pool to support community and economic development. Since its launch, Root Capital has provided more than 780 loans totaling $200 million in credit to 290 small and growing businesses in 30 countries across Latin America and sub-Saharan Africa

* The Annie E. Casey Foundation in Baltimore, Maryland, made an equity investment of $1.65 million in the Bay Area Equity Fund to invest in companies that create jobs in low- and moderate-income communities in California’s Bay Area. One portfolio company is Revolution Foods, a high-growth business that provides affordable and healthy school meals for more than 120,000 children each day.

The guide, published by TrustLaw – the Thomson Reuters Foundation’s global hub for free legal assistance and news on good governance and women’s rights - was written by global law firm Linklaters for the Mission Investors Exchange, a resource for foundations using investments as tools for achieving their philanthropic goals.

It is the first in a series of guides designed to assist in the burgeoning field of impact investing. A second guide will focus on social investment in India.

(Editing by Rebekah Curtis)



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