Program-Related Investments Gaining Traction, Study Finds

Report examines recent trends, challenges and opportunities for PRIs

Program-related investments (PRIs) are gaining attention from foundations for their potential to meet charitable purposes while generating financial returns, but their use remains limited, a new study by the Indiana University Lilly Family School of Philanthropy finds. Leveraging the Power of Foundations – An Analysis of Program-Related Investing, which was sponsored by Mission Throttle, analyzes key trends in foundations’ use of program-related investing. The report examines funders’ motivations and strategies for making PRIs and identifies potential obstacles and opportunities for expanded use of PRIs to advance charitable goals.

Among the study’s key findings:

  • Housing, community development and education were the program areas that received both the highest total dollar amounts
  • More than half of all PRIs were loans
  • Peer networks play an important role in supporting and educating foundations in the use of PRIs

“Our research shows that there is significant interest in and potential for program-related investments to help foundations advance their charitable goals, and many foundations that utilize PRIs report that they frequently produce successful results,” said Una Osili, director of research for the Indiana University Lilly Family School of Philanthropy. “There was notable growth in PRI use in the past decade compared to the previous decade, but to date they are being used by a relatively small fraction of all foundations.”

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Why Program-Related Investments Are Not Risky Business

Program-related investments (PRIs) hold incredible potential for the social enterprise arena. Rather than giving away money through grants, PRIs allow foundations to make investments as loans or equity stakes in the hopes of regaining their investments plus a reasonable rate of return. This arrangement allows foundations to increase the amount of money available to the social sector, while simultaneously building stronger and more sustainable socially minded entities.

As part of a broader strategy involving impact investing and the market-based solutions of target recipients, PRIs stand to tackle tough social issues on a scale never before seen by moving beyond traditional notions of charity that, in many ways, continue to restrain large-scale progress.

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Going Beyond the Grant

Momentum is picking up for investments that can produce a financial return while improving social conditions, as pressure persists on traditional funding sources and the ranks of social entrepreneurs increase.

Rising interest in so-called impact investing has many foundations either already making investments or considering them as an extension of their traditional philanthropy or grant-making.

Foundations such as Kresge are making program-related investments from their grant budgets for below-market or zero-percent returns. Those can take the form of loans, equity stakes, loan guarantees in which foundations agree to back other loans, and cash investments.

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Fisher Seeks Investors Who Want to Make a Social Impact

Phillip Fisher plans to create a fund to work on social issues and support social entrepreneurs.

What if money invested in organizations working to improve social conditions could be redeployed over and over, while providing a financial and social-impact return for those supporting the work? The concept isn’t new; a few large foundations have been making investments—in addition to grants—in work related to their missions for years. But Phillip Fisher, founder of Mission Throttle L3C and vice chairman of the Max M. & Marjorie S. Fisher Family Foundation, hopes to attract a new class of investors, from individuals to corporations and government, to support Michigan-based social-impact efforts and social entrepreneurs through investments in a new social-impact fund that he hopes will attract $10 million to $50 million. That, experts say, is a game changer.

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