Journal

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.

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.