Foundation Study Finds Big Rise in 1999 in Charitable Loans and Investments

By GRANT WILLIAMS

Foundations have increased the amount of money they are offering charities in the form of loans, equity

investments, and other so-called program-related investments, according to a new study from the Foundation Center.

In 1998, the country’s private and community foundations made a total of $203.4-million in charitable loans and other program-related investments, often called P.R.I.’s, the Foundation Center said. In 1999, the nation’s foundations made a total of $266.5-million in new P.R.I.’s, an increase of 31 percent from the previous year. During the same period, foundations showed a 19-percent increase in the amount of grants made, from $19.5-billion to $23.5-billion.

“The rapid rise in P.R.I. financing was closely tied to the stock-market boom of the late 1990’s, which greatly increased the value of foundations’ endowment,” the report said. “During periods of rapid asset growth, foundations are more likely to leverage a portion of their assets in the form of charitable loans and investments.”

The Foundation Center said that the growth in P.R.I. financing in recent years may also reflect the long-term impact of efforts in the early and mid-1990’s by two foundations that pioneered the use of such programs — the Ford Foundation and the John D. and Catherine T. MacArthur Foundation — to help educate other funds about the importance of the investment tool.

Foundations commonly make program-related investments to help charities finance capital projects such as low-cost housing, to create revolving-loan funds, and to provide interim financing for expanding existing programs or starting new ones. Unlike grants, such investments are intended to be repaid, although usually at rates below those available from commercial lenders.

Although the amount of money foundations put into program-related investments soared in the late 1990’s, the number of foundations that are providing such investments remains fairly steady at about 200 organizations, the report said.

The Foundation Center report says that, while only a tiny number of all foundations make program-related investments, and even fewer make them annually, “increasingly they are viewed as an alternative to a grant when the circumstances are right, e.g., when the organization seeking capital has the potential to repay it.”

The report continues: “In an era of shrinking public resources, they are valued by many in the nonprofit field as a means of leveraging precious philanthropic dollars.”

The Foundation Center report pays particular attention to 133 foundations that made individual program-related investments of $10,000 or more in 1998 and 1999.

In 1998, 89 foundations authorized $148-million for 341 program-related investments. In 1999, 82 foundations decided to funnel nearly $279-million for 240 P.R.I.’s.

The report determined that the vast majority of these foundations use P.R.I.’s to support recipient organizations (including their grantees) through lending directly to them, guaranteeing loans, lending to loan funds, capitalizing development banks and venture-capital funds, or by making equity investments.

In contrast, the report said, a small number of foundations — six in the sample of 133 — use program-related investments to acquire or improve property held for charitable purposes, referred to as “charitable use property.” In these cases, property is either permanently held by the foundation, with space donated or leased to nonprofit organizations at below-market rates, or held temporarily and given away as a grant or sold to a nonprofit group or a government agency.

Copies of the report, “The PRI Directory: Charitable Loans and Other Program-Related Investments by Foundations,” are available for $75 each, plus $5.50 to cover shipping and handling. Contact the Foundation Center, 79 Fifth Avenue, New York, N.Y. 10003-3076; (800) 424-9836. The report can also be ordered online at http://www.fdncenter.org. Discounts are available for bulk orders.

PROGRAM-RELATED INVESTMENTS

What the Money Is Used For