When a non-profit is started, one of the most important matters at hand is locating a steady source of funding. Funding provides stability to your non-profit and ensures that any promises made are kept.
Every non-profit is different, and various avenues of funding need to be tested. If you’re looking for new ways to fund your non-profit, perhaps its time to look into Program Related Investments. Let’s take a closer look at these investments and how they are used to help charities worldwide.
What are Program Related Investments?
A Program Related Investment or PRI, are typically loans, equity investments, or guarantees given by foundations to support charitable activities instead of producing income for the foundation.
They are given to non-profit organizations or for-profit businesses. Non-profit organizations will only receive loans or guarantees, while for-profit businesses receive all three types, as they can have owners.
PRI’s assist in areas of health, community, or even preservation. These investments often go towards improving affordable housing and developing community centers in struggling areas.
Funds may be given to small business owners in low-income areas who would then train and employ unemployed residents, thereby improving the local economy. Other investments have helped to preserve historic buildings or improve education for young children in developing countries.
PRI’s began in the 18th century when Benjamin Franklin used revolving loan funds to support charities. In 1968, the Ford Foundation was one of the first foundations to begin using PRI’s to provide low-interest loans.
While there are thousands of grant-making foundations in America, only a small number of them make PRI’s. However, these investments have improved the lives of many all over the world.
What Criteria Must A PRI Meet?
The United States Internal Revenue Code states that a Program Return Investment should meet three of the following criteria:
- The primary purpose is to accomplish one or more of the foundations exempt purposes
- The production of income or the appreciation of property is not the main purpose
- Influencing legislation or taking part in political campaigns for candidates is not a purpose
- A PRI should also help in achieving a charitable impact. Meaning, without this grant, any positive outcomes that could be met by the non-profit would be impossible. However, only achieving the desired outcome is not enough.
It must be clear that the funding from the foundation directly contributed to the desired outcome. For instance, if interest-free loans are given to students, students simply attending university would not show significant charitable impact.
However, these students graduating, going on to secure well-paying jobs, and returning to uplift their community would show that the impact has been made. Without this type of funding, these students may have never had this opportunity.
How do PRI’s work?
The PRI process is broken down into three parts:
First, the proposed PRI must be subject to review to see if it meets the conditions necessary to fit within the program, charitable goals, as well as charitable impact. Any possible financial risk posed to the foundation is weighed in on.
If the PRI receives support in the first stage, the request is then further scrutinized. The committee then examines if the PRI will put the foundation through any financial burden.
They must ensure that any financial risk posed to the organization is worth the positive charitable impact that the PRI will have. They also make tweaks and changes to the PRI to achieve the highest impact.
Once this is completed, the proposal is ready for the final stage. The investment is reviewed by the president of the division in which it was proposed. If they determine that it will accurately further their charitable goals, it is passed on to the foundation CEO. They will determine whether it is approved and put into motion.
How PRI’s Are Used By The Bill Gates Foundation
The Bill Gates Foundation is no stranger to the use of Program Related Investments. For over ten years, they have allocated portions of their grants to be used for PRI’s that will help those in the world that need it the most. They began in 2009 with an initial amount of $400 million, but this has remarkably increased since then.
The foundation has now allocated over $1.5 billion to fund PRIs. A PRI made by the Bill Gates Foundation is not expected to have large financial returns. While they are realistic about the type of investments they involve themselves in, they understand that they may lose capital on their investment.
Here are some more interesting facts about the way the Gates Foundation uses PRIs:
- Their investment’s aim is to get access to companies with the latest technologies which can be applied to the health field. They’ve invested in biotech startups to help turn their attention to the effects that malaria and tuberculosis have in less developed areas in the world.
- The investments made in these companies require that they make their products available at an affordable rate for the ones that need it.
- The Gates Foundation ensures that there is a significant charitable impact of all their PRI’s. They require that all knowledge and information created by their project will be widely distributed.
- The developments that come about due to the project are made readily available. For example, if the product is a type of medicine, it will be priced affordably and be readily available to all those who need it.
- In the case that the recipient of the PRI fails to hold up their end of the bargain, the Gates Foundation retains the right to take the project forward with another partner. Not only this, but they want to assist in the development of the surrounding field. Any new information, discoveries, or lessons learned are shared across various communities.
- Although the Bill Gates Foundation is relatively new to the world of PRI’s, they’ve demonstrated a wealth of understanding with their investments.
PRI’s are helping non-profits around the world to meet their objectives and goals of truly performing acts of good in their community. They’ve been an asset so far, and we can assume that PRI’s will continue to benefit communities in the future.