Charity loans up

Foundations’ program-related investments surge in 1990s.

By Todd Cohen

[02.17.04] — Charitable loans and other program-related investments, or PRI’s, authorized by foundations grew to more than $421 million in 2000 and 2001 combined from $408.8 million in 1998 and 1999, according to a report by the Foundation Center in New York City.

PRI’s authorized by foundations have grown from nearly $222 million in 1990 and 1991 combined, the first years the Foundation Center tracked PRI financing, which includes low- or no-interest loans, loan guarantees, equity investments and assets used for charitable purposes, such as offices leased to nonprofits at big discounts.

“Certainly program-related investments have continued to be an important tool for grantmakers,” says Steven Lawrence, director of research for the Foundation Center, which based its study on a sample of the largest PRI providers in the United States.

Helping to spur the growth in PRI financing, he said, were efforts in the mid-to-late 1990s by leading PRI providers such as the Ford and MacArthur foundations to encourage other grantmakers to make program-related investments.

Still, while the number of grantmakers reporting PRI transactions of $10,000 or more has grown to 255 from 189 in the early 1990s, they represent less than four-tenths of 1 percent of the more than 61,000 active foundations that paid $30.5 billion in grants in 2001.

A big hurdle that may keep more foundations from making program-related investments is the expertise required, Lawrence says.

“Making program-related investments entails a much greater knowledge of organizational finances and much more due diligence on the part of foundations to ascertain the financial well-being of a nonprofit than is true when a foundation is making a grant,” he says.

“Foundations need to be able to look at a nonprofit organization’s finances,” he says, “and be sure that the organization is going to have the capacity to repay that investment.”

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