Program Related Investments

A program related investment (PRI) is a way that charitable vehicles can use to leverage their philanthropic dollars. Unlike grants, however, foundations get a return on their investment, through either repayment or return on equity. This is also known as “Mission Driven Financing.”

Program related investments are alternatives to outright grants. Some donors provide low interest loans to charities that must be repaid and therefore are available for future grantmaking.

At AEF, we encourage a level of donor creativity not typically available in other donor advised fund programs. An example of this creative approach to family philanthropy is the use of assets in a donor advised fund to fund a charitable cause where commercial funding sources are either not available to the charity or not available at attractive terms. In a program related investment, the donor recommends an investment from his or her donor advised fund in the charity with the understanding that the investment may be recovered within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, i.e. loan, loan guarantees, etc.

Case Study: Program Related Investment

A donor watched their church struggle in keeping up with monthly mortgage payments on the old church while the new church was being built.

The Solution

The donor wanted to help the church manage their finances until the old church was sold. To accomplish this, they recommended AEF make a program related investment to the church under the terms of a loan agreement that provides for the church to make regular quarterly payments of principal and interest, well below the current adjustable rate and more within the church’s means.

This arrangement will enable the church to repay the loan to the donor's donor advised fund in 10 years. At that point, the donor intends to reward the church for exercising fiscal responsibility by making a grant distribution to the church for the amount of interest paid over the course of the loan. Every one wins; the church gets the free use of the money and earns respect for exercising fiscal responsibility and the donor's donor advised fund gets its “investment” in the church back.


Program related investments often take one of the following forms:

  • at-the-market, below-market loan (most common), or interest-free loan.
  • loan guaranty or letter of credit.
  • equity investment.
  • low-interest-rate deposit with a bank or other financial institution linked to line of credit lending vehicle for charitable or other exempt purposes.

 

Videos

A Recorded Webinar: " Program Related Investments: Turning Charitable Investments into Social Impact Through Donor Advised Funds "youtube small.png

 

 

Co-Founder

Tom Tobin
President/CEO
tomtobin@aefonline.org

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