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More Than a Mean Grant
Most nonprofits see foundations as only a source of grants. But MMT has another important, but lesser known, tool for helping organizations with a charitable purpose: Program-Related Investments (PRIs).
Broadly speaking, PRIs are investments—including below market-rate loans, guarantees, linked deposits or equity investments—for an exempt or charitable purpose and not for investment purposes. If the deal were exciting or good enough to warrant a commercial financing, the thinking goes, then the organization probably wouldn’t need a PRI. And PRI loans are expected to be repaid, unlike grants. For these reasons, PRIs have been called “a bad loan or a mean grant.”
We see the importance of PRIs. They often serve as critical bridge funding in early stages of a project, before an entity may meet the underwriting standards for commercial financing. “Markets can often catch up to needs, but foundations can shorten that lag,” observes Ben Wirz, of the John S. and James L. Knight Foundation.
Over the years, MMT has completed more than 50 PRIs and almost all were below-market loans, sometimes coupled with a grant. Looking to expand how we might integrate PRIs into our mission-related investment philosophy, several MMT staff attended the May 2012 Investing for Impact conference presented by Mission Investors Exchange. Our CEO, Doug Stamm, Program Officer Paul Reich, and Lead Accountant Sayer Jones also presented at the conference.
What did we learn about the evolving field of PRIs?
PRI competency and impact are maturing. In years past, the PRI conference looked at basic questions of who could do this work, and the nuts and bolts of beginning a PRI program. Now questions center on how we can do this work strategically. As Sayer Jones notes, “The supply of PRI products has caught up to the demand and now people are wanting stronger impact rather than just any impact.”
IRS is approving more innovative PRIs. The last time the Internal Revenue Service issued PRI regulations, George McGovern was running for president. In the intervening forty years, the IRS has issued only one public ruling on the subject. But in April 2012, the IRS brought forth proposed regulations with several more examples of PRI investments, giving some comfort to foundations looking to expand the depth and reach of their investments.
Casting a wider net. As a first time PRI conference attender, I was surprised to learn PRIs have some greater flexibility than grants: they can be made to tax-exempt charities but also to social enterprises and non-charitable, non-exempt businesses if the investment furthers a charitable purpose. The Gates Foundation, for example, is investing in a vaccine-delivery biotech company that aligns with its charitable health goals. As this field develops, I'll be examining how MMT might cast a wider net in PRIs.
MMT is poised to explore the next generation of PRIs. With many conventional PRI loans under our belt, our team is more experienced than many foundations. We see the recent trends as an opportunity to align our PRI portfolio more strategically with our philanthropic goals. We will be asking:
- What are our goals and how can we intentionally build a PRI strategy?
- Are there current opportunities to target PRIs in certain geographic areas or funding priorities?
- Should we explore new ways to partner with Community Development Financial Institutions (CDFIs), credit unions, CDCs or other intermediaries to build communities and expand our impact without the intense staffing requirements?
In short, we plan to rethink how PRIs might advance MMT’s goals. They are a powerful tool—and much more than a mean grant!
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