I am so excited I can hardly contain myself. There is something pretty amazing going on in the world of philanthropy in Austin, Texas. I have been talking for awhile about how PRIs (Program Related Investments) could be used by foundations in new ways to build the revenue sustainability of a nonprofit organization.
Just to recap, PRIs are loans that foundations make to nonprofits at low, or no interest. At the end of the loan period (typically 2-3 years) the loan is repaid, or forgiven. PRIs are usually used for capital projects or land purchases, among other things. But they could also be used to increase the revenue-generating capacity of a nonprofit organization, through improved fundraising function or launch of an earned income enterprise. The current economic climate seems like the perfect opportunity for this new use of PRIs when foundations are trying to hold on to their dwindling corpus while maintaining their past level of community support.
As I wrote in an earlier post here’s how it could work:
What if a foundation, or a wealthy individual, loaned a nonprofit $100K+ for a 2-3 year term. Then, the nonprofit could use that capital to invest in their fundraising infrastructure in order to diversify and be more strategic in raising unrestricted dollars. They could hire a seasoned Development Director, purchase a new donor database, upgrade their website and email marketing efforts, launch a major gifts campaign, train their board, and so on. The idea is that all of these investments would pay for themselves in 2 or 3 years, at which time the nonprofit could pay back the individual or the foundation.
Well, the KDK Harman Foundation, an Austin foundation started by Janet Harman, who has been on the cutting-edge of Austin philanthropy before, just launched a PRI program to do just this. According to their website:
KDK-Harman Foundation is seeking proposals from current grantees for Program-Related Investments (PRI) for its August and November board meetings…to (1) develop or expand their social enterprise efforts; or (2) expand their development and fundraising team. Although PRIs are used primarily for real estate loans for affordable housing or community facilities, the KDK-Harman Foundation will utilize PRIs to support loans to established, financially strong nonprofit organizations within the Foundation’s program areas to help grantees expand their scope of services and/or to become more sustainable. Specifically, the Foundation is seeking ways in which grantees could embrace social enterprise as a means to financial stability. Through a loan from KDK-Harman, the grantee could develop or expand its revenue generating operations and within three years repay the loan. Another example is to enhance the development team whereby the Foundation loans funds to hire additional fundraising staff. Within three years, the loan can be repaid through the additional funds raised. Over time, the organization should be much more financially secure with either a financially successful revenue stream or a larger development team.
I love it. KDK Harman is doing two things with this new program. First, they are increasing their ability to meet past levels of giving, despite any losses they might have met in the market, because the loaned money will eventually come back to them. And second, they are encouraging nonprofit organizations to be proactive in creating revenue streams that will make them more sustainable. Did I mention I was excited about this?
PRIs are used by other foundations (although according to the Foundation Center only a few hundred of the thousands of grantmaking foundations in the country use them), but I haven’t seen PRIs used in exactly this way before. If you know of other examples of PRI programs elsewhere in the country that are used to increase a nonprofit’s revenue-generating ability, let me know. But in the meantime, I’m so impressed with KDK-Harman. They are seizing the opportunity of challenging times to create a more sustainable nonprofit sector.