This article is based on an extensive editorial reading of an idea proposed by author Luke Jernagan in a published article through the National Center for Family Philanthropy titled: Beyond 5%: A Values-Based Funding Shift.

The following text does not provide a literal translation of the original article but reconstructs the question it raises from a broader knowledge perspective suitable for the third sector audience: When does increasing the expenditure ratio in grant-making and endowment institutions become a decision that protects the mission, and when does it turn into a risk that threatens sustainability?

All literary rights for the original article are reserved for the author and the source. This analysis is part of an independent analytical reading aimed at enriching the Arab discourse on expenditure governance, asset sustainability, and the responsibility of grant-making institutions towards impact.

Figures are more reassuring than questions

In grant-making and endowment institutions, figures do not always appear neutral. A figure like 5% may start as an organizational tool, then over time morph into a mental safety zone; protecting the board from tough questions, reassuring investment teams, and serving as a benchmark when the institution wants to appear sustainable. However, the deeper question is not solely about the financial model: Are we creating philanthropic assets to last longer, or to work at moments when delays in action present losses not reflected in financial statements?

The 5% rule, in the context of several grant-making institutions, refers to the minimum or benchmark for annual spending from philanthropic assets to prevent funds from remaining preserved without turning into grants, programs, and tangible social value. At its root, the rule seems a technical tool for organizing the relationship between resources and giving. It helps the institution avoid impulsiveness, protects its financial capability from depletion, and grants it space for long-term planning.

The rule becomes a ceiling of thought

The problem begins when the rule shifts from being a tool for control to becoming an unquestionable habit. At that point, the institution no longer asks about the size of need, the cost of delay, or the fragility of organizations that depend on its support, but merely settles for a more comfortable administrative question: Have we adhered to the usual ratio?

From this angle, the strength of the discussion does not lie in advocating for greater spending, nor in a blanket defense of preserving assets. The real strength emerges in the ability to distinguish between three paths that are similar in form but different in essence: financial recklessness, emotional generosity, and calculated institutional courage. Higher spending does not become prudent just because it's a larger figure, nor does it become risky merely for exceeding the norm. Its value is determined by the question preceding it, the data supporting it, and the governance regulating it.

The cost of lower spending

Conversely, excessive financial preservation may turn into a cost not reflected in financial statements. Assets may remain strong while partner organizations weaken. An investment portfolio may grow, while a field program that made a real difference comes to a halt. Financial capacity may survive erosion, while the societal return for which resources were gathered declines.

At this point, the question is no longer: Is there money left? Rather, it is: Is the capability for which the money was gathered still intact? The institution that preserves its resources without maintaining its mission achieves incomplete financial security and may appear stable from the outside, but it loses some of its rationale for existence each time need becomes a postponed number on a future agenda.

Sustainability between assets and mission

Therefore, sustainability should not be reduced to the capital's ability to remain, but deeper sustainability is the institution's ability to protect the meaning for which the resources were created. When need grows urgent, additional spending does not necessarily violate sustainability; it may express a more mature understanding of it. The difference is that this spending does not stem from emotion but from an organized reading of reality, and an acknowledgment that certain moments do not wait for a new grant cycle or a postponed decision.

However, this does not mean that raising the spending ratio is an eternal virtue and that every increase in spending carries a dual impact: a direct effect on financing programs and organizations, and a future effect on the institution's ability to continue. Thus, the discussion should not shift from sanctifying the 5% rule to sanctifying its circumvention. Both positions are convenient simplifications, while the mature stance asks: When is greater spending a necessity? When is it a risk? When is delaying funding more dangerous than the funding itself?

The triangle of responsible spending

Here, grant-making institutions need a clearer decision framework. This framework can be termed as the triangle of responsible spending: need, capacity, and societal return, and larger spending becomes a prudent decision only when it passes through these three corners: a pressing need, financial capacity, and a measurable impact.

Need alone may lead to spending that exceeds capacity, and financial capacity alone may justify an increase that adds no real value. The expected impact, meanwhile, is not sufficient unless it is measurable and reviewable. When these elements converge, the increase transforms from temporary enthusiasm into responsible policy, time-bound, and subject to evaluation.

Timing is part of the philanthropic yield

In this context, the importance of timing emerges and, in meaning, not every riyal spent creates the same value, and not every delay protects the future. There are moments when early funding becomes more valuable than delayed funding because the partner organization may not need support a year from now as much as it needs a bridge to cross right now. When timing is lost, subsequent grants may turn into attempts to restore what could have been protected by faster and smarter intervention.

On the other hand, a serious institution cannot use the 'critical moment' as an open excuse to expand spending every year. Therefore, the time ceiling becomes part of governance, and the institution may raise the spending ratio for a specified period, then tie its return or extension to clear indicators: improved revenues, stable partners, changing market conditions, or the conclusion of exceptional need.

In this way, the exception does not become a habit, nor does flexibility turn into chaos.

Governance broader than calculations

From a governance perspective, the decision to increase spending should not remain confined to the board and the investment manager. While asset safety is a central issue, understanding the need is not complete from within the meeting room alone; the voice of partner organizations, data from beneficiaries, market indicators, and the experiences of program teams are all sources of equal importance to expected return models. The broader the information circle, the more balanced and less closed the decision becomes.

Moreover, larger spending does not always mean a general increase in all grants. Sometimes, the smarter option is to direct the increase towards highly sensitive areas: unrestricted institutional support, transitional funding for a threatened organization, building operational capacity, or protecting a program that has proven its impact and lost its funding source. In this way, exceeding the ratio does not become mere financial injection; it becomes a rearrangement of priorities in light of need and expected value.

Responsible money or preserved money?

The ethical question remains present behind all the figures: Is philanthropic money preserved for the future, or is it money responsible for the present? The difference is significant; preserved money waits for future conditions to act, while responsible money reads the present as part of the future. This does not mean consuming assets recklessly but implies rejecting the turning of caution into a permanent excuse for delaying responsibility.

Here, the 5% rule can be seen not as a problem in itself nor as a sufficient solution. It is a starting point, not an endpoint of thought. It is an organizational or referential limit that helps regulate spending, but it does not answer the question of impact on its own. An institution that relies solely on it in every circumstance may be financially disciplined but could be slow in impact, while an institution that exceeds it without a framework may appear bold but risks its mission's future.

The future that deserves protection

Ultimately, grant-making institutions are not only tested on their ability to gather or invest money but on their ability to discern the moment when money should be transformed from a preserved asset into moving impact.

In this regard, the future is not safeguarded solely by saving, nor is it protected by open spending; it is safeguarded when the institution knows why it preserves and when to grant, and how to balance the lifespan of the money with the lifespan of the mission.

It is not the 5% rule that is the issue, but rather the issue of turning financial rules into ceilings for institutional imagination. The mature institution does not sanctify numbers, nor does it react impulsively to need, nor does it confuse the survival of money with the survival of the mission, as it understands that protecting the future does not always mean reducing spending.

Perhaps it means, at certain moments, using money before the cost of waiting becomes higher than the cost of grants.

This article is based on a discussion raised by a published article in the National Center for Family Philanthropy regarding certain grant-making institutions exceeding the traditional spending rule.

This article does not treat that text as a definitive source but rather as an entry point for a broader question about spending governance and sustainability in grant-making and endowment institutions.