Many nonprofit organizations treat endowment funds as the pinnacle of financial maturity and a sign of long-term institutional stability. However, this perception, while seemingly valid, needs a calmer review when endowment funds become restricted, distant from urgent needs, or unable to keep pace with societal changes and beneficiaries.

In this article, author and fundraising consultant James Plourde offers a critical reading of the idea of traditional endowments, not to diminish their importance, but from the perspective of the more important question: When is an endowment a tool for sustainability? And when does it become a constraint that delays impact? This non-exclusive translation is done with limited modification, maintaining the literary rights of the author and the original source, with the aim of enriching the intellectual discussion about financial sustainability in nonprofit organizations.

Consider this example: If you want a fully funded education at Princeton University, including study abroad opportunities, all you have to do is be accepted into the university and major in a language, for example.

Some time ago, a mindful donor established an endowment that grew significantly over time to support studies, based on the belief that finding enthusiastic students to major in studies was common, but that is no longer the case.

The university has no choice but to adhere to the restriction it agreed upon years ago, and keep those funds ready for when the particular majors flourish again. This is just one of the issues with endowments, which many nonprofit organizations see as the holy grail of their fundraising efforts.

If your nonprofit organization already has a large endowment that provides it with annual operational support, that is an important gain. However, if you are a small nonprofit trying to build an endowment from scratch, there are aspects that should be considered.

The organization needs to raise a large capital before the endowment has a tangible impact on its mission. With an annual spending rate usually between 4% and 5%, an endowment worth a million Riyals will only provide an annual return ranging from 40,000 to 50,000 Riyals, while between 950,000 and 960,000 Riyals remains invested as an endowment asset, and thus not available for direct spending on programs and services.

Raising endowment funds is extremely difficult; it is not easy to convince a donor to make a large gift that remains invested in a fund when the organization only receives an annual return equivalent to four or five halalas for every Riyal. This arrangement could last a long time under the terms of the donor. I also have not met a donor who is willing to provide a significant endowment gift and believes that a nonprofit can manage his money more efficiently than he can manage it himself.

There is another approach that perhaps no one knows about, which is that a client recently, after finishing a campaign to secure affordable housing that their community desperately needed, thought about starting an endowment campaign to cover future maintenance and repairs.

Instead, they created a maintenance investment fund that is somewhat similar to an endowment. This money will be collected and invested over time with one important difference: the funds will be spent as needed, and will not be restricted by the “interest and profits in perpetuity” spending rule as is the case with a traditional endowment.

It is almost certain that a well-meaning board member will one day suggest launching a campaign to build an endowment, and when that happens, ask this person how much they plan to contribute, and often the answer will be: “I wasn’t talking about myself!” Then seriously consider whether this “investment” is worth the effort, and whether it is the best way for your nonprofit organization to raise funds to meet the current and future needs of the people it serves.

The problem is not endowment as an idea, but in turning it into a ready answer for every financial question. A wise organization does not measure its maturity solely by the amount of funds preserved, but by its ability to direct money at the right time, in the right manner, to serve its mission and community.

Rethinking endowments does not mean abolishing them; it frees the discussion around them from excessive administrative sanctity, viewing them as an option within a broader spectrum of funding, investment, and impact tools. Some money should indeed be reserved for the future, while some only achieves its meaning when it moves in the present.

Translated article by its author James Plourde, who is a fundraising consultant and author of the book: Finding Funding: How to Ask People for Money and Get It, available on Amazon.

The translation is not exclusive.