Organizations that comprise the large and growing nonprofit sector borrow sustainability lessons from the business plans of their for-profit counterparts as they seek to achieve social missions and financial sustainability. These dual objectives may seem contradictory and nonprofit organizations have often been described as the heart of the bleeding economy, overlooking the benefits of large profits or any profits at all, to help less fortunate communities.

However, some grant-making organizations are now experimenting with financial mechanisms such as loans and investments in stocks or social enterprises (social investment) to repay funds through returns. This practice, known as "impact investing," requires these organizations to generate revenue, yes, they are making a profit in doing so without neglecting their mission and the good they provide to the community.

Chuck Bean, the executive director of a nonprofit organization in Washington County, USA, said: "I would say that the entire nonprofit community goes beyond the framework of philanthropy which, while supporting the idea, sees potential obstacles. When nonprofit organizations address their funders, they need to describe it as an investment not only because it has a charitable dimension, but because there is a social return on investment."

The Financial Impact

Accion International is a nonprofit that makes equity investments through profits via Venture Lab, which was established in April to allocate $10 million to donors in developing countries to help the poor access financial services.

Paul Briloff, the managing director of the fund, stated that the fund's tactical decision came with some controversies and noted that the decision to invest in profits, rather than other nonprofit organizations, does not imply that one model is more effective than another.

Briloff added, "We invest fully because we believe in the social mission of the companies and think this is the most effective way to grow these initiatives and expand contact with these underserved populations."

So far, that has proven effective, he said, and the $10 million granted by Briloff Investment Company has already been generated from previous investments in social-oriented companies that continued to reap the fruits of success.

Some organizations take a similar approach to nonprofits by using loans, where the Calvert Foundation, based in Bethesda, provided its first loans to nonprofits and community groups seeking capital in 1995, often offering lower interest rates or longer repayment periods or other more favorable terms than any private bank.

Lisa Hall, the head of the group, stated that the group's funding comes partially from a community investment note that individuals and companies can purchase as an investment bond, meaning that nonprofit organizations must carefully examine deals to find those that all guarantee tangible returns.

Hall added, "In the early days of the Calvert Foundation, we used to criticize our best deals as fruitless, my answer to that is yes, that’s the important point, and Hall said, "We invest in deals that we know will generate money."

She further noted: "This is one of the challenges we face in our impact investing work, to ensure that you are investing in things where there is a clear and earned revenue model and where there is a strong track record."

Typically, the Calvert Foundation invests in groups with evidence of good operational performance, with at least $5 million in total assets and experience in repaying debt capital, alongside some other criteria. However, skeptics believe that the focus on financial return makes some organizations, perhaps for purely social reasons, ineligible for impact investments because the communities they serve may not have the purchasing power to generate profits.

Bean expressed concerns that impact investing may not be accessible to all organizations, stating, "In my opinion, [impact investing] means that the user usually has some ability to pay for the service. Otherwise, I'm not sure where their scalability comes from."

He added, "I'm not sure if impact investing can solve the chronic homelessness problem or can be employed to address youth issues such as crime prevention."

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