“I would say the entire nonprofit community is moving beyond a frame of charity,” said Chuck Bean, executive director of The Nonprofit Roundtable of Greater Washington, who while supporting the idea sees potential obstacles. “When nonprofits talk to their funders, they need to make the case for investment not just because it pulls on the heartstrings, but because there’s a social return on investment.”
Accion International is a nonprofit that makes equity investments in for-profits through District-based Venture Lab. The fund was formed in April to dole out $10 million to upstarts in developing countries that help the poor gain access to financial services.
Paul Breloff, the fund’s managing director, said that’s a tactic that has come with some controversy. But the decision to invest in for-profits, rather than other nonprofits, does not reflect a judgment that one model is more effective than another, he said.
“We invest entirely because we believe in the social mission [of the companies] and we believe this is the most efficient way to grow these initiatives and grow the outreach into these underserved populations,” Breloff said.
So far that’s proven effective. The $10 million that Breloff has been given to invest was actually reaped from prior investments in socially minded companies that have gone on to find success, he said.
Some organizations are taking a similar approach to nonprofits using loans.
The Bethesda-based Calvert Foundation extended its first loans to capital-seeking nonprofit organizations and community groups in 1995, often offering lower interest rates, longer repayment time lines or other terms more favorable than a private bank.
The group’s funding comes in part from a community investment note that individuals and corporations can purchase as part of their investment portfolio, meaning the nonprofit must scrutinize deals to find those that all but guarantee tangible returns, said Lisa Hall, president.
“In the early days of Calvert Foundation, we used to get criticized [that we’re] cherry-picking the best deals. My response to that is, ‘Yea, that’s the point. We’re investing in deals that are going to raise money’,” Hall said.