The Problem With the Philanthropic Market

There are conflicting forces at work creating a significant problem in the charitable market. On one side, charities and social enterprises are perpetually under-capitalized; funding is often cited as a major barrier to these organizations delivering on their mission. Providing access to capital, and choice in doing so, can free up charities to focus on the things that matter. However, this capital is frequently simply not that there: on the commercial end, banks are unwilling (viewing these investments as poor business propositions with bad credit risk) and unable (even more so in this time of increased regulation) to lend.

In stark contrast to the issues of under-capitalization, there is a large untapped wealth of under-utilized philanthropic capital which is sitting idle. This ranges from the endowments of foundations, forgotten trust accounts, or surpluses accumulated by some of the more prominent charities. These funds are irrevocably assigned for charitable use, yet they are predominantly invested in the money markets; while pragmatic in the short-term (although in the current interest rate environment this could be questioned), over the longer-term such lack of deployment to charities is hardly in the spirit of the original bequests (or in society’s interests). This activity should be discouraged if suitable, similar risk/return alternatives can be provided that allow that capital to be used in the sector for social impact.

So what’s being done to address this gap? Check back next week for the answer.