A Different Spin on a Market-Based Approach
Resource type: News
Stanford Social Innovation Review | [ View Original Source (opens in new window) ]
Even foundations that don’t have an impact investment program can catalyze market-based social innovations by getting creative with how they structure their grants.
By Sara Kay and Cynthia Muller
Let’s be honest, philanthropy alone can’t solve large-scale, complex social problems—there simply aren’t enough foundation dollars to go around. But philanthropy can and should take chances on big projects and innovative ideas to meet these challenges—risks that the private sector and government can’t or won’t take on. Foundations are increasingly exploring a new way of risk-taking by using impact investing—making loans and investments that have double-bottom-line goals of financial and social return on investment. For example, by providing low-cost financing via low-interest loans, some funders help organizations attract new sources of private sector and other funding. But even foundations that don’t have an impact investment program can have similar—or even greater—effects by getting creative with how they structure their grants.
Here’s how: A foundation can help a grantee attract debt financing from new or more risk-averse investors by making a grant that acts as a financial guarantee against losses, effectively limiting risk for subsequent investors. By structuring the grant with matching incentives and “triggers” to unlock higher levels of funding, foundations can draw in private capital even more quickly than through an impact investment, because they don’t require a financial return.
Sara Kay is Head of Advocacy and Health Equity Programmes at The Atlantic Philanthropies.