I was speaking today to the executive director of a small and growing NGO that’s in the grant-giving business – they’re interested in getting into the loan-giving business.
I asked him why they wanted to make the shift, and he explained: to create a sustainable revenue stream; to create more accountability on the part of the grant recipients; to create a capital base that will allow the organization (and its impact) to grow over time; and because it would be easier to raise below-market debt than it is to raise grants.
I agreed on 3 out of 4 points. The last one is tricky.
There’s a rational argument that says, if someone has to choose between giving money away with no prospect of financial return (a grant) and giving money away with the prospect of some return (a loan), the latter will be more appealing. So it stands to reason that if you have a more (financially) attractive product, it will be easier to “sell” that product.
But that’s not necessarily how it plays out in practice. What I think this misses is the different hats we all wear, and how much easier it is to walk well-worn paths than to blaze new ones.
Seasoned philanthropists are familiar with giving. While each philanthropist makes decisions differently – and solicits advice and ideas from different people – a donor gives based on an (explicit or implicit) set of criteria that motivate her giving. These criteria could be strategic, analytical, cerebral or intuitive, but giving philanthropically is a known and well-understood endeavor for this person.
At the same time, anyone who has amassed a certain amount of wealth no doubt has experience with and criteria for making investment decisions: the risks she’s willing to take, the amount of diversification she feels comfortable with, the people from whom she gets advice and with whom she pressure-tests investment ideas.
So long as you’re raising funds that fall in either of these two buckets, the rules of the game are known. These are the well-worn paths. But something that’s “the best of both” (not quite philanthropic, but not quite an investment) is in a murky middle, where criteria are not well-established, the stakeholders are ill-defined and not used to weighing this particular opportunity. Suffices to say it’s not a layup.
I think this is important to recognize because there’s a lot of talk in our space about how investors / donors “will” behave, but these discussions often are framed analytically rather than building up from actual experience talking to donors about their own preferences.
How people “should” behave is one thing. How they will behave is something else entirely.