Council on Foundations conference 2014: improving capital flows to non-profits

 

Peter Laugharn

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Peter Laugharn

Peter Laugharn

At the annual Council on Foundations conference, one of the key moments to focus on international questions has always been the global philanthropy dinner, and in particular its keynote. This year, that keynote was given by Lester Salamon, director of the Center for Civil Society Studies at Johns Hopkins University.

Salamon is a chronicler of civil society activity both within and outside the borders of the United States. He is a key figure in bringing overall frameworks, models and numbers to the diverse and changing world that is global civil society, and he led the team which authored Global Civil Society: Dimensions of the nonprofit sector. Typically, Salamon’s work has helped describe the vibrancy and importance of civil society as a force for social good.

Salamon’s talk at the CoF dinner took a somewhat different direction, emphasizing the poor linkages between civil society and capital, and looking at possibilities for improving capital flows to non-profits. What Salamon calls a potential ‘revolution in social purpose finance’ is described in his new book, Leverage for Good: An introduction to the new frontiers of philanthropy and social investing.

Salamon started by reviewing the state of non-profit finance in the US. He noted that the non-profit economy totals about $1.3 trillion, of which $504 billion comes from the US government, and $681 billion from fees. Only 10 per cent of non-profit revenue comes from philanthropy, and only 2 per cent – about $32 billion – comes from foundations. Thus, while non-profits are by far the largest recipients of foundation grantmaking, foundations are a small part of the overall non-profit finance picture.

While $1.3 trillion seems a significant size, Salamon continued, non-profits are capital-starved, often able to address only small parts of the social challenges they exist to combat, and living hand to mouth financially. Many non-profits are unaware of the most significant capital markets, and, according to Salamon, ‘non-profits often don’t understand the difference between operating income and capital’. Non-profits face competition from for-profits; Salamon showed how the non-profit share of many social services has declined in recent years, even in areas like home healthcare that were pioneered by non-profits. Further, the non-profit brand seems to be losing ground in many areas to the for-profit social enterprise.

Salamon sees promise in the explosion of actors and tools seeking to mobilize private resources for public good. Among the actors he emphasized were capital aggregators, secondary markets and social stock exchanges. He noted that capital aggregators, such as the community development finance institutions (CDFIs) in the US, have accumulated $300 billion in the last decade, compared to the $700 billion of assets held by foundations. Within the foundation community itself,
Salamon noted the phenomenon of ‘philanthropication’ through privatization of state assets, which has resulted in the creation of 88 new well-endowed banking foundations in Italy and 200 ‘conversion foundations’ in the US, mostly in the health sector. The new tools available include a wide variety of loan arrangements, social impact bonds and guarantee funds.

While the ‘let’s move beyond grants alone’ discussion is by no means new at CoF conferences, it was very useful to have it presented in a macro perspective. What role will foundations play in trying to link non-profits to these quickly multiplying sources of finance? This will call for a new sophistication and flexibility among foundations, and, as Salamon pointed out, ‘new partners, new financing mechanisms, and new skill requirements’.

The challenges to non-profit finance in the global South are even greater than those described by Salamon for the US. The government-financed revenue streams are typically much smaller in most developing country contexts, and fee-based programmes can be a challenge for non-profits that are serving the most vulnerable or which do not have products that are easily commercialized. It would be very useful to review Salamon’s ideas for bringing more abundant capital into the civil society sector, specifically with low-income countries in mind.

The new strategy of the Council on Foundations seems to be to reach out more to specialized networks for expertise, rather than trying to have deep expertise on many topics in house. This is probably a wise choice regarding this complex and rapidly growing area of non-profit finance, particularly in the developing world. It will be interesting to see how the Council seeks to forge linkages, information channels and working groups that will equip foundations to play a more active role.

Peter Laugharn is executive director of the Firelight Foundation.

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