Matthew Schuerman
01/01/2005
INFORMED REVIEW: Ford cut its loss rate from 35 percent to less than 15 percent after it restricted its PRIs to its core funding areas and used program officers, instead of a separate department, to review applications. The program officers are more likely to have worked with or know the reputation of the nonprofit organizations applying for loans and can share their expertise.
INTERMEDIARY INVESTING: Another PRI grantor, the F.B. Heron Foundation, has become a mentor to numerous smaller institutions because of its prowess in social investing. Since Heron, a $258 million foundation in New York, started making loans and equity investments seven years ago, it has achieved an average 3 percent annual return with no loss of principal. “One of the lessons we learned was to invest through intermediaries that have diversified portfolios,” says Luther
Ragin Jr., Heron’s vice president of investments. “It mitigates the risk.” These intermediaries include credit unions, community loan funds and socially minded venture capital firms that guard against loss by diversifying their portfolios. With the notable exception of credit unions, intermediary financial institutions are generally unregulated and not insured by the government.
ACTIVE MANAGEMENT: If a beneficiary cannot make its payments, the sponsoring foundation should be ready to intervene to protect the principal. “There have been a few PRIs that have been troubled,” Ragin cautions. “In those cases, we’ve suggested restructuring, made requests of management to make leadership changes or taken a secured position on a loan we originally made without security.”
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