Frequently Asked Questions

What is a Program-Related Investment?

A program-related investment (PRI) is a tool foundations can use to leverage their philanthropic dollars. Unlike grants, however, foundations get a return on their investment, through either repayment or return on equity.

PRIs give charitable organizations or commercial ventures access to needed capital, typically at favorable terms. In return, the funder benefits in several ways:

• It is often able to recycle PRI payments for subsequent charitable investments.
• The foundation is generally able to count PRIs toward its minimum five percent payout of net assets.
• PRIs allow foundations of every type and size to have greater programmatic impact.

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Why make PRIs?

Foundations often use PRIs as part of a larger philanthropic strategy. The grantmaker typically has an established relationship with the organization receiving a PRI.

Program-related investments:

• Leverage other capital from conventional sources by taking on real or perceived higher risk;
• Strengthen recipients by fostering long-term sustainability and improving cash flow;
• Offer flexibility to make larger distributions or increase payouts during rapid foundation growth.

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How do PRIs make an impact?

PRIs fund capital projects, provide bridge loans, or offer liquidity to loan funds, among other things. PRIs employ financing methods such as loans (senior and subordinated), loan guarantees, lines of credit, linked deposits, or equity investments.

PRIs may help a program acquire property; reach scale; create jobs, products or services; or approach self-sufficiency. Often, PRIs are made to share risk and leverage co-investment, and often attract traditional financial players to the table.

Some program areas funded by PRIs include: Affordable Housing, Arts, Community Development, Cultural Organizations, Historic Preservation, Economic Development including Entrepreneurship and Micro-Businesses, Charter Schools, Health Clinics, Child Care Centers, Faith-based Structures and Programs, Social Services, and Open Space and Wildlife Habitat Protection. Because PRIs are paid back, the funds are recycled into the next charitable purpose. PRIs are increasingly used to help funders have greater and more sustainable impact within their philanthropic agendas.
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History of "PRI"

PRIs emerged in response to the Tax Reform Act of 1969. The law cautioned private foundations against making any investment that could imperil its ability to carry out its charitable activities. Under Section 4944, private foundations are allowed to make “program-related investments” that meet three criteria:

1. The investment’s primary purpose must be to advance the foundation’s charitable objectives;
2. Neither the production of income nor appreciation of property can be a significant purpose; and
3. The funds cannot be used directly or indirectly to lobby or for political purposes.

Private foundations claim program-related investments on their Form 990s to mark the transactions as charitable activities. This makes PRIs eligible to be counted as part of a foundation's minimum payout. Other entities, including community foundations, social investors, and corporate giving funds, may use the term "PRI" to refer to a concessionary investment for a charitable purpose, but there is no legal requirement for them to use the term "PRI."

Of the many thousands of grantmaking foundations in the U.S., only a few hundred make PRIs. Relatively few PRI funders maintain formal PRI programs or make PRIs on an annual basis (about one out of three).
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To get a sense of which foundations use PRIs as part of their philanthropic strategy, see PRI Makers Network Members.