Could microfinance begin at home?

Each one of the recent spate of stories about nonprofits selling assets (the Albright-Knox Gallery in Buffalo getting rid of some paintings, Fisk University selling off a George O’Keeffe to pay for scholarships) has treated the occurrence as a unique local tragedy.  In fact, though, asset sales illustrate a–perhaps the–major structural problem with our sector: lack of access to operating capital.  Plenty of ink has been spilled over foundations’ reluctance to grant such capital, but today the Nonprofiteer’s concern is banks’ reluctance to lend it.

Capital markets don’t serve charities.  (Yes, yes, there’s Shorebank; but it has the field of community investment pretty much to itself.)  There’s no reason why they would: lenders are understandably reluctant to get involved with people whose repayment is dependent on other people’s charity–and whose need, frankly, is not going to disappear no matter how much money you lend them.  But if microfinance can work in the developing world, there must be a way to make something similar work for cash-starved charities at home.

The solution might actually be located in another problem: that nonprofits aspire to have so much money they can afford to just sit on most of it.  The Nonprofiteer has always been mystified by endowment, though she grasps reserves easily enough.  The latter exist to make sure that the agency you’re operating has, say, six months’ worth of ability to recover in the event of catastrophe.  But the hospitals and the universities and the museums have all decided that they’re not operating agencies–they’re creating institutions to last forever.  This edifice complex serves us quite badly: we have needs but 95% of our money is unavailable to meet them.

But what if well-endowed institutions used that 95% to create a loan fund for other nonprofits?  That is, what if the entire investment policy/strategy of the big nonprofits consisted of lending to small nonprofits?  Socially conscious investing, indeed!

We’d have to develop an alternative system for evaluating creditworthiness–we wouldn’t want lending only to the nonprofits with the capacity to earn repayment, because we want nonprofits to be serving clients rather than lenders–but the microfinanciers of the developing world have already demonstrated that such alternatives are possible.

All the cluck-clucking in the world about how this college is selling its patrimony and that art museum is needlessly narrowing its focus won’t prevent those institutions from selling assets, so long as the only source of ready capital for charities is the sale of assets.  Make reasonably-priced loan capital available, and you’ll see more precious legacies being saved.

For other thoughtful analysis of the nonprofit debt crunch and possible solutions, see Charity Governance as well as yesterday’s posting at


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