Social Value Investing by Howard Buffett

Author:Howard Buffett
Language: eng
Format: epub
Tags: BUS092000, Business & Economics/Development/General, BUS036000, Business & Economics/Investments & Securities/General
Publisher: Columbia University Press
Published: 2018-04-17T04:00:00+00:00

Pioneering PRIs: Profile of the Ford Foundation

The Ford Foundation was established in 1936 by Henry Ford, founder of the Ford Motor Company, and his son, Edsel. At one point, the foundation owned nearly 90 percent of the nonvoting shares of the automotive company, making it the largest private foundation in the country.35 By 1968 the Ford Foundation was grappling with how to increase its social reach beyond the limits of its grant-making resources.36 In a proposal to the foundation’s trustees that year, foundation staff urged them to “re-examine the tradition that limits our philanthropy to a single mode—the outright grant.”37 Shortly thereafter, the foundation began its first program-related investments.38 Although not technically classified as such then (the Tax Reform Act of 1969 provided the first legal definition for a PRI39), it focused on programs for minority business development, affordable housing, and environmental preservation.40 The foundation has since allocated about $690 million41 toward PRIs and engages in direct loans, equity investments, and loan guarantees.42

The Ford Foundation has a long record of success with PRIs.43 In 1977, the foundation provided a grant to a new nonprofit lender in Bangladesh for an experimental small-scale credit program.44 This program sought to provide access to credit, mainly to women who had no collateral (such as land), and it organized debtors into small groups with collective responsibility for loan repayment. The model showed promise, reaching fifteen thousand participants with a 98 percent loan repayment rate within a few years. By 1981, the program sought to expand to one hundred thousand borrowers, increasing its partner commercial banks from twenty-five to one hundred.45 The Ford Foundation provided a multiyear recoverable grant for $770,000 as a 10 percent loan default guarantee.46 This guarantee offset the risk of potential loss for new commercial banks interested in joining the program and supported the program’s rapid expansion. Funds from the guarantee that were not needed by the end of the term were to be repaid to the foundation.47 Over time, the foundation increased its support, including financing for a revolving fund for larger enterprises.

Today, this nonprofit lender—Grameen Bank—has more than 2,500 branches and has made over eight million loans totaling more than $20 billion,48 and it pays dividends to its borrowers.49 Structured as a cooperative, Grameen’s borrowers are also the bank’s owners, holding more than 90 percent of the organization. The remainder is owned by the Bangladeshi government.50 In 2006, Grameen Bank and its founder, Muhammad Yunus, were awarded the Nobel Peace Prize.51

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