NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, July 3, 2014

Are you a nongovernmental organization wondering how to benefit from impact investors?

You are not alone. The Nonprofit Finance Fund recently surveyed U.S. nonprofits, and 20 percent of respondents said they will be seeking funding other than grants and contracts — such as loans and other types of investments — within the next year. In addition, 26 percent are considering pursuing an earned income venture as a way to diversify their sources of revenue.

And the timing couldn’t be more perfect. Global investors are expected to commit 19 percent more capital to impact investments this year than they did in 2013, according to a joint study from JP Morgan and the Global Impact Investing Network. A growing percentage of their portfolio is projected to be deployed to sub-Saharan Africa and Asia as well.

It’s safe to assume that impact investing will play an increasingly important role in the funding of organizations involved in making an impact in developing countries.

While the appeal of impact investing is undeniable, nonprofits should know that taking investors on board is a major step, and implies a vast number of changes in the way their organization operates — changes that might conflict with their mission.

When would it make sense, then, to transition to a revenue-generating model and when would it be better to remain a “traditional” nonprofit? This guide will hopefully allow you to get a better sense of what impact investing means for your organization.