Can You Invest in Charities?
Respected names in financial circles mostly have two things in common: the vision to change the world and the rock-hard determination to do so. Day in day out, we see these magnates pool financial resources to stir some positive change. While motives may be questionable, the good news is that we are now seeing further growth in charity investment. More millennials are now joining in the impact investing movement and are donating to support charitable causes. To the uninitiated, this probably looks like an exclusive playground for the mega-rich as charity donations' return on investment seems non-existent when compared to crypto markets, for example. Well, this couldn’t be further from the truth, and that's what we shall attempt to explain in this article.
What is Charity Investment?
Charity investment refers to the deliberate act of making investments to achieve specific environmental and social benefits while still generating financial returns. Charity investing portrays the idea that you can "do well while doing good" with your stash.
"Doing good" can mean a lot of things: donating to charities that are devoted to reducing housing problems, scaling small businesses by providing small non-interest loans and financial workshops, supporting next-generation talents, eradicating communicable diseases, creating better environments for education, or feeding the underprivileged in certain neighborhoods.
How to Invest in Charities
Investing for social or environmental impact is a straightforward process. A good way to start is to identify the social enterprise to invest in. Social enterprises are organizations that use business methods to advance social causes—from affordable education to climate change. Some of the ways to invest in these social enterprises include:
1. Grants: you can provide one-off or periodic investment capitals to support projects that may be otherwise financially infeasible. There are several nonprofit organizations aiming to raise funds to undertake projects. Returns on investments, if any, are often used for new projects.
2. Lending: you can also invest in charities by providing nonprofit loan funds.
3. Share purchases: support private companies with specific missions directly through venture capital investment or share purchases.
Investing in Charities—The ROI
Although some claim that charity investors should be anonymous, have no motives, and expect no returns, it might be helpful to recall that they are called investors for a reason. The idea of anonymous contributions with no strings attached is a debate for another day. Charity donations' returns on investment are endless, and the yardstick for measuring them vary. Asides from the general feeling of well-being that comes with providing help, you can get considerable returns in numbers. Let's look at three ways.
1. Brand Visibility: Brands can leverage charity investments to increase visibility and gain good public perception. Suppose you owned a food kitchen and sponsored a local charity distributing food packs in your neighborhood; it logically follows that your brand gets more exposure. Even without proper advertisement, a perception of your brand is already fixed on people's minds, and that's some publicity to your brand. Small business owners can tread the path of established brands in using charity for marketing.
2. Tax Deductions: You can reduce your tax burden (especially if you're in higher tax brackets) by donating to registered charitable organizations.
3. Increased Skill-set: Charity investments do not always have to be monetary. Sometimes it involves allowing your staff enough time to participate in nonprofit tasks for impact. Doing this will yield returns in productivity and ideas.
Investing in Charities: The Challenge
Charity investments, for all their good, are riddled with setbacks, and perhaps the primary one is lack of accountability. While for-profit companies are often subjected to strict financial audits, charities' doings are often soft-pedaled. Issues surrounding mismanagement, uninformed spending, and even outright corruption have plagued the donations space and still pose a huge challenge. People ought to know where their donations go per time.
Understandably, not everyone can invest huge funds in charities, but even small contributions can have ripple effects. As a business owner, it might be helpful to set aside some funds from your monthly revenue to invest in charities with well-defined goals. For individual investors, a few bucks out of your disposable income can suffice. While the rewards may seem little, there’s no telling how much impact you are making.