The PRI Paradox

Opinion by Ben Everidge for Generosity

Photo Credit: Adobe Stock by TheMassive

Why Philanthropy Ignores the IRS’s Most Powerful Generosity Tool and Chooses a Trend Instead 

When philanthropy wants to feel innovative, it reaches for “impact investing.”

It’s the golden child of the past decade.  Sleek, market-friendly, ESG-flavored, and promising that capital can do good without sacrificing returns.

Impact investing has become a badge of modernity, proudly worn by investment committees, community foundations, and family offices seeking to signal relevance in a changing world.  It sits comfortably next to private credit, sustainable tangible assets, and socially screened equities.

It is also, for all its hype, one of the least regulated, loosely defined, and most inconsistently applied concepts in the philanthropic universe.

Meanwhile, sitting quietly in the Internal Revenue Code is a far older, far clearer, far more helpful tool for charitable innovation, one that foundations have been authorized to use since the early 1970s: the Program-Related Investment, or PRI.

A legal, IRS-defined mechanism that allows foundations to invest in nonprofits and mission-aligned enterprises at below-market rates while recycling their capital into new projects again and again.

It may be the most powerful charitable financial tool in America.

And almost no one uses it.

This is the PRI Paradox, and it reveals something uncomfortable about modern philanthropy: the sector prefers the appearance of innovation to the work of it.

A Tale of Two Tools

Impact investing and PRIs often get lumped together, but they come from different worlds.

Impact investing lives in the marketplace, an investment strategy dressed in moral language.

PRIs live in the charitable code. Mission first, return second, compliance explicit.

One is so flexible as to be ambiguous.  The other is rigid in all the right places.

Impact investing says, “You can invest in a solar farm and call it philanthropy.”  PRIs say, “If you want to support a rural hospital, you can do that, and the IRS will back you.” 

Impact investing signals virtue.  PRIs produce outcomes.

And perhaps that is the problem.

The IRS Has Done Its Part, But Philanthropy Has Not

Most philanthropic tools exist in a fog of interpretation and “sector consensus.”  PRIs do not.

The IRS has:

• Clear definition

• Explicit criteria

• Dozens of published examples

• A 50-year compliance track record

• Simple tests for charitable purposes

• Straightforward monitoring rules

In other words, PRIs are one of the few places where the IRS is a friend, not a hurdle.

Yet foundations, with all their committees, attorneys, advisory groups, compliance officers, and investment consultants, behave as if PRIs are complicated, murky, or risky,

This is a cultural reflex, not a legal reality.

Why Community Foundations Avoid PRIs (Even Though the IRS Practically Begs Them to Use Them) 

If you ask community foundation CEOs privately, they’ll tell you the same three things.

1.      PRIs Reduce Assets Under Management – Impact Investing Does Not

This is the taboo truth.  Community foundations rely on:

• DAF fees

• Assets Under Management-based revenue

• Investment income

PRIs traditionally withdraw money from the investment pool.  Impact investing keeps it comfortably inside.  For all our industry’s talk about innovation, we remain tethered to a single metric: How much money are we managing?

PRIs challenge that model.  Impact investing preserves it.  Everything else is window dressing.

2.     Investment Committees Prefer Familiarity to Mission Alignment

Impact investing looks like an investment. PRIs look like a loan.  Committees understand: 

• Risk-adjusted return

• Benchmarks

• Liquidity

• Sharpe ratios

They do not want to evaluate:

• Nonprofit balance sheets

• Cashflow needs of a rural hospital, for example

• Borrower monitoring

• Charitable-purpose underwriting

• 5-year repayment plans

Impact investing requires no new skills.  PRIs require new muscles that philanthropy has not necessarily built.

3.     PRIs Live in the “Charitable” Side of the House, and That Side Has Less Power

Impact investing is born from an investment culture.  PRIs are born from a charitable purpose.  In most community foundations, investment culture wins.  Investment language is authoritative.  Charitable language is emotional.  PRIs force the two worlds to collide, often uncomfortably.

4.     Staff Capacity Isn’t There and Never Has Been

Impact investing can be outsourced to asset managers.  PRIs require: 

• Underwriting

• Compliance documentation

• Loan servicing

• Legal structuring

• Monitoring

• Borrower support

• Impact reporting

Very few community foundations have staff trained in any of these skills. So, they avoid it.

5.     PRIs Feel Like Work, Impact Investing Feels Like Branding

Impact investing gives foundations something to announce:

• A partnership with a national ESG fund

• A new invest-for-impact portfolio

• A story about “aligning capital with values”

PRIs don’t generate glamorous press releases.  They generate results.  That is harder to market and harder to maintain.

What We Lose When We Choose Branding Over Effectiveness

The consequences are real.  Impact investing disproportionately flows to areas where returns are already strong:

• Solar farms

• Infrastructure funds

• Mixed-income housing

• Private credit

• Sustainable real estate

These are good things, but they are not the things philanthropy exists to solve.

PRIs, by contrast, reach sectors that markets refuse to touch:

• Rural hospitals and clinics

• Community land trusts

• Nonprofit infrastructure

• Childcare providers

• Arts and culture institutions

• Apprenticeships and workforce training

• Immigrant-owned microenterprises

• Mental health and addiction services

Impact investing is best at scaling what already works.

PRIs are best at funding what must work for the community.

One solves an opportunity.  The other solves failure.

The Franklin Model: A Forgotten Blueprint for Modern Philanthropy

Long before PRIs formally existed in law, Benjamin Franklin launched one of the world’s first revolving loan funds.  He lent capital to apprentices so they could start businesses, with repayments cycling to future generations.

It was elegant.  It was practical.  It was regenerative.

It was modern philanthropy, two centuries early.

Today’s challenges call for a return to that mindset: capital deployed not as a one-time grant, nor as a market investment, but as a recycling engine for community impact.

We used to call that wisdom.

Now we call it a PRI.

The Sector Needs a Reset, Not Another Trend

The future of philanthropic capital is not found in hashtags or ESG slides.

It’s found in tools that actually work. 

Philanthropy’s job is not to chase market innovations.  It is to fill the gaps that markets ignore.

PRIs are one of those tools.

But they will remain underused until the sector confronts the uncomfortable truth: Impact investing is easy to talk about.  PRIs are challenging to implement.  The IRS has done its part.

Now philanthropy must do the work to do more good.

And the work is worth doing.  PRIs can stabilize rural hospitals.  PRIs can build affordable homes.  PRIs can support entrepreneurs who have no bank.  PRIs can anchor public-private-philanthropic partnerships.  PRIs can recycle capital for decades. 

Impact investing is good, and it is undoubtedly a philanthropic planning tool.

But PRIs are essential.

It’s time for foundations, especially community foundations, to rediscover the tool designed specifically for them.

Community Foundations: The Unsung Backbone of American Generosity

Here is the part that often gets lost in the PRI conversation:

• Community foundations are not the problem.

• They are the solution waiting to be empowered.

These institutions sit at the crossroads of local generosity, civic trust, and community identity.

They are stewards of hometown values.  They hold relationships no national fund can replicate.  They carry the history and hopes of the cities and counties they serve.  And they are the most strategically positioned institutions in America to lead a new era of preeminent philanthropy.  One that blends:

• Charitable purpose

• Regenerative capital

• P4 initiatives

• Mission-driven lending

• Multi-generational community impact

The only thing missing is the infrastructure.

PRIs give community foundations the ability to move from grant makers to community investors, from passive administrators of donor funds to architects of local resilience, from short-term charity to long-term community capital builders.

And they can do all of it without abandoning the donor generosity that built them.

The Path Forward: A Future Where PRIs Become the Norm, Not the Exception

The next chapter of American generosity will not be written solely by massive national foundations.

It will be written by community foundations, by the people closest to the ground and most committed to their neighbors.

If the sector embraces PRIs:

• More rural hospitals will survive

• More affordable homes will be built

• More solar-agriculture pilots will take root

• More small businesses will thrive

• More donors will see philanthropy as a living engine rather than a one-time act

PRIs are not just financial tools.  They are instruments of community continuity.  They are the connective tissue between local generosity and local transformation.

And that is why the future of preeminent philanthropy – genuine, authentic, Franklin-style philanthropy – depends on community foundations stepping into their full potential.

The future is not only possible.  It’s already beginning.

All it needs is leadership, clarity, and a willingness to use the tools the IRS has generously placed in our hands.

Impact investing is a trend.

PRIs are a legacy.

And legacies are what community foundations were built for.

For a Comparison Between Program-Related Investments and Impact Investing click here