Beyond Grants: Using Program-Related Investments to Drive Mission Results

Program-related investments, commonly known as PRIs, give foundations a powerful tool to advance charitable missions while preserving long-term assets. Unlike traditional grants, PRIs are structured as investments that prioritize social impact over financial return, allowing capital to be repaid and redeployed for future charitable use.

As philanthropic strategies evolve in 2026, PRIs continue to play a central role for foundations seeking sustainable, scalable impact without compromising compliance or mission alignment.

What is a PRI?

A PRI is a mission-driven investment made by a foundation to advance its charitable purpose rather than generate market-rate investment returns. PRIs may be extended to nonprofit organizations or, in certain cases, for-profit entities to further advance their charitable goals.

Common PRI structures include below-market loans, equity investments, loan guarantees, and deposits. While modest returns are permitted, financial gain must remain secondary to the charitable objective.

How PRIs work

In a PRI, a foundation deploys capital with clear charitable intent and defined repayment terms. When structured as a loan, the recipient/borrower repays principal over an agreed timeline, often with low or no interest. Equity PRIs may involve patient capital with limited upside, while guarantees help unlock third-party financing.

Once repaid, PRI funds return to the foundation and can be reinvested in additional charitable initiatives. This revolving nature allows foundations to extend the life and reach of their philanthropic capital.

IRS qualifications for PRIs

To qualify as a program-related investment under IRS rules, all of the following criteria must be met:

• The PRI must advance the foundation’s charitable purpose. The primary objective of the investment must directly further the foundation’s exempt mission.
• The financial return cannot be a significant purpose. Income generation or asset appreciation must remain incidental and below market on a risk-adjusted basis.
• The PRI may not be used for political or lobbying activity. PRI funds may not be used, directly or indirectly, to influence legislation or political campaigns.

When structured correctly, PRIs may not be considered jeopardizing investments under IRS Section 4944.

PRIs vs. traditional grantmaking

Program-related investments differ from grants in several important ways:

• The capital is often returned. Unlike grants, PRIs are typically repaid, allowing funds to be reused for future charitable activity.
• The funds are recycled. Repaid capital creates a renewable source of mission-aligned funding.
• PRIs complement grants. PRIs can scale proven programs, bridge timing gaps, attract co-investors, or support capital-intensive projects that grants alone cannot sustain.

Benefits of PRIs

For Philanthropists and Foundations PRIs multiply the impact of charitable dollars by enabling repeated use of the same capital. They help foundations leverage public and private financing, often drawing in banks, CDFIs, or other funders. PRIs count toward the required 5 percent annual payout for private foundations, helping meet compliance obligations. They foster deeper, longer-term relationships with mission-aligned organizations.

For Nonprofit Organizations PRIs help bridge cash flow gaps and finance growth initiatives. They provide access to affordable, patient capital with more flexible terms than commercial loans. Successful repayment strengthens financial management and improves creditworthiness. PRIs encourage durable partnerships with funders beyond one-time grants.

Common uses for PRIs

Foundations deploy PRIs across a wide range of charitable purposes, including affordable housing, community development, arts and culture, education, health care, childcare, faith-based facilities, environmental conservation, and economic development.

PRIs support capital projects, bridge loans, revolving loan funds, property acquisition, microenterprise lending, job creation, and service expansion.

Size, duration, and expected returns

PRIs may range from a few thousand dollars to several million, depending on the foundation’s capacity and the recipient’s needs. Duration can vary from short-term bridge financing to patient capital lasting five to ten years.

Most PRIs are structured with below-market returns, commonly between 0 and 3 percent, depending on risk and repayment capacity. While modest earnings are allowed, they cannot be a primary motivation for the investment.

Managing risk and repayment

The majority of PRIs are repaid on schedule, though repayment rates vary by sector and structure. Many foundations mitigate risk by establishing loan loss reserves, often up to 15 percent of a PRI portfolio, or by working through intermediaries such as community development financial institutions. Foundations may also reduce risk through insured deposits or guarantees.

How to get started with PRIs

Foundations considering PRIs should follow a disciplined process:

• Identify a mission-aligned PRI opportunity
• Conduct a basic financial assessment of the recipient organization
• Negotiate terms, repayment schedules, and monitoring expectations
• Draft and finalize a formal agreement with legal review
• Monitor performance and impact throughout the life of the investment

With proper governance and expertise, PRIs can become a cornerstone of a modern philanthropic strategy.

FAQs

What makes an investment a PRI?
A PRI must primarily advance a charitable purpose, offer below-market returns, and avoid political or lobbying activity.

Do PRIs count toward the 5 percent payout requirement?
Yes. PRI disbursements count toward a private foundation’s annual required distribution in the year they are made.

Who can receive a PRI?
Eligible recipients include nonprofits and certain for-profit entities whose activities directly further charitable goals.

Are PRIs risky?
Risk varies by structure and sector. Many foundations mitigate risk through reserves, intermediaries, and conservative underwriting.

How are PRIs reported?
Private foundations report PRIs on Form 990-PF as charitable activities. Outstanding PRIs remain on the balance sheet until repaid or written off.

Do foundations need special expertise to make PRIs?
PRIs require financial, legal, and programmatic skills. Many foundations rely on staff, board members, consultants, or intermediaries to support structuring and oversight.

If you’re not a Mercer Advisors client and you’d like to learn more about PRIs, let’s talk.