A new microfinance loan program from Schwab Charitable allows investors to double-dip their charitable giving assets.
The San Francisco company, the charitable giving arm of Charles Schwab Corp., said in launching its microfinance guarantee program last week that it that lets donors set aside a portion of their charitable gift accounts to guarantee microfinance loans to "the world's poorest entrepreneurs to start, maintain or expand small businesses."
"For our investors, it is a lot like cosigning a loan," Kim Wright-Violich, the president of Schwab Charitable, said in an interview. "But instead of cosigning for your children, you are presenting an opportunity in another global economy."
Microfinance enables entrepreneurs to expand a line of credit or establish credit and negotiate better interest rates.
Schwab Charitable says its microfinance program differs from others in allowing donors to maximize their giving by putting donated funds to use as a microfinance guarantee while they are still held in their charitable gift accounts and invested for growth and future granting. It creates a diversified portfolio of opportunities in developing economies rather than focusing on a single deal, Ms. Wright-Violich said.
"They have secured a tax deduction by making a gift to a donor-advised fund and now they can double their charitable impact by putting the funds to use once as a microfinance guarantee and then a second time as a grant to a completely different cause," she said.
The Schwab guarantee program is expected to increase the availability and reduce the costs of microfinance loans in over 25 developing countries. It will be rolled out in phases depending on response.
The first phase will begin with an estimated $20 million to $30 million in guarantees and could help to generate well over 100,000 microloans, the company said. The program is a collaboration with the Grameen Foundation microfinance network and will evolve to include Developing World Markets, a lender to microfinance institutions, Schwab Charitable said.
The program, which has been under development for seven months, is optional and available only to Schwab Charitable donors.
Donors who agree to participate will recommend that up to 10% of their charitable gift accounts be set aside for a period of 24 to 36 months to help guarantee microfinance loans.
"Any funds used to guarantee microloans will stay in their accounts will continue to be invested for the entire period and will be applied to the guarantee only if the microfinance program has losses in excess of reserves," the company said.
"In addition," it said, "Schwab Charitable will report back to participating donors on the social and economic impact that these microfinance loans provide to their various recipients."
Last year Schwab Charitable made charitable gift accounts accessible to a broader group of donors by lowering the minimum initial contribution from $10,000 to $5,000 and the minimum grant size from $250 to $100.
Since its founding in September 1999, Schwab Charitable has raised over $3 billion and has facilitated more than $1 billion of grants to charity.
Last year the fund received more than $1 billion in donations.
"We have been successful because we have been innovative," Ms. Wright-Violich said. "We are interested in finding new ways to make giving easier, simpler, and more effective."
She said Schwab Charitable now wants to focus on enhancing its capabilities, including its new microfinance program, to bring charitable giving to a wider audience of consumers.