Glossary
A donor stipulation that specifies a use for the contributed asset that is more specific than broad limits resulting from the nature of the organization, the environment in which it operates, and the purposes specified in its articles of incorporation or bylaws or comparable documents for an unincorporated association. A restriction on an organization's use of the asset contributed may be temporary or permanent. The Uniform Prudent Management of Institutional Funds Act of most states governs compliance with donor-imposed restrictions. Note that donor-imposed restrictions may affect donor's deductibility of the gift.
Investments that deliver both risk-adjusted market-rate financial returns and social and/or environmental impact.
An in-depth process of evaluating the opportunities and risks of a particular investment, including the careful confirmation of all critical assumptions and facts presented by a borrower. This includes verifying sources of income, accuracy of financial statements, value of assets that will serve as collateral, the tax status of the borrower, and other material legal and financial information.
Revenue that an organization generates through fees, interest and/or sales of products or services.
Term used since the 1960s to apply to investments by institutional investors, typically pension funds, to assist in the economic stimulation and improvement of specific geographies. Economically targeted investments are different from standard investments in that they provide capital to under-financed regions of the economy, thus filling "capital gaps." The Department of Labor clarified the proper use of ETIs under ERISA pension fund regulations in 2015 (Interpretive Bulletin 2015-1).
To support or oppose a candidate for public office, including through certain types of partisan educational activity and issue advocacy. Program-related investment (PRI) funds may not be used for electioneering.
A fund held by an institution exclusively for charitable purposes or part thereof that, under the terms of a gift instrument, is not wholly expendable by the institution on a current basis. Generally, the donor has placed a restriction of some kind on the amount that may be spent from the fund. Board-designated funds are institutional funds but not endowment funds. Endowments are governed by the Uniform Prudent Management of Institutional Funds Act (UPMIFA).
Environmental, Social and Governance (ESG) factors are those which social investors may consider as part of their investment analysis as a way to evaluate whether their investments promote sustainable, fair and effective practices and mitigate potential risks. ESG may be referred to as "ESG investments" or "Responsible investing."
Cash invested by owners, developers, or other investors in a project. Equity investments typically take the form of an owner's share in the business, and return on equity involves a share in the profits. Evidence of business equity is usually in the form of shares of stock.
An unsecured investment in a CDFI that is fully-subordinated to all other investments, which means it would be the last investment to be repaid in the event of liquidation. An investment must meet a total of six tests to qualify as EQ2 for Community Reinvestment Act (CRA) and accounting purposes, including a rolling term and an interest rate that is not tied to income, usually well below market. EQ2 acts like permanent capital by enabling a CDFI to innovate and/or increase lending, leverage new debt, and reduce risk to other investors. However, an EQ2 does require interest payments and eventually must be repaid, unlike permanent capital. As a result, it cannot be viewed as a permanent source of financial strength or self-sufficiency.
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