Schwab Charitable's answer to this question was to dip its toes in the impact investing waters via microfinance institutions (MFIs).

In the developing world, MFIs make loans to women in order to help them bootstrap their way out of poverty. But MFIs themselves need capital, and so they often ask foundations and wealthy individuals to co-sign a loan rather than give them a grant so they can borrow start-up or growth capital and thereby establish a commercial line of credit. "The legal complexity of being a guarantor is pretty significant," Wright-Violich said, "and the entry level [for making guarantees] was typically $1 million."

As a collective administrative umbrella, Schwab Charitable signed a single agreement to guarantee MFIs. Its partner, the Grameen Foundation, creates a diversified portfolio of MFIs and performs due diligence, and the charity's donor-advisors may use up to 10% of their funds to guarantee MFIs. Since the funds remain in their investment portfolio and are only drawn and used if an MFI fails, there is no return from the guarantee. "We didn't want to be part of the chain of costs that drove up interest rates for the end-users," Wright-Violich said.

Flexibility
RSF Social Finance, a San Francisco-based nonprofit financial services company, offers its donor advisors a cornucopia of options for making impact investments that focus on ecological stewardship, sustainable agriculture, education and the arts. Unlike other DAF investment programs, RSF makes direct investments in nonprofit and for-profit social enterprises.

RSF's liquidity portfolio, designed for active grant making, includes CDs in community and green banks such as Southern Bancorp., the Latino Community Credit Union, Self Help, New Resource Bank, and the National Cooperative Bank. Although bank deposits can sound mundane, RSF says $1 in deposits can mean up to four to seven times the deposit in loans in a given community, depending on the type of bank and its existing capital.

"A number of donor-advisors don't even look at this philanthropic vehicle as traditional philanthropy, but as a way to use risk capital to create change and have an impact," says Taryn Goodman, senior manager of impact investing at RSF. "One of the funds we are currently looking at would be a proof-of-concept for a fund. It would [involve] coming in at an early stage to prove that this fund is viable and would allow potential follow-on investors looking for market returns to come in [later.]"

Flexibility with respect to returns is one reason it's easier to experiment with impact investments within a DAF rather than at a foundation. A foundation PRI, since its primary mission must be charitable, must by definition be below market-rate. And if it is an equity investment, there is an IRS requirement that the foundation have a so-called "mission collar" on the company, backed by an opinion letter assuring there is no "mission drift" from the foundation's charitable purpose.

In contrast, DAFs are free to make investments with either below-market rate or market-rate returns, and not worry about mission drift for IRS purposes.
RSF's Impact Portfolio, for example, has included a variety of private equity funds (microfinance, clean technology, consumer directed health and wellness, etc.), real assets (restoring ranchland, sustainable forestry) and fixed income bond issues focused on environmental projects and community development.  

À La Carte
For the most part, the DAF investments offered by RSF are diversified portfolios of its own creation. A different approach is taken by Impact Assets, the Bethesda, Md.-based spinoff of the Calvert Foundation, which offers its donor advisors more of an à la carte approach.

The firm helped one donor, who had made several grants in support of sustainable agriculture, to make an investment in her local dairy cooperative out of her DAF. Another DAF, Presumed Abundance, has been set up to make small early stage investments in technology companies with a social purpose.

And for DAFS that can invest a minimum of $25,000, Impact Assets has a revolving seasonal menu of debt and equity funds on its Global Impact Ventures platform. Among the current offerings: the Public Radio Fund, which provides bridge loans to public radio stations; EcoE II, which provides expansion capital to small community-based businesses in organic agriculture, community-based energy, sustainable forestry, etc, and Beartooth Capital, which restores ranchland.

"One DAF was particularly interested in Beartooth because he's been approached by a number of nonprofits for donations to protect migratory corridors, and he was feeling kind of overwhelmed because they are so big and the money only goes so far," says Elise Lufkin, managing director at Impact Assets. "He was looking at it as a donor. What would he have to donate in order to have this kind of impact?