Place-Based Impact Investing Through Partnerships Between DAF Sponsors and Community Banks and CDFIs

This program will explore how DAF sponsors can partner with community banks and CDFIs to facilitate place-based impact investing in the institution’s community by offering bank-branded DAFs to individuals and businesses in their community, making it possible for the institution’s customers and supporters to establish and use a DAF for place-based impact investing instead of just grantmaking.

DAFs are a rapidly growing philanthropic giving mechanism. As of 2023, DAFs held approximately $251.52 billion in assets, marking a 9.9% increase from 2022, and this growth is expected to continue, with projections suggesting that assets will cross the $300 billion threshold in 2025 and reach $500 billion by 2031. However, with no required disbursement rates, money can sit in DAFs for years before donors grant them out.

There are a handful of DAF sponsors that provide opportunities for donors to advise on investments with their DAF funds, but very few that focus on place-based investment opportunities.

In fact, in a September 2019 Stanford Social Innovation Review article, MIT Solve, an organization supporting early-stage, tech-based social entrepreneurs, explored how DAFs can allocate dollars to impact investing, particularly in venture capital, to help fill the funding gap facing early-stage social enterprises. MIT Solve’s 18-month analysis of the DAF landscape found that few DAF sponsors offer impact investing options to their clients at all, let alone the ability to directly invest in social enterprises. The Stanford Social Innovation Review article explored the impact that could be achieved by permitting donors to leverage their DAFs toward impact investing, concluding that it would help fill the long-standing “pioneer investment gap” for early-stage social enterprises by providing the patient capital early-stage entrepreneurs need.

On the other hand, white-labeled bank DAF programs are not novel. Banks actually pioneered the DAF concept a century ago, and today many banks offer DAF programs to their clients, though virtually no bank provides the DAF donor to advise on investments as well as grants.

This discussion will explore how DAF sponsors can partner with banks and CDFIs to facilitate place-based impact investing in the institution’s community. This program will generate more funding for small businesses, including minority-owned businesses and businesses in low- and moderate-income communities. The financial institution will benefit from community goodwill and publicity, and a bank participating in such a DAF program will have the opportunity to generate CRA credit and new customers. Banks that are ECIP recipients can even use the white-labeled DAF program to count towards the institution’s “deep impact” or “qualified lending” metrics.