Academic journal article Economics, Management and Financial Markets

Endowment - a Tool for Ensuring Financial Stability of Nongovernmental Organizations

Academic journal article Economics, Management and Financial Markets

Endowment - a Tool for Ensuring Financial Stability of Nongovernmental Organizations

Article excerpt

1. Introduction

The main reason for creating the endowment fund by organizations is the financial stability. Moreover, diversification of funding sources leads to increasing the organizations' independence, ensuring its future. Furthermore, the endowment fund could be a catalyst for change within the organizations, create a feeling of safety among stakeholders and increase staff s attentions regarding the objectives' achievement (Ford Foundation, 2012).

The concept of endowment represents an amount of money available to the organizations (nongovernmental organizations, universities, religious organizations, hospitals, retirement homes, etc.) in the form of capital (Bryce, 2005), in order to bring income (Anheier, 2005; Seaman and Young, 2010). The capital remains constant and cannot be used, but only invested (in the form of certificates of deposit, etc.) to provide income (Gonzales, 2003; Fisman and Hubbard, 2003; Irvin, 2007; Bhatti et al., 2014).

The concept of endowment has received various definitions in the literature. According to Garner (2009), the endowment represents assets held by nongovernmental organizations for which donors have established usage restrictions. Core et al. (2006) define it as a fund of cash and or securities available to nongovernmental organizations in order to finance current and future expenses. Lambru and Vameşu (2010) call it dedicated patrimony which could be material or financial. It is mentioned in the articles of incorporation of the foundations, which also includes the aim and the relative permanence of such organizations. However, one of the main difficulties in defining the endowment concept is that each nongovernmental organization sets its own definition when working with endowment funds (Miree and Associates Inc, 2003).

This concept is strongly linked to surpluses because they have a great influence on the amount and assets accumulation (Bowman et al., 2012). The donors' contribution to the endowment fund becomes irrevocable when it is accepted by the nongovernmental organization (PROFIT, n.d.; Core et al., 2006).

An important aspect in developing the endowment fund is the creation of an investment (business) plan in order to increase the amount of money (Stevenson, 2016). In some countries this capital is either stored in the form of securities to obtain an interest, either invested in the construction of houses, hotels etc. The success of the investment is defining for the increase of the capital and hence for the development of projects and philanthropy.

The creation and development of endowment is a long-term project. It is set through private financing sources in order to support the programs or initiatives in which donors are interested (University of Washington, 2015). It requires people with specific skills, such as members of the board of directors, volunteers, experts etc., who do not generate additional costs for the organization (Păceşilă, 2016). Certain nongovernmental entities and even donors are interested in selecting capable persons outside the organization in order to identify effective ways of investing the capital. Clearly, the board of the organization should be satisfied with the professionalism and accountability of the selected persons.

The endowment fund provides financial stability to the organizations creating a continuing legacy of support and should be viewed as a way to protect them. In addition, it could have a major contribution in long-term strategic planning. However, this fund does not represent a panacea and it is not suitable in any situation and for any nongovernmental organization (Stewart, 1999).

2. Objective and Research Methodology

The purpose of this article is a survey on the concept of endowment highlighting its importance for the ongoing support of nongovernmental organizations. In this regard, the following objectives have been set:

- Describing the key issues in building an endowment;

- Explaining the primary components and types of endowment funds;

- Presenting the advantages and disadvantages of setting up an endowment fund;

- Analyzing the situation of Romania as regards the establishment of endowment fund. …

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