Explaining Endowments for Nonprofits: A Guide to Creating Your Own

Almost half of Civil Society Organizations Businesses that opened in the last decade have closed their doors. The main reason was not a lack of relevant cause or impact, but rather... lack of ongoing financial resources. This is one of the best-known structural weaknesses of the Brazilian Third Sector: Dependence on one-off donations and unpredictable funding cycles leaves organizations in a state of permanent instability..

You Endowments, also called endowments, There are ways to change that equation.

What is an endowment fund?

One Equity Fund It is a long-term financial instrument whose objective is... to guarantee financial sustainability for non-profit organizations.. The mechanism works as follows: donations received are invested and generate periodic income — which, in turn, are used to finance projects and operational expenses of the organization. The main It remains intact and continues to grow..

This model It creates a predictable and lasting source of income., ...regardless of the seasonality of fundraising campaigns or the renewal of partnerships with funders. For an NGO working in health, education, the environment, or human rights, having a... Equity Fund A well-structured plan can mean the difference between the continuation and closure of activities.

In Brazil, Endowment Funds have their own legislation (a Law 13.800/2019which provides legal support and security for both managing organizations and their donors.

Endowment Fund vs. Reserve Fund: what's the difference?

Both are mechanisms financial reserve for Third Sector organizations, but with different time horizons and objectives:

Reserve Fund: Focused on the short and medium term, it functions as a emergency fund or operational buffer, accumulated to cover unforeseen events or periods of low revenue without compromising ongoing projects;

Endowment Fund: aimed at long term, with the aim of To generate continuous revenue that permanently funds the organization's strategic activities.. It's not a reserve that gets spent, it's an asset that works for you.

For mature, forward-thinking organizations, the ideal is to have both: the reserve fund guarantees short-term operations, while the Equity Fund It builds structural financial independence.

Why create an Endowment Fund for your NGO?

The advantages go beyond immediate financial stability:

Project sustainability: With guaranteed periodic income, the organization can plan and execute medium- and long-term projects without depending on the continuous renewal of external funding.;

Credibility with donors and partners: to have a Equity Fund This asset signals institutional maturity and commitment to the future, which increases the confidence of strategic donors and enhances new fundraising opportunities.;

Legal certainty: Law 13.800/2019 guarantees a clear legal framework for the creation, management, and accountability of funds, protecting donors and managing organizations;

Independence from single funders: Organizations that rely on a single funder or a few grant opportunities are permanently at risk. Equity Fund diversify the financial support base;

But do you know what the process of creating a Endowment?

How does the process of creating a Heritage Fund for an NGO work?

The process may seem complex, but with a specialized partner it's more accessible than it appears. See how it works in practice, using as an example an NGO with seasonal fundraising that wants to ensure the continuity of its projects:

1. Initial contact and defining the background The organization contacts the Endowments of Brazil, signals the interest in creating an Endowment Fund and defines the value of the initial investment. (if available – not mandatory);

2. Custom background creation A Endowments of Brazil structure one Customized endowment fund, with lower opening and management costs than a Own Endowment Fund Management Organization (OGFP), making access feasible for organizations of different sizes;

3. Integration into the fundraising strategy – Fundraising for the Equity Fund It is incorporated into the organization's fundraising activities: campaigns, donor relations, legacies, and scheduled donations;

4. Formalization of contributions A Endowments of Brazil It handles all the formalization of the contributions received, which are directed to an exclusive current account for the fund;

5. Financial management and wealth growth A Endowments of Brazil, with support from Sitawi Finanças do Bem, [Company Name] manages the fund's finances, seeking returns above inflation and in the long term. Returns are reinvested, progressively increasing the principal assets. A fee is charged semi-annually for managing this fund.;

6. Periodic disbursements to the organization – Once the fund reaches the minimum required amount, disbursements can be made periodically, providing the NGO with a stable and predictable source of income to finance its strategic projects.

Double expertise: Sitawi + Endowments from Brazil

The mechanism of Endowments unites the structure and high level of compliance from the Endowments of Brazil to manage Endowments insurance with the experience of over 16 years of Sitawi in proposing innovative financial solutions for third sector organizations. In this way, the funds arising from the partnership have high level of transparency and legal compliance, seeking solid financial results so that third sector organizations continue to generate positive socio-environmental impact.

An example of this success is the Casa Chama Heritage Fund, focused on the transvestite cause. Find out more by clicking here.

Are you interested in opening an Endowment Fund for your NGO? Get in touch with Endowments do Brasil!