Endowments as a tool for sustainable development

USAID has directly funded about 35 endowments, primarily with local currency. The majority of these are in Latin America and the Caribbean. There are two endowment models: those that strengthen an institution to help ensure its financial sustainability, and those for local grant-making organizations. Because of the newness of most endowments and the scarcity of evaluations, this study does not definitively assess the impact and sustainability of USAID-funded endowments. It finds, however, that all the endowed organizations continue to exist and seem to be making strong contributions to development. A full field-based evaluation is needed to assess impact and sustainability, as well as to determine the institutional characteristics of successful endowed organizations. Several lessons can be learned from USAID and other donor involvement in setting up endowments. These include the need for adequate financing to establish the endowment; the strategic use of matching funds to leverage USAID resources; and the importance of organizational independence from government or secular interests. The study"s principal conclusions are as follows. (1) Under the appropriate conditions, endowments can be a viable option for providing long-term sustainable development in countries with or without a USAID presence. (2) Using endowments can be an important strategy for increasing the capabilities of indigenous organizations as development partners. (3) Strong institutions that are well-managed and have successful track records are an essential prerequisite to funding an endowment. (4) By their very nature, endowments involve less USAID monitoring and oversight than other types of activities. In their stead, safeguards are built into the endowment design. A number of factors should be considered when determining the feasibility of an endowment. For example, the country"s legal, regulatory, and financial environment should be amenable to establishing an endowment. The purpose of the endowment should be consistent with the development priorities of USAID and the host country. The risks and benefits of alternative financing mechanisms should be explored to ensure that an endowment is the most appropriate funding vehicle. Endowments appear to be a reasonable strategy for promoting sustainable development. Because they encourage organizational self-reliance, endowments promote more independent partnerships with USAID. When they are well designed and consistent with USAID and host country development priorities, endowments are a "natural" for countries graduating from USAID assistance. Includes bibliography. (Author abstract)