Giving Compass' Take:

• Writing for Raconteur magazine, Rupert Scofield, President, CEO and co-founder FINCA International, talks about the importance of giving intelligently and why the spirit of philanthropy is crucial to all social investments.

• A good question for all funders to ask themselves: Are you willing to be patient with long-term investments rather than seeking short-term gains? Scofield mentions that, if people start losing faith in the big charities (such as Oxfam, in the wake of scandal), models such as philanthrocapitalism could gain more traction.

• For those looking for more guidance on impact investing, be sure to check out this roadmap.

More than 100 years ago, Andrew Carnegie, the Scottish-American industrialist, business magnate and philanthropist, remarked that “it is more difficult to give money away intelligently than to earn it in the first place.” His words are worth remembering. In the realm of philanthropy, Carnegie is almost without equal. Adjusted for inflation, his donations exceed $9.5 billion. He built thousands of lending libraries, founded universities and established charitable organizations that have survived, and thrive, today. His words, on the difficulty of effective philanthropy, come from a place of experience and expertise.

Those difficulties still exist today. Billions of dollars are wasted and used poorly because they are given out with good intentions but without much else. Impact investing — making investments with the intention of generating a financial return as well as a beneficial social impact — goes some way to fixing this problem, by forcing those giving out money to take a more disciplined approach to what they choose to support financially and how. Those of us who were part of the microfinance revolution in the 1980s would argue that impact investing is not a new concept but a new term, but anything that promotes socially conscious investing is encouraging. However, impact investing is only a stop-gap.

More and more, what we are seeing are impact investors pouring money only into investments that offer good value for money.

In 2015, a J. P. Morgan impact investor survey found that 55 per cent of private investors seek to earn “competitive, market rate returns.” Another 27 per cent aim a little lower, but hope nonetheless to receive returns “closer to market rate”.

This is where philanthropic impact investment, or “philanthrocapitalism” comes in. These investors subject, and must subject, their beneficiaries to the same rigorous vetting process as an impact investor seeking to make profit, but with the sole difference that there is no expectation of a return. Like Andrew Carnegie, these individuals know that philanthropy isn’t about writing a check: it’s about finding the right people and the right investments — those that will produce the maximum social return.

Read the full article about the future of giving through philanthrocapitalism by Rupert Scofield at Raconteur.