Kenyan firms should use endowment funds to drive sustainable finance

Endowment funds have for a long time served the needs of individuals, institutions, and communities seeking to lock in their assets and establish a predictable, long-term flow of capital from investment income.

Globally, well-capitalised and properly managed endowment funds have become critical pillars of national development. One of the strongest examples is the Wellcome Trust in the United Kingdom - one of the world’s largest charitable endowments - whose investment income has, for decades, financed groundbreaking biomedical research, strengthened public health systems, and supported long-term scientific innovation. Its model demonstrates how structured endowment financing enables institutions to pursue ambitious, multi-generational development goals without eroding capital or relying on short-term fundraising cycles.

In Kenya, as in many developing countries, the conversation around endowment funds has until recently been muted, mostly reserved for the insurance, education and NGO sectors.

Today, with asset managers seeking out avenues for fresh capital and with the growing need to mainstream sustainable finance within the business practices of leading companies, it is an opportune time for more corporate leaders in Kenya to set up endowment funds to drive their investment agenda.

By their intrinsic nature, endowment funds are well positioned to drive sustainable financing and deliver long-term financial security. The principal amount is locked in, and fund managers use income from the investments to drive its agenda.

It is one of the avenues that investors can ensure the integrity of their original mission for donating their funds is maintained. Income earned from the investment activities of endowment funds is also entitled to receive tax incentives, such as exemptions.

One such initiative is the I&M Foundation, the philanthropic arm of I&M Group established in 2020 in the wake of the Covid-19 pandemic, which brought to the fore significant gaps in disaster preparedness and response.

The foundation is financed by an endowment plan where two per cent of I&M Bank Kenya’s annual profit before tax goes into the fund.

The steady finance stream has enabled the foundation to execute its philanthropic goals around environmental conservation, education and skills development, economic empowerment, and charitable donations. 

Beyond environmental and educational impact, endowment-backed programmes have directly improved livelihoods and financial inclusion, particularly for women.

Through its partnership with The Maa Trust, the I&M Foundation has supported the Maa Beadwork social enterprise, enabling Maasai women to generate independent income through sustainable beadwork production while gaining access to financial literacy training and market linkages

Such achievements would have been challenging to execute without the guaranteed financial lifeline provided by the Foundation’s endowment plan.

Today, expenditure for social development in many developing countries is dwindling due to shifting donor priorities and geo-political tensions impacting the global economy. This has been worsened by the retreat of Western economies, such as the United States from global initiatives aimed at driving sustainable financing.

This means that fund managers in charge of marshalling resources for socio-democratic investment have to cast their scope wider and further for new and low-cost capital.

Endowment funds present one such opportunity that can be leveraged for predictable and long-term cashflow. Recently enacted legislation, such as the Income Tax (Donations and Charitable Organisations Exemption) Rules, 2023, also provides a governing framework that is easily adaptable across all institutions regardless of their size or sector of practice.

 - The writer is the Sustainability Lead at I&M Bank