Increased disbursement quota, a challenge or opportunity

Total foundation assets almost tripled between 2008 and 2019, going from $39.5 billion to $116 billion. However, there have been concerns that this growth in assets has not translated to an equal growth in disbursements, and that the needs of communities and public expectations are not being adequately met.

To help bridge this gap and ensure foundations increase disbursements, the federal government in Canada mandated that charitable foundations with assets more than $1 million raise their disbursements from 3.5% to 5% from 2023. 

A disbursement quota (DQ) is the percentage of a foundation’s assets that it must give to organizations every year. Currently, many foundations have not been meeting even the 3.5% spending requirement. How can Canadian foundations scale their grants programs to comply with the new regulation while ensuring that the gifts align with their values?

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Current market conditions and challenges to foundations

Overall, the health of Canadian foundations has improved in recent years. This is a positive because it means they have a greater capacity to meet the higher demand for their funds and contribute to the well-being of more and more Canadians. 

Many foundations rely on annual returns on their investments, in addition to donations, to fund disbursements. Because of supply chain disruptions, the crisis in Ukraine, COVID-related challenges in China, and high inflation, foundations are concerned about a decline in the value of their assets. 

The new quota increase could present a challenge in this more difficult economic environment, and a 5% disbursement may be difficult for some charitable foundations to achieve every year.

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What does this mean for your foundation?

The increase will put even more pressure on charities to efficiently manage their grantmaking. As a grants management professional, you will need to ensure that even with a small team, you are able to manage a larger and more complex grants program. 

You will need to review a higher number of applications every year while efficiently collaborating with internal and external stakeholders, maintaining an overview of statuses and budget allocations, and reporting on the effectiveness of your program.

Some organizations have advocated for a 10% DQ for the richest charities, and the government has proposed reviewing the DQ every five years. The quota is thus likely to further increase in the future. 

Some groups have not been meeting the 3.5% DQ and must make more significant changes to meet the new 5% requirement. Thus most foundations will need to take steps to increase their capacity to disburse grants and alter their grant management programs to be more efficient. 

One way of doing this is by using grants management software to improve your processes and increase efficiency. The Swiss Re Foundation used Optimy to easily manage and keep track of their grantmaking activity.

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How to maximize your foundation’s social impact

Communities in need are often underserved by philanthropy. For example, in 2015, some private foundations disbursed funds to charities with mission areas in education & research (over 30% of total disbursements) and health (at 17%) leaving some communities underserved. Factors such as restricted funding also exclude many groups that serve disadvantaged communities.

Philanthropic Foundations Canada suggests that you adjust your investment policy statement, change grantmaking budgets and enhance your grantmaking systems and capacity. Given the current economic climate, public expectations will increasingly demand that charitable gifts are able to tangibly improve ground realities for people who need help. 

To maximize your social impact, you should assess your current policies on gift agreements, gift acceptance, and restricted gifts and make your program more accessible to these groups. You should also consider giving out more unrestricted grants, and giving to more non-qualified donees since these organizations tend to serve disadvantaged groups on the ground.

Want to learn more about how to make your grants program more efficient and how Optimy can help? Download the Optimy Grants Management Workbook!`