The gap between when a donor makes a pledge and when the money flows into a charity’s coffers can slow down a nonprofit’s cash flow and its ability to carry out its work. But for Unicef, which runs health programs in developing countries and provides help during emergencies, that lag can cost lives.
To help remedy the problem, the U.S. Fund for Unicef created the Bridge Fund, which provides short-term loans to finance its projects.
Since the charity started the fund in 2011, supporters have provided $34.2 million in loans — including a total of $25 million from Prudential Financial — and $12.5 million in grants to pay for the group’s work. Because the fund recycles the money, it’s been able to provide more than $74 million in gap financing.
In exchange for the modest interest Unicef pays people who make loans to the fund, generally 0 to 3 percent, the Bridge Fund gives the charity the power to put promised donations to work faster, plan ahead, and negotiate better prices.
Say, for example, one of Unicef’s programs in sub-Saharan Africa needed $1-million worth of anti-malaria bed nets by April but the gift earmarked for them wasn’t expected until June, says Edward Lloyd, the U.S. Fund for Unicef’s chief financial officer.
The charity’s staff would ask the Bridge Fund for money to pay for the nets. The fund’s administrators would consider the urgency of the request and how likely it was that the donor would fulfill the commitment.
If everything appeared to be in order and Unicef’s board approved the request, the Bridge Fund would release the money. Then, when Unicef received the donation in June, that money would go to replenish the Bridge Fund.
“If we didn’t have that gap financing, children would be without the malaria nets that they needed in April,” says Mr. Lloyd. “The result could be lives lost.”
5-Year Loans
Supporters typically make five-year loans to the fund. That makes it different from a commercial line of credit, which often has to be paid in full at the end of the year and renewed annually.
The longer timeline can save Unicef money. For example, by guaranteeing that it would buy a certain number of oral polio vaccines over four years, Unicef saved $10-million, which meant that 70 million more children could be vaccinated.
Placing orders earlier also saves the charity money on transportation. With two months’ lead time, Unicef can send a shipping container to a program site by sea rather than by air, saving $250,000.
And with more time to plan, the charity can buy supplies in the country where they’re needed, which can boost the local economy. Six months of gap financing in 2013 allowed Unicef to have 1,400 desks manufactured in Mozambique and placed in classrooms for the start of the school year.
“No new money was in play,” says Marc Diaz, who used to manage the fund. “It was simply putting an existing funder’s support to work faster and smarter.”
Editor’s note: This story was updated to clarify the roles of Unicef and the U.S. Fund for Unicef.
