How the endowment works
Donations are collected and transferred to the trust management who invest the donations in different financial instruments. The subsequent financial return is used to finance charity programs. Endowments help to ensure reliable support for the chosen areas and ease the need to depend on existing financing; as a result, the utmost social effect can be achieved.
The history behind endowments
The first national law related to endowments (special-purpose capitals) was adopted by the Russian Empire on December 27, 1817. According to the law, nobody could establish a charitable institution “if it was not properly supported by sustainable income, be it from capital or property, so this return could be used to support people in need”.
Within a century, endowments had become a significant part in the life of pre-revolutionary Russia. For instance, the special-purpose capital for “The Russian Invalid” newspaper accumulated 14.85 million rubles by 1842 (equivalent to 50-60 billion rubles today). The return on capital was used not only to publish the popular paper but also to provide a life-long pension for over 15,000 retired soldiers and non-commissioned officers, while 1,500 orphans got the opportunity to study at state-owned institutions. “The Russian Invalid” Endowment was successfully functioning up until October 1917.
The Establishment of Institutions endowment under Empress Maria was the largest charity in the Russian Empire and in 1905 it amounted to 128 million rubles (equivalent to approximately 320 billion rubles in today’s terms). The income from this endowment capital was used to fully or partially support 365 schools, charities and treatment facilities. The endowment supported the education of 9,500 children, the medical treatment of over 35,000 people and the provision of shelter for at least 60,000 poor and elderly people.
In Western Europe, the history of endowments reaches back to 1502, when the grandmother of Henry VIII donated her money to establish theology departments at Oxford and Cambridge Universities. Every year, the return was used to develop the departments.
In the Russian Federation, the law “About formation and use of endowment for non-commercial organizations” was adopted on December 30, 2006. Currently, about 200 endowment funds operate in the country and the amount of accumulated sums totaling over 34 billion rubles.
Both in Russia and across the world, endowments are used mainly to support education and science. However, evidence shows that it is clearly an equally significant tool for the charity sector.
“A contribution into the endowment reflects the highest level of a donor’s trust”.