Fountain Fund

Vertical: Recidivism

By: Nivy Manikandan & Evan Jin

The Fountain Fund

The Fountain Fund presents an interesting long-term model, being able to finance new loans with recycled capital. Their program has exhibited success in its years of operation, going from a 6% recidivism rate to 4% in 2024. However, much of their limitations comes from lack of tracking KPIs like increase in employment and wages. While Fountain Fund stives to provide access to funding for formerly incarcerated individuals, a lack of tracking makes it difficult to understand the full impact of their programming

• For formerly incarcerated individuals, access to capital is extremely limited, and is only offered at high interest rates
• The Fountain Fund offers 5% interest, as well as 3% ACH interest to get access to transportation, employment, and entrepreneurship, which was found to increase credit scores by 82 points
• Though loans given to formerly incarcerated individuals are inherently riskier, $1,595,093 of loans are made up of recycled capital, which is 47% of total loan value to date
• Ability of loans to be recycled increases long term impact of dollar donation, as well as funds rapid location expansion, as well as capacity for future loans
• Because of riskiness of debt, $452,375 of loans have been written off, which is offset by recycled capital
• Fountain Fund’s location typically targets areas with higher recidivism rates, such as New Orleans and Philadelphia

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Analyst Verdict

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Links & Contact Notes

• Emailed headquarter location website on 11/4
• Called headquarter location on 11/7
• Emailed Vice President on 11/11
• Called Vice President on 11/13
• Sent follow up email with questions on 11/13
• Received additional data on 11/14

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Important Links

• Fountain Fund Website – Link
• Guidestar Website – Link
• 2023 Form 990 – Link
• 2022 Form 990 – Link
• Annual Reports – Link
• Impact Dashboard – Link

Contact Notes

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Issue Background

Recidivism is perpetuated through lack of opportunity to find an economic vehicle post-incarceration.

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1: Vanderbilt study: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3397309&__cf_chl_tk=Y1Z1i0TZCFqnZeo3Zu2I3OwLfn22aNL85UAMMJ93xL4-1731374250-1.0.1.1-tFvGaTBukewUfKE2bj_etIf3q4Xa.uBWmgCG9RUsqZU

2: SBA study: https://ccresourcecenter.org/2021/08/02/federal-policies-block-support-for-small-business-owners-with-a-record/

3: Brookings Institute: https://www.brookings.edu/articles/improving-prison-education-programs-experts-discuss-the-expansion-of-pell-grants-for-incarcerated-students/

4: Anchor Study: https://www.tandfonline.com/doi/full/10.1080/07418825.2010.498383

5: Anchor Study: https://pmc.ncbi.nlm.nih.gov/articles/PMC6387636/#:~:text=One%20such%20study%20utilizing%20these,et%20al.%2C%202010).%20when%20was%20this%20report%20written

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• According to an anchor study done in 2019, imprisonments results in three main collateral consequences that inhibit economic opportunity for those once imprisoned.

• Many states flat out deny occupational licensing with those who have previous felonious records

• Employers preferences indirectly provides additional hurdles for those seeking employment

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• Individuals with an arrest or conviction history have difficulty seeking SBA loans (Small-Business Administrations) with rules and regulations limiting and barring those who hope to have access (4% of SBAs are those with convictions)²

• An anchor study done in 2011 highlights that employment is the single most important factor for reducing recidivism
• A study done in 2020 found that employment reduced the monthly hazard ratio to reincarceration by 68.5%

• Since July 2023, incarcerated students are now eligible for Pell Grants. However, research has shown that deprivation and censorship have led to incarcerated borrowers making uninformed financial decision.

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Issue Background – Area

Recent decision to move into Boston, Massachusetts was motivated behind $127,736 cost of incarceration

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1. Virginia: https://vadoc.virginia.gov/news-press-releases/2024/vadoc-announces-lowest-recidivism-rate-in-more-than-20-years/
2. Lousiana: https://www.criminon.org/where-we-work/united-states/louisiana/
3. Pennsylvania: https://www.media.pa.gov/Pages/corrections_details.aspx?newsid=560
4. National: https://csgjusticecenter.org/publications/50-states-1-goal/

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Root Cause Analysis

• While Virginia may seemingly have managed to find the solution to recidivism, professors have argued that the rate is artificially inflated and the effect of programs like the Fountain Fund may be understated
• Lack and difficulty of attaining parole (discretionary parole is abolished, requiring inmates to serve at least 85% of their sentences) has lowered their recidivism rate¹
• About half of annual admission to Virginia prisons are comprised of drug sales, drug possession, and larceny, all nonviolent offenses² – which are less likely to reoffend by 20% (63.8% for violent vs. 39.8% in 2019).³ This means Virginia tends to over-incarcerate but under-recidivate.
• Virginia’s aging prison population and increased use of long prison sentencing has lowered their recidivism rate²
• New Orleans’ high recidivism rate is attributable to a lack of tangible results from investment in re-entry and rehabilitation programs⁶
• Philadelphia’s 3-year recidivism rate of 64.7% inlays in limited post-release support systems with effective results, lack of access to quality education and job training programs, and a high number of returns to neighborhoods with high crime rates⁴
• Boston’s high operational expenditures ($127,736) of incarcerating an individual is self-reinforcing because it trades of with possible investment in treatment, rehabilitation, and community economic development in high incarceration rate neighborhoods⁵

Key locations that Fountain Fund serve

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1: https://pilr.richmond.edu/2024/09/30/how-parole-has-become-seemingly-unattainable-in-virginia/

2; https://justicepolicy.org/wp-content/uploads/2022/02/VA-Second-Look-02-04-2022.pdf

3: https://www.ussc.gov/research/research-reports/recidivism-among-federal-violent-offenders#:~:text=Violent%20offenders%20recidivated%20at%20a,and%20drug%20trafficking%20(12.0%25)

4: https://www.pa.gov/content/dam/copapwp-pagov/en/cor/documents/resources/statistics/reports-and-dashboards/Recidivism%202022%20Report.pdf

5: https://www.tbf.org/-/media/indicators/boston-indicators-reports/report-files/criminaljusticereform_report_12224.pdf

6: https://www.cjinstitute.org/assets/sites/2/2021/05/Investing-in-Louisiana-Communities-Through-JRI-Report-by-CJI-BJA.pdf

Charity Overview

Donation History

• The Fountain Fund provides microloans (around 4k each at a 5% interest rate) to formerly incarcerated individuals who have entrepreneurial ventures. Typical uses include job related expenses, child support, or starting businesses
• Has financial education programming to educate cohort on good credit practices, as well as client support initiatives to connect clients to community resources
• Offers Automatic Clearing House (ACH) incentive which offers a 3% interest rate on loans if participants allow a direct withdrawal from bank account
• ACH is utilized by 60% of participants
• They are partnered with Operation Hope to provide financial education to equip participants with the skills necessary to maximize their success
• 19% of loans have been paid in full, and 49% of total value comes from recycled capital

• Historically, ~32% of the Fountain Fund’s come from their Loan Fund, and ~29% comes from donations from individuals
• In 2023, they received a $500,000 grant from Capital One for funding for loans in 2024
• In 2023, there was a significant increase in donations from foundations so that it makes up 25%, an increase from 2% in 2021

Vertical Impact

Charity Description

The Fountain Fund provides low-interest microloans to previously incarcerated individuals

1. 2022 Annual Report – Link

2. 2022 Form 990 – Link

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• The Fountain Fund operates in cities with high recidivism rates, such as New Orleans, and Philadelphia
• 6% program recidivism rate compared to 31.9% weighted rate from participating cities
• Through education and microloans, 70% of participants have established or improved their credit scores
• Funding for entrepreneurial opportunities provides job opportunities, allowing successful re-entry
• Low interest loans lower financial barrier to profitability
• 99% of participants improved financial stability

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Theory of Change

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Anchor Study

Foundation Fund represents a window of hope and economic opportunity for formerly incarcerated

• A study done in August 11, 2020 found that people involved with the criminal justice system in the United States are disproportionally low-income and indebted with legal financial obligations (LFOs), preexisting debts that worsen during incarceration, and any additional debts incurred.
• Studies of all types found that between 50 and 90% of people with LFOs are in arrears
• LFO debts can cause long term debt and damaged credit with one study reporting 75% sent to collections
• LFO debt may cause recidivism due have child support debt
• Access to credit indicates both existing debt probto incarceration due to non-payment of 17-20% cases
• 66% - 92% of people who have been incarcerated lems (unpaid debts lower credit scores which lowers credit access) and future possible debt, as people with bad credit have to rely on more costly debt types
• Client Partners' average ending credit score is statistically significantly higher by roughly 82 points from their starting score.

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Foundation Fund’s programming, centered around low-interest loans and financial coaching for formerly incarcerated individuals to build credit and achieve economic goals, has been a proven methodology to limit recidivism and improve standard of living post-incarceration

1: Debt, Incarceration, and Re-entry: a scoping: https://pmc.ncbi.nlm.nih.gov/articles/PMC7417202/

Financials: Inflows and Outflows

Snapshot of Foundation Fund’s Revenue and Expenses over time

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1: Form 990s

2: Annual reports

• Contributions from Foundations and Corporate Sponsors: 98%

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• Government Grants: 2%

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• Received a $500,000 grant from Capital One

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• Allocated $100,000 towards new loans and $25,000 towards operations in each of the four operating cities

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FY 17-18

Revenue: $423,808

Expenses: $124, 183

FY 22-23

Revenue: $2,041,434

Expenses: $1,123,934

Financials: Expense Breakdown

Expenses and their changes since inception overtime

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1: 990 forms

• Drop in expenses during the period of 2020 to 2021 was due to COVID’s restraints on revenue �
• Programming expense ratio has continued to be strong with the low being around 67% to highs of 80%

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• Programing expenses have risen due to the number and value of micro-loans, the increasing number of current client partners (172 loans and new clients were added in 2023 ranging from their 4 main locations)

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• Expenses in 2023 will continue to grow as programming will now expand into Boston

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FY 17-18

Programming: 80%

Management: 8%

Fundraising: 12%

FY 22-23

Programming: 73%

Management: 15%

Fundraising: 12%

Financials: Other Info

Loan write-offs compared to total loan value

• ~11% of total loan value was written off till date
• Capital being recycled allows for larger write-offs than typical lending institutions
• Inflows from donations and investment income also assist in offsetting the capital lost through write-offs

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SROI Calculation

Dollar Benefit - Recidivism

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SROI Calculation

Dollar Benefit – Increased Income

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SROI Calculation

SROI Lifetime

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Comparable Charities

The Fountain Fund doesn’t have many comparables in terms of operations, so comparables operate in general recidivism space

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Outstanding Questions

• What is the breakdown of the donation going to operating expenses vs loan capital?
• What are future plans to establish tracking of quantitative KPIs?
• What does the long-term capital recycling structure look like and will the charity become self-sustaining?
• What is the loan review committee’s criteria for deciding who is eligible for receiving a loan?
• Do you have more data on the long-term effect that credit score improvement has on participants?
• What does increase in wages look like prior to vs after loans?
• What does increase in employment rate look like prior to vs after loans?

Questions for future management calls

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Appendix

• How many individuals did you serve in 2023? How is that number projected to grow over time? New in 2023 - 147 Client Partners, 174 loans; total active portfolio in 2023 = 236 CPs/289 loans
• - What is the average increase in earnings (percent and dollar amount) for the cohort of people served? We don't currently track increased earnings.
• - Is the 6% recidivism rate measured over 1 year, 3 years, or 5 years? We’ve changed how we’re tracking that and it’s self reported and can be anytime within the Fountain Fund engagement, which is typically 3 years. The most recent results were that 96% had not been reincarcerated. 
• - What is the employment rate before vs after working with the Fountain Fund? We don’t track that.
• - What are the average wages before vs after working with the Fountain Fund? We don’t track that.
• - What is the average credit score before vs after working with the Fountain Fund? Client Partners' average ending credit score is statistically significantly higher by roughly 82 points from their starting score. 
• - We saw that fundraising expenses make up ~12% of overall expenses each year, what does that go to each year and how is that projected to change over time? It’s a percentage of peoples’ time that work on fundraising and we also use an outside firm to help with institutional funding. I think it will be an ongoing cost that will raise as our budget increases.
• - What is the default rate on the loans? Currently our default rate is (our DB is being updated and will provide the most recent percentages when I send it to you tomorrow.)
• - What is the selection process to determine who is eligible to get a loan? There’s a loan review committee made up of board members and community members from each market that make the determination. There are formerly incarcerated people on all of the loan review committees.
• - On the website it mentions an incentive that provides 3% interest on loans, could you explain what Automatic Clearing House (ACH) participation does and the % of people that opt into that incentive? If people agree to have a withdrawal directly from their bank account, the interest rate is 3% versus 5%. Aproximately 60% of our CPs use ACH. 

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Additional Information

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