While diversity funds have existed for at least two decades, they gained popularity in the early 1990s when the Ford Foundation called on community foundations to create programs to serve changing population needs. As part of the Ford Foundation’s “Planning for Changing Communities, Diverse Needs” initiative, twenty community foundations across America received two-year planning and implementation grants of up to $100,000 and a new wave of diversity funds was established. Since then, diversity funds have drawn significant human and financial assets to community foundations, heightened awareness of community foundations among new constituencies, and attracted new donors and volunteer talent.

Demystifying Community Foundations

When Ohio’s Dayton Community Foundation established its African-American Fund in 1992, it found a philanthropic community eager to take an active role in a larger charitable effort. “The Dayton African-American community has always given to charity, mostly through its churches. We were offering another way to make a difference,” says Hagood, who became involved with the African-American fund five years ago when she was invited to serve as a volunteer.

Hagood says the African-American fund is a win-win situation for the foundation and the black community. It provides a way to increase awareness of the community foundation’s work among African-American residents in the Dayton area and helps to correct misconceptions about the foundation. One of the greatest misconceptions, she says, was the belief that you have to be a millionaire to contribute to a community foundation. “You don’t,” she says. “Now people understand that.”

This increased awareness of, and clarity about, community foundations’ work has had dramatic results. In the Dayton area alone, African-American donors have established 47 specific-purpose funds, which have attracted more than $2 million in new assets. "That is an enormous return from a group of volunteer fundraisers," says Heather Bailey, vice president of grants and programs for the Dayton Foundation.

Bailey notes that these volunteers are considered an extension of the Foundation's own staff and conduct fund raising the foundation’s development department couldn’t do on its own. Because these volunteers are members of the community, they are better able to strengthen the ties between their neighbors and the community foundation. By creating ways to recognize donors' generosity, the Fund has “made it a friendly competition among members to see who could do more,” says Bailey.

The money raised has benefited the community in a myriad of ways. It has promoted education through scholarships such as the Golden Thirteen Naval Scholarship Fund, which supports R.O.T.C. students in traditionally black colleges. Additionally, the funds have been used to help foster better relations through the Dayton Dialogue on Race Relations.

Uniting Communities of Color

The Dayton Community Foundation isn’t alone when it comes to operating diversity funds. The Saint Paul Foundation in Minnesota launched its first diversity fund roughly a decade ago with a challenge grant from a donor interested in diversity issues. A common fund holding all of the diversity fund’s assets has since spawned four individual funds supporting the African-American, Latino, Native American and Asian-Pacific communities. As was true in Dayton, these funds have attracted new talent and dramatically changed the way the foundation operates.

By 1998, nearly half of the Saint Paul Foundation’s board members were people of color, up from just 14% in 1993. And, in just one example of how policies have changed, the Saint Paul Foundation lowered its minimum initial donation to $5,000 from $25,000 when it discovered this level was preferable to prospective donors.

The Saint Paul diversity funds have also quelled critics, initially concerned that diversity funds would fractionalize the larger community. Instead, the larger community is being made aware of needs in their midst that they may not have known about before—and coming together as a result.

For example, the Saint Paul diversity funds support programs in the Minneapolis anti-racism initiative. One recipient is the African Assistance Program, which provides training and educational workshops to African immigrants. Another is the American Indian Research and Policy Institute, which works to strengthen the American Indian community and address discrimination in the child welfare system.

When community foundations establish diversity funds, they attract new volunteers and increase their fund-raising capacity, allowing them to make a bigger impact. In turn, donors are provided with a way to pool resources for designated communities. Additionally, these donors get the peace of mind that comes from knowing their funds are being invested by individuals with a deep understanding of the community’s needs. By focusing on individual communities of color, diversity funds are increasing the number of people working together on behalf of the common good.

Stately notes that diversity funds are no longer viewed as a special project. “This is how we do business,” she says.