The article analyzes grant distribution system of the Presidential Grants Foundation, the leading grant operator in Russia. The article is based on a study of over 12.000 grant applications of the winners of the 2017–2020 Foundation’s competition. The author views nonprofit organizations as effective actors in the social service market and the Presidential Grants Foundation policies as an impulse to their development and also as a social mechanism overcoming «market failures». The key content of the article is a description and an analysis of dysfunctional practices in the Foundation activity and grant distribution. In author’s opinion, aforesaid dysfunctional practices tend to turn into factors that hinder development of the nonprofit sector. First, there is an uneven grant distribution among the regions of the Russian Federation, as well as a disparity in the amount of grants allocated by the Foundation. Second, inadequate evaluation system of grant applications does not allow to reasonably differentiate grant applications by their content, uniqueness, and social impact. Third, an unintended repetition of negative mechanisms in the Foundation’s activity discourages non-profit organizations from additional fund-raising for their activity and also from diversifying their financial sources. It is concluded that the grant policy of the Presidential Grants Foundation is discrete, does not follow a unified logic, and is not based on a systematic analysis of the dynamic changes within organizations of the «third» sector.