Announcing RSF Prime

November 10, 2009

Dear Friends,

We are excited to announce an important shift in how we determine the rate of return each quarter for the RSF Social Investment Fund (SIF), which in turn determines the base interest rate we charge to borrowers through our Core Lending program.

As of October 1, we have adopted a customized rate determined each quarter collaboratively by representatives of all three stakeholders in the RSF Social Investment Fund – investors, borrowers, and RSF staff.  A 4% spread (used to fund RSF’s operations) is then added to this customized SIF rate to determine the base rate for borrowers in our Core Lending program. We have dubbed this new base rate for borrowers “RSF Prime”.

For many years, we based our investors’ return rate on the 13-week U.S. Treasury Bill.  Each quarter we recalibrated the rate based on this well-publicized benchmark.  In 2006, we shifted to a different benchmark – LIBOR, or the London Interbank Offered Rate – because it represents the most commonly accepted barometer for short-term interest rates worldwide.  However, we no longer believe it is appropriate to use a benchmark like LIBOR or the U.S. Treasury Bill.

Based on our close reading of Rudolf Steiner’s lectures on economics, we believe the community of participants in SIF can most accurately determine a price that meets the needs of all parties.  We have started hosting quarterly face-to-face meetings at our offices in San Francisco with representatives of the three stakeholder groups.

We believe this is the first time that a lending institution has facilitated meetings between investors and borrowers to determine loan pricing.  With RSF staff at the table facilitating the conversations, all three stakeholders can be visible to each other and engage in a direct and transparent exchange in an effort to understand intentions, motivations, and needs. We believe this new methodology fits better with our values – to make financial transactions as direct, transparent, and personal as possible.

This year, the groups have been small.  In the years to come, we intend to host meetings in different regions of the country each quarter to connect with more of our stakeholders.  We have heard from investor participants so far that it is a wonderful way to learn more about the inspiring projects they support.

This shift also allows us to offer our investors a significantly higher return this quarter (1.00%) than would have been possible using LIBOR or the U.S. Treasury Bill as our reference.  We are aware that the investor return rate has been very low for the past three quarters (0.50%-0.71%).  The chart below indicates select 3-month bank CD rates and money-market funds for comparison.

SIF vs. 3-Month Bank CDs and Money Market Funds

SIF vs. 3-Month Bank CDs and Money Market Funds

So, again, this change has two significant benefits:

  1. We believe it brings the loan pricing exercise into clear alignment with our foundational values.
  2. It gives us flexibility to offer our investors a higher return in extreme low-interest-rate environments like what we face today.

RSF places tremendous value not only on the result, but also on the process, and the source of financial transactions. We can define the result as “what” we support (socially and ecologically beneficial projects); while the process refers to “how” we do our work (transformative learning through community).  Importantly, we also explore the source of each transaction, the “why” behind it (intention; spiritual basis).

It is the integration of all three elements of working with money (what, how, why) that distinguishes what we do at RSF from other financial institutions.  We truly believe that, together with our clients, we are transforming the way the world works with money. I hope that this change to a more values-aligned process will inspire more of you to join us on this journey, and look forward to hearing your thoughts and questions.

All the best,

Don Shaffer
President & CEO

21 Comments »

  1. Well done! I like it.

    Comment by Michael — December 1, 2009 @ 12:12 pm

  2. I enjoyed reading the announcement of the new RSF Prime. It showed what the investors will now earn, but not what a typical “prime” borrower will now pay as the new prime rate. It would be instructive to show both sides as we used to do long ago. Is it something you are planning to do?

    Comment by Philip Mees — December 1, 2009 @ 1:10 pm

  3. Hi Philip,

    Thanks for your comment! We do describe in the post that: “A 4% spread (used to fund RSF’s operations) is then added to this customized SIF rate to determine the base rate for borrowers in our Core Lending program.” So right now the RSF Prime rate for borrowers is 5%, and that information will always be posted on our Core Lending page along with a description of how the rate is set: http://rsfsocialfinance.org/services/lending/core/.

    It is certainly our intention for RSF Prime to bring more visibility to all parts of the financing equation, so any suggestions on how to more effectively communicate the model (visually, verbally, or otherwise) are always welcome. And it’s great to know that we are re-connecting with practices from the early days of RSF, it really affirms that we’re working from the organization’s core values. Thanks again for all your support!

    -Gary

    Comment by Gary Sprague — December 1, 2009 @ 4:28 pm

  4. Thank you for your leadership and your transparency. It is truly refreshing and necessary.
    Leslie

    Comment by Leslie Leslie — December 2, 2009 @ 10:38 am

  5. This approach in bringing all stakeholders together is revolutionary. Do you expect other to pick up on this?

    Comment by Tyler Hartung — December 3, 2009 @ 1:06 am

  6. Hi Tyler,

    I don’t think we have any expectations around other financial organizations following suit on this. Our goal is really to engage our own community of investors and borrowers in direct relationships that can be financially beneficial and personally transformative. We trust that if we do this well, it will attract other like-minded investors and borrowers to join our community, and that in turn may spark wider interest in the model. I’d also note there are other models that, while not quite the same, are based on similar values of direct association between stakeholders, such as Community Supported Agriculture, peer-to-peer lending, and cooperatively-owned businesses. So we see our effort as one of many heading in the same ultimate direction of building mutually-supportive economic and financial communities.

    Comment by Gary Sprague — December 8, 2009 @ 8:16 pm

  7. Don & the RSF Crew:

    This is a GREAT step forward, as comparative yields are often one of the bigger deterrents to mobilizing capital in RSF’s focus areas. While RSF should never try to win “hot” capital that is simply chasing yield, striking a balance between organizational goals, investor returns, and borrower needs will, ultimately, drive more capital to the companies and organizations that need (and deserve) it. Besides, what does LIBOR or Fed Funds really mean anymore?!? I’d argue that RSF’s new formula is far more grounded in reality than those two hyper-manipulated, politically-motivated, blunt instruments of financial mismanagement!

    All the best,
    -David

    Comment by David Wolf — December 8, 2009 @ 10:07 pm

  8. […] numbers behind the stories. Some of our major achievements discussed are the RSF Mezzanine Fund, RSF Prime, the Economics of Peace Conference, and the RSF Impact Investing Portfolios. Also presented is a […]

    Pingback by What Did RSF Do in 2009? Find Out in Newly Published Annual Report | RSF Social Finance — June 24, 2010 @ 12:22 pm

  9. Do you have, or will you be ale to provide, a historical summary of the RSI prime rates so auditor can use it to test for interest expense?

    Comment by Scott German CPA — February 7, 2011 @ 4:05 pm

  10. Scott – You can view a historical summary of our interest rates for the past 5 years, here. RSF Prime began in Q4 of 2009

    Comment by Jillian McCoy — February 14, 2011 @ 6:20 pm

  11. […] rate than if we had continued to use LIBOR. For more information on this decision, see this November 2009 post from our President & CEO, Don Shaffer. RSF staff, borrowers and investors and the June 1 […]

    Pingback by RSF Quarterly Pricing Meeting: Embracing Community | RSF Social Finance — July 5, 2011 @ 9:54 am

  12. I love the process and the new “benchmark” but can you please tell me why does RSF charge 4% on top of rate for borrowers ? Most funds charge 1-2% tops for operational fees. Does RSF really need that much premium or could a lower charge create a easier time for the borrowers to suceed ?

    Comment by scott mitchell — June 5, 2012 @ 11:22 am

  13. Hi Scott,

    RSF is a social enterprise non-profit – almost our entire operating budget comes from earned income. The spread that RSF charges (the difference between what we pay our investors and what we charge our borrowers) is what keeps our doors open and bolsters our loan loss reserves. Our 4% spread is consistent with our peers – Community Development Financial Institutions averaged 4.14% of net interest margin in 2010. The entire banking industry averaged 3.83% that year and conventional banks have revenue sources (such as bank fees) that RSF doesn’t.

    Thanks for your question.

    – Ted

    Comment by Ted Levinson — June 6, 2012 @ 11:27 am

  14. […] as Libor, as a basis for setting interest rates on lending and borrowing—and instead constituted RSF Prime. We took this innovative step because we were seeking (and continue to seek) ways in which our […]

    Pingback by Bridging to Trust, and the Structural Flaws of Libor | RSF Social Finance — July 24, 2012 @ 1:47 pm

  15. […] Rol RSF Social Finance RSF ziet zichzelf als katalysator voor de II industrie. Een verdienmodel voor deze social enterprises ontwikkelen is niet eenvoudig als de doelgroepen zich aan C.K. Prahalad’sBottom of Base of the Pyramid bevinden en zolang II zich nog ontwikkelt. Daarom richt RSF Social Finance zich op bedrijven met goed potentieel die onvoldoende interesse hebben van investeerders om succesvol te worden. Opvallend is dat het sinds 2009 een kwartaal rentetarief heeft dat niet (meer) aan libor is gekoppeld, maar aan de belangen van de stakeholders: de investeerdes, leners en de RSF medewerkers: RSF Prime. […]

    Pingback by 1 november 2012 « impactinvestingnews — November 1, 2012 @ 4:15 am

  16. […] to create a fundamental transformation in the way the world works with money. A great example is RSF Prime. We developed RSF Prime to create community among the participants in our flagship loan fund, the […]

    Pingback by From Fragile to Resilient: Libor to RSF Prime | RSF Social Finance — November 28, 2012 @ 12:42 pm

  17. […] no question that RSF’s pricing meetings are unique. The three stakeholder groups in the RSF Social Investment Fund—investors, borrowers […]

    Pingback by Impact Investing for All - RSF Social Finance — December 4, 2012 @ 8:44 am

  18. […] as Libor, as a basis for setting interest rates on lending and borrowing—and instead constituted RSF Prime. We took this innovative step because we were seeking (and continue to seek) ways in which our […]

    Pingback by Bridging to Trust, and the Structural Flaws of Libor - RSF Social Finance — February 7, 2013 @ 12:07 pm

  19. […] investor rate is then added to a 4% spread (for RSF’s operations) and the resulting rate, named RSF Prime, is the base rate for […]

    Pingback by Changes to RSF Prime - RSF Social Finance — February 7, 2013 @ 12:08 pm

  20. […] expertise, and for this, RSF’s stakeholder-determined customized interest rate, called “RSF Prime,” is a shining […]

    Pingback by RSF listed among top Honest, Open, Trustworthy Money Managers - RSF Social Finance — February 7, 2013 @ 12:09 pm

  21. […] to accommodate higher interest rates, and RSF’s own operating needs.  (For further details, see this post from November 2009 announcing the shift in how RSF sets pricing, plus a breakdown on how the […]

    Pingback by RSF's Pricing Meeting: Revolutionary Simplicity? - RSF Social Finance — February 15, 2013 @ 3:02 pm

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