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
So, again, this change has two significant benefits:
- We believe it brings the loan pricing exercise into clear alignment with our foundational values.
- 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
- Published by Gary Sprague
- Categories: Investing, Lending, RSF Culture, Social Finance, Social Investment Fund, Steiner
Well done! I like it.
Comment by Michael — December 1, 2009 @ 12:12 pm
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
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
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
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
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
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