RSF’s Pricing Meeting: Revolutionary Simplicity?
August 9, 2010
By Elizabeth Ü
This past June, while most financial institutions set their third quarter interest rates based on global financial market conditions, RSF staff held our sixth quarterly pricing meeting in community with our borrowers and investors. Rather than study abstract numbers on computer screens or ticker tapes, we met in the beautiful (and LEED certified) offices of Seventh Generation in Burlington, VT, to have a conversation among stakeholders – hearing each others’ needs, and considering the consequences of raising or lowering the RSF Social Investment Fund quarterly interest rate, and subsequently, RSF Prime, the rate for our borrowers.
RSF investors and borrowers traveled to Burlington from all across New England to meet with myself, Taryn Goodman (RSF Impact Investing Manager), and Don Shaffer (RSF President & CEO). Nicole Dawes of borrower Late July drove several hours from their Cape Cod offices for the occasion. Dan Fulham of borrower Otter Creek Brewing Company/Wolaver’s Organic Ales made a special trip to Burlington in the midst of a busy work itinerary involving several Northeast destinations. Dale Rodriques of Mary’s Gone Crackers traveled all the way from Chico, CA, to participate in both our pricing meeting and the Slow Money Alliance National Gathering (more on that below). Cory Greenberg represented Ten Directions, which operates the Guest House, a retreat and conference center in Connecticut. (An experienced social finance practitioner, Cory has served on the board of the Cooperative Fund of New England since its inception.)
The high number of borrowers representing RSF’s Food & Agriculture focus area was no coincidence. We planned this quarter’s pricing meeting to coincide with the RSF-sponsored Slow Money Alliance National Gathering, during which 600 investors, entrepreneurs, financiers, journalists, non-profiteers, and foundation staff gathered just down the road from Burlington at Shelburne Farms to learn about the latest efforts to connect investors to local food systems, catalyzing new forms of social investing and philanthropy for the 21st century.
In fact, all of the investors who attended RSF’s pricing meeting also attended Slow Money’s event, including Ari Derfel, who announced that he has recently been appointed Slow Money’s new Executive Director!
The RSF pricing conversation covered a variety of topics. One investor noted that over the last several quarters, RSF’s financial returns to investors have been high compared to three-month CDs or money market funds, with much higher social benefit. “Why,” he asked, “aren’t there so many people invested that RSF would grow to a billion dollars in assets, serving hundreds more high-impact borrowers? The world needs that, society needs that!”
In fact, it is only because we de-coupled the RSF Social Investment Fund pricing from the London Interbank Offered Rate (LIBOR) that we have been able to offer any return to investors at all! Had we decided to continue linking our investor returns and borrower interest rates to LIBOR, investors would have had to pay RSF for the privilege of investing… which didn’t make sense given our investors’ needs, our borrowers’ ability and willingness 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 numbers add up. You may also be interested in this post from Siegfried Finser, RSF trustee and co-founder, on RSF’s decision to offer interest to investors at all.)
Ari’s reflections after the experience summed up my own favorite moments of the pricing meeting. “It was very encouraging,” he said, “to hear RSF investors who were willing to consider lower returns in order to support the work of the borrowers, and borrowers who would pay higher interest rates on their loans if that meant that RSF could attract more investors, and therefore support even more projects [like the food companies that would present later during the Slow Money Entrepreneur Showcase]with loans.”
Several times over the course of the Slow Money National Gathering, Ari and others pointed to RSF’s pricing meetings as an example of the type of financial innovation the world desperately needs in order to bring money back to earth, and to bring personal (if not also spiritual) values back to financial transactions.
It amazes me to think that something as simple as bringing investors and borrowers together with RSF staff to discuss the terms of our relationship is a radical idea. Given how complex the financial world has become, is it possible that the very concept of simplicity has become revolutionary?
As is true of all of RSF’s innovations, we do not create direct, transparent, and personal systems, like the pricing meetings, with the intention of trade-marking them and keeping them to ourselves; quite the contrary, we hope that the idea of holding pricing meetings will catch on amongst other financial institutions.
After hearing people talk about the pricing meetings at the Slow Money event, at least one leader of another financial institution remarked, “That’s a good idea, maybe we should do that, too.”
We hope they will! If other institutions follow RSF’s lead, it will only accelerate our progress toward our mission to transform the way the world works with money.
Elizabeth Ü is Manager of Strategic Development at RSF Social Finance.