From Transaction to Transformation: Spirit Matters in Lending

June 22, 2009

personalBy John Bloom

It is one thing to say that money has a spiritual dimension, to speak of it as energy or a force. It is another matter to recognize and understand how important and practical this perspective is as we act within the economy. A brief inquiry into the presence of spirit in our financial transactions is a risky venture. Nonetheless, I am compelled to take the risk because of the upside potential for transforming how we see and work with money.

Consider looking at experience this way: there is what we perceive with our senses, for example, a color or texture, which we could call “matter”; then, there is our interpretation of that sensation, our sympathies and antipathies, which we could call “soul” activity; then, there is recognizing within that experience something of its lasting essence, such that we might recognize another occurrence of it though it may be in a different color or form, which we could call “spiritual” activity. For example, how do we know that a loan is a loan no matter whether it is called credit or investment? Given this architecture of experience, might there be a tripartite view that clarifies and integrates matter, soul, and spirit in the realm of financial transactions? What place does each of the three take in the transactional process?

For this essay, I have chosen to focus on loans and the lending-borrowing transaction, though one could equally apply the approach to purchases and giving. What gives rise to lending is a combination of a lender’s available capital coupled with a need for that capital to realize an economically viable idea. One could say that the lender recognizes a borrower’s entrepreneurial capacity to make good use of the money. The money passes hands, a material matter in auditing terms, as a result of an agreement, with the transaction accounted for in debits and credits, assets and liabilities. However, the process that led up to the agreement, that is, how enough trust was established between the lender and borrower to make the agreement possible, is not such a simple one. The lender and the borrower each have their conditions for trust, their deeper purposes and intentions. Of course, transparency is a critical part of this discovery process, as are intuition, character, and social impact. The reality is that the lender and borrower are bound in relationship over the period of the loan; they have to take and maintain a long-term interest in each other, and support each other’s success. This mutual trust, formalized in the loan agreement, is something of the soul aspect of the loan. Imagine, lenders have made loans because the constellation of people and intentions around the loan project felt right, even if the numbers didn’t quite justify the transaction.

What is the spiritual aspect of a loan? The money makes possible entrepreneurial initiatives that would not have been possible otherwise—this is the essence of a healthy capital economy. The entrepreneurial initiative itself is framed upon ideas, which, though they may be inspired by material circumstances, are not dependent on them. And within the structures of those ideas, the entrepreneur recognizes and serves the presence of others’ economic needs. This capacity for perceiving what is, and what is not yet, (anticipating need) demonstrates creative, imaginative, and in some cases intuitive, capacities, and is also why enterprise so often leads to cultural transformation.

In economic thinking the spiritual world of ideas is made practical through the world of physical matter. How we find value in the world of lending is a matter of the degree to which the lender’s feelings and perceptions are tuned to the intentions and capabilities of the entrepreneur. The loan transaction becomes a vessel for the shared purpose and vision of lender and borrower. Transforming how we work with loan money is catalyzed when we embrace these interpersonal relationships and recognize how the entrepreneur’s work brings spiritual activity into the world.

John Bloom is Director of Organizational Culture at RSF Social Finance.  If you enjoyed this post, read more of John’s work here:

Dialogue on the Banking Crisis Continued

June 15, 2009

By Ted Levinson

Federal Reserve BankIt’s ironic that one contingent of society rails against big government and that another camp curses big business, and few people recognize that each is a threat since with extreme size comes extreme power, and extreme power leads to ruin.

E.F Schumacher warned of the “almost universal idolatry of gigantism” and we are now paying a dear price for our devotion to General Motors, AIG and Chrysler.  There is certainly cruel justice in the fact that our punishment for letting these companies grow so big is to become unwitting taxpayer-owners of these businesses as they shrink.

I’ve read James K. Galbraith’s statement that Don recommends in his recent blog post, but my attention was drawn to different parts of Galbraith’s testimony.  The first was the simple statement that “credit is a contract,” and the second was his view that the world “trusted the transparency, efficiency and accountability of the U.S. financial system…” Both are historically true, but our response to this financial crisis has cast doubt on both claims and this is what worries me the most.

Rudolf Steiner advocated a threefold social order where the economic sphere was separated from the state.  He would have likely rejected the political influence of lobbyists, government subsidies, and tax breaks as vehemently as he would have rejected our response to propping up businesses defined as “too big to fail.”  We have addressed the current financial crisis by forgetting that credit is, indeed, a contract. We have also threatened the transparency, efficiency and accountability of our financial system by abrogating the laws that permit credit to flourish and by creating artificial and perverse incentives for lenders to withhold the very credit that could extricate us from our situation.

Credit is built on trust. Our willingness to trade our money today for a piece of paper promising repayment later is undermined when the rules of the game can change for the most powerful. Without consistent laws regarding private property and bankruptcy, and without confidence in the stability of money, credit cannot exist.  This is why credit cards work in California and farmers in Nigeria are unable to borrow to finance a tractor.

In the past year, we have responded to the outrage of outsized bonuses, inflated ratings on murky credit derivatives, and corporate collapse by altering the rules by which the largest companies play.  We have bailed out big banks by using taxpayer money to buy preferred shares at inflated prices while simultaneously discouraging them from using that capital to make new loans.  We have trampled on secured lenders’ rights in our rush to shepherd Chrysler through bankruptcy with concessions that are not afforded to most.

As the line between big business and big government becomes more blurred, the conflicts of interest and self-dealing multiply.  Shouldn’t AIG become the preferred insurer for HUD homes? Shouldn’t GM become the sole provider of cars to the government? Governments owning businesses is as unwise and unfair as businesses running governments.

Steiner’s countryman, economist Joseph Schumpeter remarked that, “Rational as distinguished from vindictive regulation by authority turns out to be an extremely delicate problem which not every government agency, particularly when in full cry against big business, can be trusted to solve.” How then can we solve the challenge of consolidated power in our largest banks and corporations?  At RSF we aim to do so by working with small businesses and nonprofits that measure their impact in more meaningful ways than sheer size.  We also aim to restore humanity to lending – it’s not an abstract transaction, but a meaningful relationship built on understanding the contributions, needs, and long-term intentions of all parties. By bringing together investors and borrowers in a culture of spirited inquiry and dialogue, RSF is creating a community too invested in one another to fail.

Ted Levinson is Senior Lending Manager at RSF Social Finance.

Employee Ownership as a Tool for Growing Social Enterprise

June 1, 2009


The staff of Namaste Solar, an employee-owned solar power company in Colorado.

By Esther Park

Last month I attended the Beyser Institute & NCEO Employee Ownership conference in Portland, OR, specifically to learn the ins and outs of Employee Stock Ownership Plans (ESOPs).  As a newcomer to the subject, many of the regulatory requirements and the alphabet soup of acronyms flew by me, but I came away with a renewed sense of optimism that employee ownership could have a special place in the development of social enterprises.

By way of background, one of the questions we have been raising and debating at RSF is: how do ownership and the transfer of ownership affect the social mission of a business?  A few recent comments from various meetings and conferences have stuck out and stayed with me:

  • “How do we get ownership into the hands of more people?”
  • “That’s the fundamental problem with [traditional] venture capital” (in response to an assertion that the best and most effective partnerships occur when each partner is taking an equal amount of risk)
  • “How did I get here?” (in reference to a previously profitable company that was driven to unsustainable growth by its investors)

The plain fact is that any enterprise needs capital to grow.  Some will grow slowly with patience and internally generated working capital or bank financing.  But many others, particularly the social enterprises that RSF encounters, have the opportunity to grow quickly and will often take on equity capital, whether it be through friends, family, angel investors, or venture capitalists.  With perhaps the exception of friends and family, investors will want to (or assume to) know how they will exit their investment and make their target return.  The prevailing thought for most investors is to sell the company to a larger company.  (Because of this, companies not well-suited to this type of potential sale often have a more difficult time raising capital.)  Whether selling to a conglomerate is an attractive option for a mission-driven entrepreneur is dependent on his/her theory of change.  Some would argue that such a company can have vastly greater impact by being a part of and influencing its parent company.  Others would argue that a company’s social mission is necessarily diluted by a profit-driven parent company.

Without taking sides on this particular debate (largely because I respect both arguments), the debate itself has spurred RSF’s exploration into alternative exit/liquidity strategies, as there are currently few available.  To return to my initial point, one intriguing strategy we have come across is the idea of selling the company to its employees.  ESOPs are nothing new, but these days, many ESOP companies are likely driven by clear tax advantages to the company, as well as to owners who sell a minimum threshold of their equity.  But I also see other benefits, particularly for social enterprises:

  • A company can better control and maintain its values;
  • A company can participate in wealth creation, not just job creation;
  • A company can take its time and grow sustainably, without pressure from institutional investors;
  • A true community of owners is created.

The idea is worth exploring.  Here at RSF, we aim to bring more visibility to the topic in order to seed the idea among both burgeoning and mature social enterprises in the hope of creating new and meaningful options for community ownership, wealth creation, and social impact.

Esther Park is the Director of the Lending Program at RSF Social Finance.

A Dialogue on the Banking Crisis

May 25, 2009

Federal Reserve Bank

By Don Shaffer

Public debate over the banking crisis in the past few months has been a fascinating examination of a system I have been studying for years.  So, I have closely followed the range of opinions flooding from the pens, keyboards, and voices of economists, journalists, politicians, and others.  Assessing the scale of banks and their impact on society is a topic that I see as a crucial piece of the puzzle in changing and reforming our broken financial system.

Recently I read some stimulating pieces that I’d like to share with you, the first of which was written by economist James K. Galbraith as a statement before the U.S. House of Representatives’ Committee on Financial Services.  (To download and read the full statement, click here.)  I believe Mr. Galbraith really hits his stride in section number three, titled: “The bank plan will not work.”  As he points out, “If we are in a true collapse of finance, our models will not serve and our big banks will not serve either. You will have to replace them both. Since several very big banks are deeply troubled, there is in my view no viable alternative to placing them in receivership, insuring their deposits, replacing their management, doing a clean audit, isolating the bad assets. Since these banks were clearly too large, in my view they should be broken up, and either sold in parts or relaunched as multiple mid-sized institutions with fresh capitalization and leadership.”  I would encourage you to read section three of his statement, at least, and consider his arguments with a critical mind.

Another essay I would recommend is “The Quiet Coup,” by a former chief economist of the International Monetary Fund, Simon Johnson, in the May issue of The Atlantic.  (To read the essay, click here.)  Please pay particular attention to the final section of the article, entitled “The Way Out.”  Here, Mr. Johnson lays out a case very similar to Mr. Galbraith’s.  I am particularly struck by his discussion about the inherent problems of gigantic-scale mega-banks:

“Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.

“Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations.

“This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail explodes. Anything that is too big to fail is too big to exist.”

Lastly, I would encourage you to read the recent interview of President Obama in the New York Times magazine.  (To read the full interview, click here.)  The first part of the interview is entitled “The Future of Finance.”  The President has some encouraging things to say, but I can’t help feeling disappointed in the overall tone and substance of his responses… in which he says, in essence, “We’ll be fine with a bit more regulation.”  He seems convinced that we should just duct-tape our financial/monetary system back together, and re-acquaint ourselves with a strong and powerful Wall Street (oligarchy?) as a foregone conclusion.  Mr. Obama’s choices for key leadership positions in the administration reflect these views; in particular, Mary Schapiro as Chair of the Securities and Exchange Commission has functioned as a steadfast and loyal proponent of Wall Street – most recently as head of FINRA, the financial industry trade association.  Schapiro is one example, but Obama has also put into place many others with direct ties to the big commercial and investment banks.

All this said, I urge you to draw your own conclusions.  Certainly no one has a crystal ball, and no one can claim to know the best path to pursue at this point.  For 15 years, I have read The Wall Street Journal (nearly every day) and The Economist in an effort to understand how the financial system works.

The biggest issue for me is scale, and its relationship to power.  Mostly based on my study of American history, I’m a fan of small, entrepreneurial, decentralized marketplaces—in other words, networks of people and companies trading with relatively little financial intermediation.

In short, I don’t think a $2 trillion bank (e.g., JP Morgan Chase) is much good at innovation anyway.  And personally, I think services like online bill pay and convenient ATM’s are insufficient reasons for not switching to a community bank or credit union if you really think it through.  With a giant transnational bank, you have no idea what loans your money is being used for, or where your funds reside at any given time.  Plus, how can you trust “collateralized debt obligations” or other “structured” financial vehicles that are designed only to help the bank become a larger and larger pile of money?

Public equity markets suffer from the same issues as the banks.  There is absolutely no reason why the world needs over 8,000 different mutual funds, most charging fees well in excess of the value they create.  Merrill Lynch and other brokers have been exposed as hopelessly riddled with conflicts-of-interest and incentive/compensation problems.

But, Wall Street will live on.  Capital markets will exist, for good reason, for companies and industries that require large-scale R&D, manufacturing, and distribution, such as airplane engines, pharmaceuticals, semi-conductors, etc.  Hopefully, investors will reward only the most transparent and honest of the remaining players.

Most important, I think we will also see the growth of diversified, regional capital markets – not dependent at all on Wall Street – designed to support small-and-medium-sized, triple-bottom-line companies in sectors like food, energy, clothing, building materials, and a whole range of household products (furniture, toys, etc).  The goal here is that people save more, spend a higher percentage of their overall income on basic needs, keep their investment strategies simple, and their money closer to home.

To return to the issue of scale and power, these regional capital markets will ensure a healthy democracy in the U.S.  Every business student of the post-World War II era has learned about “efficient” flows of capital and how a “fragmented” market will invariably consolidate.  But, I don’t think this is true anymore.  The 21st century will have many fragmented markets, because investors and consumers will demand authenticity and real innovation from the companies they support.  This fragmentation or diversification will only be accelerated as a result of the current financial/economic crisis. This is how nature works, too.  An ecosystem rich in biodiversity is the most resilient.

At RSF Social Finance, we are excited to play a leadership role in the transformation to a more decentralized financial system:

•  in the “what” (our financial and advisory support for companies and non-profits that create tremendous positive social impact), and

•  in the “how” (our approach to working with investors and borrowers, and donors and grantees in each transaction that acknowledges the interconnected nature of life).

I hope we have a spirited discussion on the issues presented here and in the articles cited, both amongst the RSF staff and Board, as well as with you: our clients, partners, and friends.

Don Shaffer is President & CEO of RSF Social Finance.

From Self-reliance to Collaboration: Economic Interdependence

May 18, 2009

collaborationBy John Bloom

Imagine the state I would be in if others were not growing food, making clothes, and developing the technology to publish this post. I would likely have to dig my own Victory Garden, or live as Henry David Thoreau did at Walden Pond in the nineteenth century. I would have to become self-reliant. This American Transcendentalist value runs deep in the American identity alongside the more entrepreneurial attachment to marketplace opportunities. This could be seen as a bifurcated identity until one considers that self-reliance is linked to the freedom of spirit and individuality, while enterprise is tied to an economic precept that recognizes the need to meet others’ material needs across the spectrum of social life. Thus, the individual that provides solely for herself is not economic at all. As soon as an individual begins to provide for others based upon productive capacities, she becomes an economic citizen. This does not mean that the individual leaves her spirit behind. Rather she brings her spirit and her capacity for insight and innovation with her to serve others in an economy.

The relationship between the individual and the whole of economic life is complicated. For example, if what Rudolf Steiner articulated, here simplified, in the early twentieth century as a basic economic principle is operative—that the degree to which we are working to meet the needs of others’ our own needs will be met—then Adam Smith’s eighteenth century concept of self-interest as a prime economic motivator is no longer appropriate. Smith’s theory, as articulated in The Wealth of Nations, is an economic philosophy that lives on as myth in laissez-faire economies and more recently in so-called free markets. As an evolutionary stage, self-interest seems removed from what is called for now.

From an economic perspective, we live in a completely interdependent world. We can know the global economy just by looking at the labels in our clothes, but we have not yet transformed the deeper human dimensions of interdependence that would compel us to alleviate global poverty or preclude the abuse of our financial system. In some ways, the social technology of money and financial systems, reduced as they are to electronic currents (or currencies), has evolved beyond our moral and ethical capacities to work with it in a healthy way. Competition that pits me against others in search of limited resources is basically anti-social. This is the mindset, and I would say soul condition, awaiting transformation.

Consider the research of evolutionary biologist Elizabet Sahtouris. In 1997, in “The Biology of Globalization” (Perspectives on Business and Global Change), she wrote, “The Globalization of humanity is a natural, biological, evolutionary process. Yet we face an enormous crisis because the most central and important aspect of globalization—its economy—is currently being organized in a manner that so gravely violates the fundamental principles by which healthy living systems are organized that it threatens the demise of our whole civilization.” What she is pointing to, based upon her research, is that organisms achieve healthy sustainability only after they have passed through the competition stage to one of cooperation, or collaboration. Yet our economics still remains fundamentally about competition. The myth of self-interest, and the cogent arguments made for perpetuating that myth, seem to ring hollow in light of Sahtouris’ findings.

The technology of economic collaboration, built instinctively into the fabric of intact communities, needs to be rediscovered as part of new or emergent communities. This technology depends upon understanding the strengths and weaknesses of each community member. However, here is the challenge. Our culture has taught us well (through the constructs of self-reliance and self-interest) how to project our strengths. But, it has also taught us how to protect our weaknesses, our vulnerabilities in preparing for a competitive winner-take-all economic environment. When we see our own vulnerabilities personified in others’ poverty or homelessness, it can be a painful awakening. To truly collaborate with another person, no less one organization with another, to have power with the other partners requires that we acknowledge and embrace the full economy of strengths and weaknesses, and further recognize that it will call upon the power of compassion in a non-linear exchange process. This imagination then begins to look and feel like an economics for the twenty-first century, an economics that requires new social technologies, capacities, consciousness, and means of exchange that complement the strengths and failings of our national currencies. We are not only interdependent in our economic world, but we are also thoroughly entangled in it. We need an art of economics that imagines this complex reality, and a science of economics that can comprehend the humanity in it.

John Bloom is the Director of Organizational Culture at RSF Social Finance.  If you enjoyed this post, read more of John’s work here:

On Race, Class, & Money

May 11, 2009

Dr. Gail Christopher, Vice President for Programs at the W.K. Kellogg Foundation, announcing the foundation's plans to promote racial equity. Photo by Chris Corrigan.

Dr. Gail Christopher, Vice President for Programs at the W.K. Kellogg Foundation, announcing the foundation's plans to promote racial equity. Photo by Chris Corrigan.

By Elizabeth Ü

At a meeting designed to encourage more collaboration amongst nonprofits in West Marin, where I live, a panelist called for more diversity at such events. “Look around,” he said, “everyone in this room is white.” A familiar ire rose up in me, and I couldn’t help but blurt out, “Not ALL of us are white,” to which the panelist (the Executive Director of a well-respected nonprofit organization) responded, “oh, but you could pass.”

I attend a lot of meetings and conferences, and yet I still haven’t figured out an appropriate response to The Question that someone behind a microphone, in a break-out session, or behind me in a buffet line will inevitably ask, though perhaps not in these exact words: “Why aren’t there more people of color in the room?” I have my own analysis of the structural, cultural, and historical reasons, and I appreciate the intention behind the asking… AND, as the incident above illustrates, I always have an immediate, angry response, one that seems to completely bypass all rational parts of my brain: “Don’t I count? Don’t the rest of the people of color in the room count?”

When I keep digging into that particular incident, I suspect that the issue wasn’t just about race, but also of class. Ultimately, I know that this colleague of mine who told me I could pass as white most likely didn’t mean to deny my Chinese heritage (or at least, the Chinese half of my heritage); he was likely lumping an upper-middle class identity into what he was referring to as “white.” If he meant to point out that I did not, in that room, represent diversity of wealth, access, or privilege, then he had a point.

I most recently experienced a version of The Question during the W. K. Kellogg Foundation’s Food & Society 2009: A Gathering for Good Food. When someone declared (based on her assessment of who came to this invitation-only event?) that we need more people of color working in sustainable agriculture, my usual knee-jerk response was tempered by surprise. Compared to most conferences and meetings I attend, this one seemed amazingly diverse, as measured by the color, class, age (the youngest attendee was 14, and the oldest 70!), and roles each held within the food system, including nonprofit staff, funders, farm workers, people from food-related businesses, students, civil servants, and more.

Plus, I was still reeling – in a good way – from an earlier announcement that the W. K. Kellogg Foundation is striving to become an anti-racist organization that promotes racial equity. Even without knowing what exactly this will mean for the foundation’s future activities, and even if it’s beyond frustrating that we still live in a world where an announcement like this is necessary, this announcement shows it’s never too late to take a necessary step. I was in a mood to celebrate!

Of course my experience was uniquely my own, and now I wish I had engaged this person in conversation to learn more of the back story behind her comment. Weeks later, the list of questions I would ask her is still growing:

  • Why do you want more people of color in the room, literally or figuratively?
  • Does this also have to do with class?
  • How is this work connected to the needs of the people who are absent?
  • Is the style of this work, and the language you are using, inclusive of such communities?
  • What are you actively doing to encourage more diverse participation?

Later in the conference, Neelam Sharma, Program Director of Community Services Unlimited challenged the audience with a comment that prompted a growing list of questions for myself, and for our work at RSF: “We may have equal access to a system,” she said, “but it’s not EQUITABLE if we have unequal abilities and access to the tools required to meet requirements of the system.”

We know this conundrum all too well in the Lending Department at RSF. We frequently hear from entrepreneurs seeking loans for very high-impact projects that don’t meet our core lending criteria, whether because the projects are too young, they have insufficient collateral, or there just isn’t a clear plan in place that would allow the project to pay back the principal and interest of a loan. Yes, we offer equal access to our lending programs. But maybe the reason that we can’t find more eligible borrowers in rural communities, communities of color, or other underserved communities is because those communities have historically had less access to the education, technical assistance, and support services allowing them to grow their projects to the point that they can meet the requirements of our system.

What is RSF’s role in increasing equitable access to our own services, and to financial systems as a whole? In future posts here on the Reimagine Money blog, I’ll share more about what we are already doing to address issues of money, race and class within our community of investors, borrowers, donors, grantees, and other partners. I’ll also offer some insights into the hard questions we ask and conversations we’ve had as we go about our work using the tools of finance to promote social and spiritual renewal. In the meantime, I’d love to hear your comments about various steps you’ve taken in your own lives or workplaces.

Meanwhile, I’ll be thinking about how I personally would answer the same questions I wanted to ask my colleague at the Food & Society Conference. How would you?

Elizabeth Ü is the Manager of Strategic Development at RSF Social Finance.

Innovation and Debate at IC

May 4, 2009

IC 2009

By Terri Spath

Last week in San Francisco, close to 300 pioneers, visionaries, leaders, activists, philanthropists, game-changers, and investors met at the St. Francis hotel for the Investors’ Circle Spring conference.  An investor conference in the current challenging economic environment could be a dreary prospect, but instead, the presentations by social enterprises, breakout sessions and the hallway discussions at IC exposed a spirit of stealth optimism.

This year was the debut of the “IC Debate,” and a lively discussion on the topic of “The Sell Out” was moderated by Mark Albion, the former Harvard Business School professor dubbed the “savior of B-school souls” by Business Week magazine.  The panel included Judy Wicks, founder of Philadelphia’s landmark White Dog Café, and Pierre Ferrari, the Board Chair of Ben & Jerry’s and an investor, director and head of marketing for Guayaki, the company that combines scaled reforestation with the marketing of yerba mate beverages.  People at the session were eager to know how they could connect more directly with each other, in addition to searching out financial support for their groundbreaking enterprises.  One of the resounding themes coming from the questions asked was how to use capital to stoke entrepreneurial capacity, strengthen the planet, and earn a healthy return for investors with minimal volatility.

One initiative gaining traction involves structured debt with revenue royalties, an innovative form of mezzanine capital.  While mezzanine financing has been around for years, its application to social enterprises has been limited, in part because the field of social entrepreneurship is still developing.  Many social enterprises have found themselves in a capital gap: they are too small for traditional mezzanine providers but have fully tapped the pockets of family and friends.  Venture capital could be an option, but this can often require a “build to flip” strategy that collides with the very DNA of the mission-built enterprise.

Structured debt with royalties may be the solution.  Since this structure leaves the equity ownership untouched, an innovative enterprise can continue building its larger vision of a mission that is meant to last.  At the same time, capital partners can earn a healthy return, with minimal volatility or reliance on the shifting winds of the broader equity markets.  The RSF Mezzanine Fund, L.P.1 was created to meet this opportunity and to build a connection between investors and enterprises.

At RSF, we believe deeply that we cannot solve our current challenges unless we solve them together.  Difficulties can’t serve as an excuse for inaction.  To spark transformation of the way the world works with money, social enterprises must continue to march forward, and investors must connect with longer term solutions.  It’s happening now.

Join the conversation.

Terri Spath is the Managing Director of RSF Capital Management, Inc.

1 Legal Disclaimer: This does not constitute an offer to sell interests in the fund described herein.  Investments will be offered solely to accredited investors only through the Private Placement Memorandum and documents incorporated therein.  No investment may occur from a state or jurisdiction in which an offer, solicitation, or sale is not authorized.

From Expectation to Affirmation: An Inquiry Into Transparency and Trust

April 23, 2009

By John Bloom

The concept of transparency seems to be at the forefront of every discussion about our economy of late, and the majority of those discussions presume that the reader or listener knows what transparency means. I confess to being bothered by such presumptions—thus, this inquiry into transparency. It is an abstract concept, but one essential to our relationships and economic life. I hope one outcome of this brief inquiry is a deepened understanding of what is often the root cause of the call for transparency, namely, mistrust. Further, that transparency, understood in its full implications, can transform mistrust into a new and conscious trust, an essential ingredient for healing our economy and opening us up to a positive imagination for the future.

Transparency and trust are inextricably linked in human affairs, though transparency is best understood as a means, not an end; and trust is not a thing but rather a desirable multi-faceted (my assumption) state of being that guides our actions.

What does transparency mean then in the context of finances? Most of us experience transparency in simple physics terms as we gaze out our windows to see the world with varying degrees of clarity. If we are moved to clear the film away in order to have a fuller, less mediated view, we are pointing to a process based upon increased visibility. In finances, if you cannot perceive or track what is going on with the transactions and “the numbers,” seeking disclosure through auditing would be the parallel to window cleaning. The purpose and outcome would be to trust what you see.

But there are questions about finances that reach deeper than visibility and delve into the realm of assumptions. This is where transparency is no longer solely about facts or appearances, but rather about the conceptual aspects that drive the numbers and transactions. This quality of transparency is about making the invisible visible—not what or how much, but rather the why of transactions. Of course, formulating and exposing assumptions takes us into the realm of values and judgment, and more importantly into the realm of reciprocity. By this I mean that transparency is a two-way process. We look out the window, while the rest of world can equally look in at us. Digging into the assumptions behind financial transactions, our own values and assumptions arise quite naturally as expectations about what we absorb of and reflect upon the information. Once we are comfortable with the assumptions and the resultant numbers, another level of trust emerges, one not as much tied to visibility, as it is to a quality of reciprocity. After all, the numbers represent human economic activity, and we expect to be able to see into that activity through the transactional agreement or accounting of it. This is no small feat. What hopefully becomes apparent through the reciprocal exploration is an affirmation of assumed values and intentions—a moment of deeper trust.  Without this affirmation, unresolved expectations can lead to a kind of quiet conflict common to but often unaddressed in financial considerations.

Transparency and trust take another leap when there is an affirmation of mutual intentions among all parties to the transaction. This commonality of intention represents the possibility of a third level of trust that reaches through reciprocity and beyond agreement to a sense of shared vision, or appreciation of a common purpose. This level of trust engages a kind of idealism and engenders all manner of economic initiative and innovation.

In a way, there are three forms of trust that accompany financial transactions: trust in matter, or the observable; trust in others, their truth or integrity; and trust in spirit, or common intention. While transparency may on some levels feel like a right, as it is primarily treated in our current political debate on economics, it is also a vehicle for reaching trust in the three realms of matter, relationships, and common destiny. Thus the practice of transparency in finance, with full respect for the rights of privacy and safety, is an essential tool for transforming our economic future.

John Bloom is the Director of Organizational Culture at RSF Social Finance.  If you enjoyed this post, read more of John’s work here:

In Pursuit of True Price

April 20, 2009

By Gary Sprague

PrintA few weeks ago, RSF brought together a group of local area borrowers and investors to hold a first in-person discussion on the subject of pricing: the interest rate we charge our borrowers, and the interest rate we pay to our investors. The group included a handful of individual and institutional investors in the RSF Social Investment Fund, and a similar number of borrowers whose loans come from that same fund.

The meeting was inspired by a monthly staff reading group on Rudolf Steiner’s Economics, a collection of lectures he gave on the subject in 1923. Some questions came up regarding how we can determine a fair or true price when something of value is exchanged; how to tell whether the price for a good or service is adequate, insufficient, or excessive relative to the value that it actually provides and the costs incurred in producing it. Several staff spoke about how transparency is a critical factor in ensuring a sound price. The less we know about how the good or service was produced or how the money we pay will be used, the more difficult it becomes to say whether a certain price makes sense or not.

In Economics, Steiner suggests that a “true price” is based on meeting the whole needs of those producing a good or service such that they are able to produce that same good or service again. So if price should be based on meeting needs, how can we tell what needs exist when we buy or sell, invest or lend, give or receive? As an intermediary facilitating the flow of capital from investors to borrowers, and from donors to grantees, RSF faces a particular challenge in bringing to light the needs of all parties involved in an exchange. We wondered what would happen if our borrowers and investors could speak to each other about their needs and goals. How would everyone’s perceptions of a fair or acceptable interest rate be affected by direct dialogue?

About a month later, we gathered around the table to begin a conversation about how RSF currently establishes its interest rate pricing, and how that model might be changed to more effectively meet the needs of our investors and borrowers, as well as the needs of RSF itself.

The discussion largely centered around better understanding our existing model, and on sharing thoughts about what it would mean to bring clients into a more direct participation in pricing. As we offered some background on how RSF sets its interest rates for borrowers and investors, it was interesting to see people beginning to think through how the two rates are tied to each other, and the challenges and opportunities that this pricing relationship creates for RSF. One such challenge is timing – our loans last anywhere from a year to five years or more, while our investors are only obligated to leave their funds with us for 90-day periods. People wondered how RSF manages this discrepancy in commitments, and were noticeably surprised to hear that it hasn’t been an issue because our average investor is with us for nearly seven years.

Another fascinating aspect of the discussion focused on the potential downsides of more direct client involvement in pricing. Both investors and borrowers talked about trusting RSF, as the intermediary, to set the best price for all parties involved, and about the benefits of keeping the pricing model simple and efficient. A couple investors also spoke on behalf of the borrower’s position, voicing the concern that a more direct relationship between the two sides might cause investors to take an overzealous interest in how a borrower’s business or organization is run.

Perhaps the most compelling outcome of the meeting was the general recognition that face-to-face dialogue fosters important understanding of the connections and relationships behind financial transactions. Beyond a feel-good moment of being part of a larger community, one investor commented that such a conversation helps build greater consciousness of how money actually works and what impact it has in the world. One of the borrowers in the room added that an open and transparent process is needed to create a sense of ownership and partnership among stakeholders. When we reiterated that the goal of the meeting was to address the how of finance rather than simply the what, another investor echoed the sentiment and said that was precisely what the current economic times require.

We do not yet know where this first meeting will lead us, but there is no doubt that we want to continue creating similar opportunities for direct dialogue between members of our community. In that spirit, I invite you to join in conversation with our online community by leaving us a comment and sharing your impressions, ideas and questions. By doing so, we will begin to see each other’s needs and goals more clearly, and in turn be able to better understand the impact that our money and financial system have on ourselves, our communities, and our planet.

Gary Sprague is Communications Manager at RSF Social Finance

The Economics of Peace Conference

April 6, 2009

Economics of Peace

By John Bloom & Katrina Steffek

Along with Praxis Peace Institute, RSF Social Finance presents: The Economics of Peace Conference, October 18–23, 2009.  This summit conference will bring together many of the leading practitioners and supporters of new economics to share current work and to develop collaborations toward an economics appropriate for the 21st century. These innovative practices aspire to heal society and the planet, and bring about peace. A second purpose is to raise broader public awareness of what is possible in changing the relationship to money, our current financial system, and fostering emerging new complementary systems.

In the midst of economic collapse, we are compelled to seek wiser systems of commerce and more equitable economic relationships. While it is imperative that we understand the history of our economic structures and what went wrong, it is equally important that we experience the outstanding examples of collaborative business practices that are changing the economic landscape today. Examples include cooperative businesses, complementary currencies, green business, green jobs, slow money, slow food, living wage initiatives, social finance, credit unions, BALLE (Business Alliance for Local Living Economies), and more.

The challenge before us is to align the efforts and energies of the millions of individuals, businesses, and organizations that are working to transform our failing economy. “The Economics of Peace” Conference will provide a space for such independent networks and organizations to form deeper levels of collaboration and to begin describing the next economic paradigm. In essence, it will be a place for the imaginal cells of a movement to begin transforming economic relationships to better serve people and planet.

The Scope of the conference will include some of the following questions and conversations:

Inquiry – What are the myths that define our economic environment and how do they influence our choices and limit our options? How can we demystify these beliefs and empower a new economic paradigm that works for everyone? How do we define economic relationships that serve Peace?

Vision – Working collaboratively, we can create alternatives to failing economic patterns and practices. “The Economics of Peace” Conference will highlight some of the most successful business and economic models that incorporate collaboration, sustainable business practices, and respect for all workers.

Tools for the New Economy – Practical and interactive workshops, daily discussion groups, and open space sessions will help define an economic vision for the 21st century.

Themes that will be addressed and developed over the 5-day Conference:

• The Economics of Social and Environmental Justice
• Transforming the Means of Exchange
• The Influence of Cultural Myths and Propaganda on Economic Policies
• Ownership: Ethics, Rights, and Responsibilities
• Economic Alchemy: From Self-Interest to Altruism
• Evolving the Policies of the New Economics

Keynote speakers and presenters already confirmed:

* U.S. Representative Dennis Kucinich (D-OH)
* U.S. Representative Lynn Woolsey (D-CA, Sonoma County District)
* Riane Eisler (eminent social scientist, attorney, and cultural historian)
* Sam Keen (noted author, philosopher and expert on propaganda and the roles myths play in our psyches and societies)
* David Korten (author, leader in the global resistance against corporate globalization, co-founder of the Positive Futures Network and Yes! Magazine)
* Mikel Lezamiz (educational director of the Mondragón Cooperatives Corporation)
* Jacob Needleman (professor of philosophy at San Francisco State University and serves as a consultant in the fields of psychology, medical ethics, philanthropy and business)
* Vandana Shiva (physicist, environmental activist and author)
* Judy Wicks (co-founder of the nationwide Business for Local Living Economies (BALLE) and a founder of the Sustainable Business Network of Greater Philadelphia (SBN))
The conference will be held in Sonoma, California, in the town center. It will utilize numerous public spaces including the town square, the community center, local businesses, an historic adobe, and a renovated former movie theater.

Co-sponsors (as of April 1, 2009): YES! Magazine, E.F. Schumacher Society, Berrett-Koehler Publishers, Mother Jones Magazine, Sonoma Community Center, Sonoma County GoLocal Cooperative.

Updates and conference registration are available at:

John Bloom is the Director of Organizational Culture and Katrina Steffek is the Manager of Organizational Culture at RSF Social Finance.


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