Social Finance
A Dialogue on the Banking Crisis
May 25, 2009
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.
SJF Summit Helps Chart Course for the New Green Economy
May 14, 2009
There has been growing talk in recent months about the potential for green jobs to tackle the dual challenges of domestic job creation and climate change. But while the vision of a green economy continues to gather increased recognition and support, it remains to be seen how that vision will become a reality through new businesses, investments, job training programs, and state and federal policies. It is precisely this question that makes the upcoming SJF Summit on the New Green Economy such an important and exciting event.
Taking place June 2-3 in Durham, NC, the SJF Summit is appropriately themed “How to Make it Work”, and aims to provide attendees with concrete strategies and best practices for creating successful green businesses that serve the long-term interests of all stakeholders. “The time is now for entrepreneurs, investors, policy makers, and community leaders to come together to share strategies for investing in and building the new green economy,” said David Kirkpatrick, managing director and co-founder of SJF Ventures.
SJF has presented Cleantech CEO Panels for the past four years on Wall Street, but this year is expanding the event and bringing it to the organization’s headquarters in Durham, NC. “SJF is a proud leader in green business innovation and sustainable community development,” said Bonny Moellenbrock, executive director of SJF Advisory Services. “As we celebrate 10 years of investing in and assisting green and socially responsible enterprises, we are pleased to bring this year’s event from Wall Street back to Main Street as we share best practices and highlight successes of the green economy.”
Four keynote speakers will share a variety of perspectives on cleantech investment and green jobs development, eight CEOs from cleantech companies will discuss innovative business strategies, and more than 15 investors, economic developers, and green job leaders will share best practices. The Summit will be launched with a keynote from Nicholas Parker of Cleantech Group LLC, which has helped catalyze the exponential growth of North American cleantech investment to $5.9 billion in 2008. The summit also will include keynotes by: Jeff Wolfe, chief executive officer of groSolar; Majora Carter, principal of Majora Carter Group; and Martin Eakes, founder and CEO of Self-Help Credit Union and the Center for Responsible Lending. RSF president & CEO, Don Shaffer, will also be speaking on a Green Capital Markets plenary on the morning of June 3rd.
The SJF Summit on the New Green Economy standard registration fee is $275. Non-profit, government, or student registration is $195. To register or to learn more about the event, visit www.sjfund.com or contact Anne Claire Broughton at broughton@sjfund.com or 919.530.1177 ext. 403.
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.
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
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.
In Pursuit of True Price
April 20, 2009
By Gary Sprague
A 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
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: http://www.praxispeace.org/conference09.php.
John Bloom is the Director of Organizational Culture and Katrina Steffek is the Manager of Organizational Culture at RSF Social Finance.
SVN Conference Fast Approaching
April 3, 2009
By Kyle Foley
For over 20 years, Social Venture Network, a 500+ member organization of socially responsible CEOs, investors and nonprofit leaders, has been a pioneering example of the extraordinary power social enterprises have to be leaders in creating just and sustainable communities. Affecting positive social change through entrepreneurship is at the root of their mission, and, especially in today’s economic climate, SVN members are being called upon to lead and provide guidance as the country feels its way out of a financial crisis and looks for new, more sustainable ways to conduct business.
Several RSF staff members will be attending the upcoming SVN Spring Member Gathering just outside of Chicago from April 23rd – 26th. With much national attention focused on the ideas of green jobs and bringing together the environmental and social justice movements, it’s in keeping with SVN’s core values that they plan to incorporate discussion of these topics into the conference. In their own words, “An important part of our dialogue will be to determine how SVN can cross race and class lines to ensure that everyone who shares our values knows they have a seat at the SVN table. As always, those attending the SVN Member Gathering will have plenty of opportunities to share ideas, tap into their own creativity, and rejuvenate their spirits. SVN’s goal to transform the way the world does business has never been more important.”
At this spring’s conference, featured speakers include Barbara Ehrenreich, activist and author of Nickel and Dimed, Ben Jealous, President of the NAACP, and Gary Hirshberg, president and CE-Yo of Stonyfield Farm. RSF has always shared and appreciated a strong, collaborative relationship with SVN because we believe so deeply in the positive transformation that occurs in communities when businesses take seriously their responsibilities to society and the environment. We are proud to be a Presenting Sponsor of the 2009 SVN Innovation Awards and we hope to see many friends at the Spring Gathering. For more information, including speakers, agenda, highlights, and registration, please visit www.svn.org/spring2009.
Kyle Foley is Executive Assistant at RSF Social Finance.
Hazel Henderson Discusses “The New Financiers”
March 31, 2009
By John Bloom
Hazel Henderson, founder of Ethical Markets Media and noted leader of green investing, has written a thoughtful essay called “The New Financiers.” In the essay, she argues that the green economy of the future will be a hybrid of information technologies and money, but money based in real values. Citing new exchange platforms such as LETS (Local Exchange Trade System) and Entrex, she makes the case that the future of financing will happen outside the opaque walls of Wall Street, and will focus on positive, ethical, and restorative values. See here to read the full piece.
John Bloom is Director of Organizational Culture at RSF Social Finance.
PRI: Doing More with Less
March 30, 2009
Foundation staff visit a cherry-processing facility in Hood River, Oregon during the Sustainable Agriculture & Food Systems Funders Annual Forum last June.
By Elizabeth Ü
In June of 2008, the Sustainable Agriculture & Food Systems Funders (SAFSF) Annual Forum featured a closing plenary session: Cultivating Economic Sustainability. Almost every participant of this multi-day conference stayed after hours to continue the conversation sparked by this session, which explored the various economic tools — in addition to grant-making — that foundations can use to promote food systems healthy for people and the environment.
One tool that garnered quite a bit of excitement amongst the audience and panel was Program Related Investment (PRI), which several food system funders have already begun using to leverage their philanthropic dollars.
PRI is made out of the 5% minimum payout required by foundation law. Unlike grants, however, PRIs provide a return on foundations’ investments, either through repayment or return on equity, which means that the funds can be “recycled” and applied to additional PRI or grants. (Note that PRI is distinct from Mission Related Investing, or MRI, which refers to the investment of endowment funds.) While PRI has been available to foundations since the 70s, only in the last few years has it been gaining in popularity amongst food system funders; see page 11 of the SAFSF report Trends in Sustainable Agriculture and Food Systems Funding, 2003-2006 for some examples of foundations actively using PRI through 2006.
Enter the financial crisis, which has affected foundations in many ways: not only are many grantees scrambling to meet operating costs due to losses in revenues from government and individual sources, foundations find themselves with ever-smaller endowments with which to generate the grant-making pool.
Now more than ever, PRI offers foundations a unique opportunity to respond to the challenge of using fewer resources to provide support to communities with greater needs. Organizations that were already promoting PRI as a means for foundations to support their missions are now upping the ante.
“As we know, the turn of 2008 to 2009 caught many foundations by surprise,” says Dana Lanza, Executive Director of the Environmental Grantmakers Association. “Within the environmental grantmaking community, assets are down by an average of 30%-40% in many cases. We are noting that in this climate, PRI is garnering significant interest from our members as a means to continue to support innovative efforts while essentially ‘recycling’ funds. I expect this to become a critical form of grantmaking as we pull ourselves through this rough period over the next few years.”
The PRI Makers Network, which provides a wealth of resources and data related to PRI, organized a call last month for funders to discuss the results of a recent member survey: PRI in Tough Economic Times. The survey revealed what callers confirmed: while there are reasons to be cautious, there are even more reasons to seize the opportunities inherent in PRI. According to the survey summary, “last year, in many cases, PRIs constituted [foundations'] highest performing asset class – providing downside protection in the bear market.”
If your foundation is considering doing PRI directly, this Council on Foundations interview with Carol Lewis, president and CEO of Philanthropy Northwest, and Doug Stamm, CEO of the Meyer Memorial Trust and co-chair of PRI Makers Network, includes a list of things to consider before diving in. It’s a substantial list, and not every foundation will have the staff, expertise, or back-end support to find and evaluate appropriate recipients, draft term sheets, and administer the actual investments over time.
We decided to launch the RSF PRI Funds after hearing from several foundations that they want to participate in PRI to maximize their social impact, and would rather take advantage of RSF’s 25 years of experience in social enterprise lending rather than start the learning process from scratch. Meanwhile, we’ve been hearing from staff at foundations that have been engaged in direct PRI and are pleased with the results, but would prefer to do PRI through an intermediary like RSF so that they can focus on grant-making and support of grantees.
The RSF PRI Funds will launch later this Spring, giving foundations an intermediated PRI option for focusing charitable PRI impact within specific regions and/or focus areas: Food & Agriculture, Education & the Arts, and/or Ecological Stewardship. Our pooled PRI model means that each foundation’s investment will work alongside other funds, re-invested into a portfolio of borrowers doing critical work on the ground. This approach maximizes the power of leveraged PRI impact while also mitigating risk.
We hope that you will explore the various resources mentioned above to learn more about how PRI can help your foundations do more with less, and if you think that RSF’s PRI program might be appropriate for your foundation, I look forward to hearing from you (elizabeth.u@rsfsocialfinance.org or 415.561.6181), or stay tuned to the Reimagine Money blog for the latest news.
Elizabeth Ü is Manager of Strategic Development at RSF Social Finance.
IC Spring Conference Around the Corner: Discount for Readers
March 23, 2009
Economist Paul Romer famously said, “A crisis is a terrible thing to waste.” To that end, the theme of this spring’s Investors’ Circle Conference – April 19 – 21 in San Francisco – is “Social Enterprise: Seizing Emergent Opportunities.” As the IC folks point out, “Consumer demand for accountability, the collapse of business-as-usual, and the new administration’s focus on transparency and personal impact are reshaping markets – radically! – and ushering in a new era for sustainable companies.” The IC Spring Conference will offer a wide range of investment opportunities, speakers, and interactive workshops all aimed at helping investors and entrepreneurs navigate this changing financial landscape.
Perhaps the most exciting element of this year’s IC Spring Conference will be the IC Debate: “The Sell Out.” Moderated by Mark Albion of Making A Life, “The Sell Out” will take a participatory approach to the key issue of exit strategies. Audience members will collectively discuss the challenges posed to entrepreneurs when they decide to sell to a corporate buyer or to look for alternative exit strategies. Countless entrepreneurs have faced the difficult choice between preserving their mission and remaining financially viable, and an honest and open dialogue should bring to light fruitful advice (and questions) from various perspectives. As an organization dedicated to a spirit of inquiry and dialogue, RSF is thrilled to see Investors’ Circle taking this innovative approach to such a critical issue for the field of social finance.
For those particularly interested in the topic of exit strategies, there will also be a breakout session on “Designing Successful, Mission-Aligned Exits.” Other noteworthy panels include “What Companies Need in a Downturn and How to Supply It”, “Role of Advocacy in Social Enterprise” and “Sector Showcase: Emerging Opportunities in Water.”
Here at RSF, we see our values and those of our friends and partners, such as Investors’ Circle, gaining broad recognition as crucial pieces of a fair, responsible and sustainable financial system. For the past 17 years, Investors’ Circle has been the oldest and largest national funding group devoted to for-profit socially and environmentally responsible business. This year’s Spring Conference program promises to continue IC’s groundbreaking track record, and we highly encourage all of our readers to check it out.
As a special offer to readers of our Reimagine Money Blog, Investors’ Circle is offering a $75 discount for conference registration through March 31st if you use code “S09RSFBLOG” at checkout. For more information on the conference and to register, go to http://www.investorscircle.net/events-1/2009-spring-conference-venture-fair. RSF is a proud supporter of the IC 2009 Spring Conference and Venture Fair!
Social Finance
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