RSF Prime Increase
Jan 31 2019
On January 1, 2019, RSF Social Finance increased RSF Prime, its base interest rate for borrowers, to 5.50 percent. Other participants in the Social Investment Fund are affected as follows: the investor rate is now 1.25 percent, up from 1.00 percent, and the RSF revenue share will remain at 4.25 percent.
RSF Prime is reset each quarter using RSF’s associative community-based approach. We host quarterly pricing gatherings for investors, borrowers, and RSF team member representatives to give the three stakeholder groups in the fund the opportunity to learn about each other, discuss how rates will affect all stakeholders, and then make recommendations for possible interest rate changes. We believe that this leading-edge methodology furthers our mission to create financial relationships that are direct, transparent, and personal.
The RSF Social Investment Fund Pricing Committee, which makes the final decision regarding RSF Prime, considers many factors when evaluating whether or not a rate change makes sense. These include the following:
- The recommendation generated by attendees of RSF’s quarterly pricing gatherings as described above.
- The needs of our investor and borrower clients as understood by RSF relationship managers throughout the quarter.
- RSF’s needs as an intermediary. There are operating costs associated with the Social Investment Fund that range from hiring and retaining high-capacity staff to work with investors and borrowers, to accounting and ensuring the security of sensitive information. The Social Investment Fund is a significant portion of our revenue that also includes philanthropic services and gifts to support our operational excellence.
- Market forces: RSF staff tracks what is happening in the market with the goal of anticipating moves that could influence the needs of our community.
While there has been upward movement in financial markets since January 2017, this is only the second change to pricing RSF has made in the last eight quarters.
Reflections from the three stakeholder groups
While we have heard from investors that the return they receive from RSF is among the lowest-yielding investments in their social impact portfolio, they also tell us that their RSF investment has the highest possible social impact. At the same time, investors encourage us to be more competitive in the marketplace not because they are necessarily seeking higher returns but, rather, because they want to make sure that RSF continues to attract new and additional investments so we can support more social enterprises. With this current rate increase, the RSF returns are more competitive with other low-risk, liquid, and high-impact funds and we believe will engage new investors so we can meet the increased demand for our loans.
At pricing gatherings and in ongoing conversations, many borrowers conveyed that they could tolerate a small increase in their loan rate. It should be noted though that not all borrowers share this perspective. Schools and other non-profit borrowers have expressed understandable concern that the rate change could not be absorbed by their tight annual operating budgets.
One question that came up at the most recent community pricing gathering was whether the RSF revenue share could be reduced in order to keep the borrower rate the same while increasing the investor rate. As we indicated at the meeting, we are not currently able to decrease our revenue share, given that it covers a significant portion our operation costs and we are currently investing more in our systems and technology so we may better serve all of our clients. The RSF revenue share is always up for discussion at the community pricing gatherings, and we are open to exploring a change in the future, especially as we continue to grow.
As financial and economic markets continue to fluctuate, we anticipate conversations about RSF pricing to grow more complex. As a result, the discussions that we have with each other daily and at quarterly pricing gatherings will be more important, as they will ground our relationships and build trust. Even with its challenges, our pricing process makes visible the real interconnectedness in our economic relationships.