On April 1, 2018, RSF Social Finance increased its RSF Prime base interest rate for borrowers by 0.25% to 5.25%. The other participants in the Social Investment Fund (SIF) are affected as follows: the investor rate is now 1.00%, up from 0.75%, and the RSF revenue share remains at 4.25%.
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 methodology furthers our mission to create financial relationships that are direct, transparent, and personal.
The decision to change interest rates is a multifaceted one that balances many factors. The SIF Pricing Committee makes the final determination regarding RSF Prime by weighing the following:
- Recommendations from RSF’s quarterly pricing gathering.
- Feedback gained through ongoing client conversations with the lending and client engagement teams.
- Market forces. RSF tracks what is happening in the market with the goal of anticipating moves that could influence the needs of our community.
- RSF needs. There are costs associated with lending that range from staffing and financial data security to high-touch efforts in support of promising social enterprises. We hold that these operating needs must balance with those of the whole.
While there has been upward movement in the financial market since January 2017, this is the first change to RSF Prime in five quarters.
While we know from investors that the primary impulse for opening a Social Investment Fund account is the incredible work and organizations the fund supports, rather than the return, we have increasingly heard from investors that the return they receive from RSF is modest when compared to the rest of their social impact portfolio. With this current rise, the RSF returns are more competitive with other low-risk, liquid, and high-impact funds.
An Open Dialogue
At the March pricing gathering in Seattle, WA, there was thoughtful conversation about the pros and cons of a rate change. Some borrowers expressed a sense that they could tolerate an increase without disruption to their business. There was some sense from the non-profit borrowers that since they have less control over income streams and set budgets once a year, a rate increase would be difficult. Yet, there was appreciation for what RSF offers and a reticent willingness to support a small increase. We advise borrowers with concerns regarding the RSF Prime increase to contact their RSF relationship manager.
One former borrower, now an investor, stated that if the rate went up, they would increase the balance of their fund. One participant was both a borrower and an investor and was able to share both perspectives in a way that made the connection between the two very clear to the rest of the group. In the end, we heard from investors and borrowers that they trust RSF to make a decision that will best serve the whole community, especially if there is a growing need for SIF capital to meet borrowing needs. Given the growing demand for our loans and the desire to attract new investors, we felt a modest increase to the rate was prudent at this time, and that the optics of 1.00% will test the question of what rate is necessary to attract new investors.
As financial and economic markets enter a period of increased uncertainty, we anticipate conversations about RSF pricing to grow more challenging. As a result, we encourage all our partners to stay in dialogue with us about how pricing—and more generally, money—is informing their interactions with the RSF stakeholders. We are committed to leading the field of social finance and to honoring our community pricing approach. We count on your insights to create financial relationships that are direct, transparent, personal, and focused on long-term holistic benefit.
This post was originally published on RSFsocialfinance.org
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