A financial group is transforming the way the world works with money by fostering meaningful relatipships between investors and entrepreneurs
Tammi Stein Interviews Don Shaffer of RSF Social Finance
Don Shaffer is the president and CEO of RSF Social Finance (RSF), a pioneering non-profit financial services organization dedicated to transforming the way the world works with money. RSF offers investing, lending, and giving services to individuals and enterprises committed to improving society and the environment. Don shares inspirational and revolutionary changes that are happening at RSF, which demonstrate how financial transactions are transformed when they are direct, transparent, personal, and based on long-term relationships. Prior to joining RSF, Don served as executive director of the Business Alliance for Local Living Economies (BALLE), developing it into an alliance of over 15,000 independently owned businesses across the US and Canada.
Throughout your career, you have made a strong commitment to ethical business practices. What aspects of your formative years created that strong commitment?
I come from a long ancestry of Quaker farmers and small business people in the Philadelphia area, so those Quaker values are deep within me. Things like simplicity, tolerance, non-violence, and being comfortable with a quality of silence that comes from the way Quaker meetings exist. And certainly ethical business practice is a long and deeply held Quaker value.
Then I was fortunate in my late teens to be exposed to some writers and thinkers that have stayed with me ever since. Wendell Berry, a prominent poet, essayist, and novelist on the subject of agriculture in the United States, and Thich Nhat Hanh, a Vietnamese Buddhist monk and also a poet and peace activist, have had a tremendous influence on me.
In the more recent past, about 15 years ago I first learned about the Judy Wicks story, then five to eight years later I got to know Judy and have been very close to her since in terms of BALLE and related projects I have worked on. The way that she was able to use her restaurant as an agent of social and environmental change was very powerful, particularly in creating a stronger sense of community in her region—not just a social community, but an economic community. That has been a very powerful relationship that has informed a lot of my work.
There must be times when creating change feels like an up hill battle. What inspires you to keep positive and to continue to work toward change?
One thing that I have done throughout my life is connect with wilderness areas, specifically old-growth forests. The kind of meditative and reflective experience that I have when I am in the presence of a very mature forest helps me to keep perspective and gives me a direct experience of the interdependence of all life. I have cultivated that and made it a part of my meditation practice over the years. That helps me as I come back into my intense life in the social and economic world working with people, teams and organizations; it helps me recognize that we all are interconnected at a spiritual level. It gives me perspective and sustenance.
Another, I would say, is music. I get a lot of energy from music—particularly live music—and so I seek that out as another kind of meditative reflective space. I always feel more energized and enlivened as a result of a very good musical performance.
My family is also a tremendous source of joy and inspiration for me. My wife, Jennifer, and I have two young children: Sabine, who is four, and Samuel, who is one.
The mission and values of RSF distinguish it from other financial institutions. What are some of the specific ways that differentiate RSF in practice?
At the heart of it is recognition of the spiritual quality of money and financial transactions. What we are trying to do—in a world where our financial system can be described as complex, opaque, anonymous and based on short-term outcomes—is model financial transactions that are direct, transparent, personal and based on long-term relationships.
The whole idea is that we believe money is a form of energy that connects human beings in relationships of service. In that element of serving each other, if we can help the different participants in a financial transaction to be more visible to each other and, ideally, come into some kind of connection and understanding of each others’ needs and intentions, it can lead to quite a transformative experience for those involved.
For example, a couple of years ago, we decided that instead of using a Wall Street benchmark to determine what rate of interest to offer our borrowers, each quarter we would bring together representatives of our borrowers, representatives of our investors, and RSF staff members to talk transparently about each of our needs and intentions. Ultimately, this group decides what rate of return our investors should receive and what rate of interest our borrowers should pay.
This would be as if you had an account at Bank of America, and they called you one night and said, “We’d like you to come down to our branch office and meet the borrowers who are benefiting because we are lending them your money. We’d like you to help determine what rate of interest they should pay and what rate of interest you should get on your bank CD.” That gives you an idea of how radical a practice this is. This is a god example of our values.
What has been the impact of the transition to using your own benchmark?
It’s been absolutely phenomenal to witness. The borrowers, the non-profits and companies who are borrowing money from us are not used to having any connection to where their money is coming from, so it is powerful for them to actually meet the people whose money they are using.
The investors, too, are so energized by the stories of the borrowers. All the borrowers at RSF are organizations that have social and environmental purposes for being in business in the first place, and their stories are incredibly inspiring. It’s one thing to read a paragraph in a newsletter or see something on our website, but it’s quite another to actually meet the entrepreneurs and have a chance to learn from them.
What ultimately happens, and has happened at every one of the 11 pricing meetings we have had thus far, is that one of the investors will invariably say, “You know what, I think I can probably take a quarter point less on my rate of investment if I knew there would be more borrowers and more enterprises like you that it would be supporting.” And almost every time one of the borrowers would say, “We would be willing to pay a little bit more on our loan if there were more investors like you who would be contributing to this community.”
There is a sense of community that people come away with just from the one meeting, and often times they follow up with each and do things together that we don’t even know about.
You mentioned the spiritual dimension of money—can you tell us more about what this means?
Money is a form of energy that connects human beings in relationships of service. To the extent that can be realized, how one uses one’s money really becomes a spiritual practice. What is happening right now, for example, is that people are thinking a lot more about what kind of products they buy at the store, where they bank, and how they invest their money.
Partly because of the financial crises we’ve been in the last several years, people are questioning a lot of the core assumptions of our financial system and therefore are asking themselves how they might align their values with how they look at their money. That could mean buying more organic products at the grocery store because they are able to know more about where that food comes from, or taking their money out of a big bank and putting it into a local community bank or credit union, or pulling some money out of a mutual fund where they really don’t know much about the companies in which they are investing. They are putting their money into community loan funds or organizations like RSF.
Last year we had a record number of new investors and a record number of new funding coming into RSF—far more in one year then we’ve had in our 28 years. I think that other people are recognizing the community and spiritual dimensions of money. If people can really understand the intentions of others who are participating in the financial transaction with them, then you have this shared sense of interdependence which is really at the heart of all spiritual traditions.
It sounds like RSF is doing very well despite the current economic climate.
Last year we had 241 new investors join us in our Social Investment Fund and we raised 19.5 million dollars for that fund in one year. The previous record had been 145 new investors in a single year, and that actually had been in 2010. The previous record for new funding had been 15.6 million dollars that we raised in 2006, which we have far exceeded. In terms of our portfolio, the organizations we invest in are a combination of Waldorf schools and other anthroposophically inspired organizations as well as a wide range of for-profit social enterprises and companies; they are doing very well.
We have about 80 borrowers that are part of our Social Investment Fund core lending community, and of those we always have a handful that are having some difficulties. That is just the nature of how the world works and has been the case the last several years, but we have actually done extraordinarily well and have worked very hard with some of those organizations to help them through.
One big difference we have relative to a commercial bank is that most commercial banks have what is called a “work out” team. This means as soon as an organization starts having difficulty they figure out how they can get the value of their collateral out of that business and use it elsewhere. We have what’s called a “work through” team. Once we make an initial commitment, we see it through based on our value of long-term relationships. We work very hard to see these companies through if they experience some hiccups. It doesn’t always work, but in the vast majority of cases we are able to make a positive difference.
Clearly, you have a very different, more involved relationship than other lenders. How are you able to help these organizations to succeed, and do you have staff dedicated to this role?
In terms of finance, if the organization doesn’t have a strong controller or chief financial officer, we could provide assistance there. It could be in marketing and distribution where we have experts in the organic food industry on our board and advisory groups, or the governance and administrative activities at a school where we have a tremendous amount of expertise in working with schools, whether it’s about increasing enrollments or other aspects of the challenges that all schools experience.
We don’t have a dedicated team, per se, it’s actually part of everyone’s job; everyone that is on the lending team has these kinds of skills. Some are more familiar with schools and some are more familiar with organic food companies. We do draw on our board. We have a very experienced board who are all very much steeped in Rudolf Steiner’s work, philosophy, and values. Then we have advisory boards for the various loan funds that we draw on as well. Sometimes we actually have our own clients, who are investors or donors here at RSF, who are experts in a particular area and we’ll draw on them. We really try to bring the whole community around a loan.
What factors, in addition to your active involvement in the success of your borrowers, do you think contribute to the very low rate of default on the loans given from RSF?
Our default rate is less than 2% over the course of our history. Since 1984, we have lent out over 230 million dollars so that is an extraordinarily low loss rate. We have a 100% repayment rate to our investors because, of course, we keep capital reserves on hand in case there is a situation where a borrower has a particularly difficult time. I do think the absolute key to it is the way we look at the community that surrounds a loan.
One example from the past summer was a loan we made to the Waldorf school in Pittsburgh, Pennsylvania. The day we made the loan, 44 individuals from the community (a combination of parents, teachers, alumni, and board members) opened accounts here at RSF in support of that loan. Things like that happen regularly. We see that those who are ultimately affected by the transaction step up to support the loan. It is that kind of community—combined with what I described about how we will rally around an organization once we have made a loan to them—that, I think, has resulted in such a low default and loss rate over the years.
What would you say to a skeptic who believed that their individual investments would not make a difference and it didn’t matter where they put their money?
I would say that the minimum investment in our Social Investment Fund is $1,000 so anyone who has that amount of money to invest can invest. We believe that it is still early in the evolution of consciousness around what it means to invest your money with socially and environmentally mission-driven organizations, and it’s still very early on things like the pricing meetings that I described. We are just now beginning to come out of being asleep and unconscious about how we work with money. I would say, particularly in the period since World War II where both the economy and the financial system itself have grown so much, that we have “gone to sleep” in a lot of ways. People are just now waking up. No matter how small the investment is, if you are participating in a new form and a new way of looking at money, the amount of the investment doesn’t matter at all. It could be a thousand dollars or it could be several million and we have the people side by side in our Social Investment Fund. It makes a tremendous difference to contribute anything at all to where we are right now. Energetically speaking, every pebble that is dropped into the pond is making ripples.
Can you tell us how we, as individuals and communities, can educate ourselves and support the growth of more ethical financial practices?
One thing you can do is the next time you go to the grocery store think through what it would mean to buy the organic alternative of whatever it is you are considering. Try pushing yourself to the next level of buying organic food or green products.
In terms of your banking, it is very important that community banks and credit unions get more support, because those are loans that are being made in your community as a result of you having an account there. If you have an account with a major bank, a national publically-traded bank, you might think you need the ATM nearby or you need the bill pay service, but really, for a little bit less convenience, you can create tremendous benefit at the local level. So I ask people to think about where they bank, and they can go to www.moveyourmoneyproject.org where there is a whole campaign and website helping people find the best community banks and credit unions in their area.
When it comes to investing, I would ask people to think through where your money is actually invested. If you are invested in a mutual fund, take the time to look at what companies are in that fund. Take a few moments to think about what it would be like to be a part-owner or financial supporter of an organization that truly lined up with your values, because there are more and more options for people now to invest in those things.
RSF Social Finance (RSF) is a pioneering non-profit financial services organization dedicated to transforming the way the world works with money. In partnership with a community of investors and donors, RSF provides capital to non-profit and for-profit social enterprises addressing key issues in the areas of Food & Agriculture, Education & the Arts, and Ecological Stewardship. www.rsfsocialfinance.org