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Impact Investing Fund RSF Social Finance Offers Alternatives To Wall Street

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Impact investing fund RSF channels funds to a number of companies, including Common Market (above), a local food distributor in Philadelphia.
Impact investing fund RSF channels funds to a number of companies, including Common Market (above), a local food distributor in Philadelphia.

As a teenager, Don Shaffer's first job was at a country club, caddying for some of the most successful men in America. On weekends, he had a front row seat to conversations between Wall Street traders and executives that most investors would die to listen in on. The experience inspired him to go into finance, but not for the reasons one might assume.

"Basically, none of them could explain what they did to me," Shaffer recalled of the executives he met weekly. "I come from a long line of Quaker farmers and small-business people in the Philadelphia area, and my father was a sheets and towels salesman. I was confused as to why the wealthiest and highest-status people couldn't describe what they did. Since then I have been obsessed with the financial system and how it works, and with making it so finance is serving businesses and the economy, instead of the other way around."

Today, Shaffer tries to live that mission every day as the President and CEO of RSF Social Finance, an "impact investing" fund that specializes in direct lending to social enterprises.

The goal of impact investments is to provide not only a financial return, but also a significant, measurable social return. Funds like RSF channel money into companies that produce everything from solar lanterns in Africa to sustainable grasslands in Australia. These social enterprises are seeking a "double bottom line" -- creating products that are both profitable and benefit communities.

Creating a company that offers both a social impact and financial return on investment is no small task. Many social entrepreneurs focus on assisting others, but it's not always possible to turn a significant profit when a product mainly serves those at the bottom of the income pyramid. And as companies aim to provide products to the developing world, they run into a lack of infrastructure in the impact investing world, primarily due to the fact that it is an emerging market.

To address these concerns, RSF provides assistance to companies struggling to get off the ground, while at the same time significantly contributing to building the industry of impact investing.

Since 1984, RSF has loaned out over $275 million to social entrepreneurs and companies with a repayment rate of 100 percent to a network of over 1,300 lenders. The fund has also facilitated over $100 million in grants to nonprofits that are helping build the infrastructure and conditions for social investing.

RSF's focus is on companies that have legitimate potential to make a difference, but aren't getting the attention they need from investors to become successful. "We pride ourselves on being catalytic in meeting the needs of these social enterprises that either don't fit into the calculus or check boxes of commercial banks, or are doing something that's ambitious and ahead of its time," Shaffer said.

Another way RSF contributes to the impact investing world is through RSF Prime, a custom-set interest rate based on input from RSF investors and borrowers. The fund stopped using LIBOR in 2009, when the team decided to create a rate that would better reflect RSF's values. "RSF Prime is probably the most concrete expression of what we're doing and stands in for how our values translate into the real, concrete world," Shaffer said.

Tools like RSF Prime reflect the desire impact investors and investment funds have to forge a new understanding of what business and finance can do for the world. A growing dissatisfaction with the state of banking and finance today is helping lead this charge, Shaffer said. "I think that what we're seeing is tremendous demand from individuals who are questioning core assumptions of Wall Street, where the trust factor is very low. They are looking for alternatives and ways to align their values with their money."

Those alternatives are becoming more and accessible to individual and institutional investors, and Shaffer said he considers RSF a central member of that evolution. "We've witnessed individual human beings, whether they're investors or social entrepreneurs, seeing money differently as a result of working through and with RSF," he said. "Impact investing and social finance are moving to the center of peoples' solar systems."

Around the Web

Impact investing - Wikipedia, the free encyclopedia

Global Impact Investing Network: Impact Investing

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Harnessing the Power of Impact Investing - Rockefeller Foundation

GIIRS | About | What is Impact Investing

Impact investing: Happy returns | The Economist

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