Case Study: RSF Social Finance
Location: USA
Investment type: Philanthropic and investment capital
RSF Social Finance is a public benefit financial services organisation working to get the right form of capital to impactful enterprises through what the organisation terms an Integrated Capital approach.
They define Integrated Capital as ‘the coordinated use of different forms of financial capital and non-financial resources to support an enterprise that’s working to solve complex social and environmental problems’.
RSF currently has 5 ‘tools’ as part of its integrated capital toolkit:
- Loans: senior-secured and unsecured
- Loan Guarantees: RSF and third-party guarantees
- Investments: Equity, revenue share agreements, mezzanine finance
- Grants: Technical assistance, third-party grants
- Non-Financial Support: Network connections, advisory support
A key framing of this integrated capital approach is that as an enterprise progresses from start-up, it can access various forms of appropriate capital that enable the viability and growth of the business without compromising the impact it is working to achieve.
RSF is particularly focused on providing capital to enterprises that sit outside the remit of conventional funding and financial services including small enterprises that are locally focused and committed with no plan or desire to ‘scale’ and businesses, that due to racial or gender bias, can be dismissed as ‘unbankable’.
When we spoke with Erika Williams, Vice President of Client Development at RSF, she told us a key element of their approach is building trust relationships:
"We put relationships at the centre of our work, with the idea that financial transactions should be more direct, transparent, and personal. Our experience has been that when we get to know our borrowers, client and other partners, we develop a deeper understanding of their needs and capabilities.
Over time, we build trust, which allows us to finance projects... without the need for extensive due diligence. We call this ‘trust underwriting’.”
One of the ways RSF does this is through their quarterly Community Pricing Gatherings in which they bring together their borrowers and lenders to decide, collectively, what the interest rates should be for the upcoming quarter.
Another way RSF is working to shift the dial is the way it works with its trusted network of organisations to form Shared Gifting Circles. Local organisations gather and decide, as a collective, where and how much money should be allocated to projects in their community.
A lot of the capital deployment of RSF provides the enabling support to meet critical social, physical and tech infrastructure needs of enterprises.
One example is with the Fair Trade Company, Guyaki, which works with agroecological small-scale growers of Yerba Mate in Argentine, Paraguay and Brazil. Guyaki identified an opportunity for growers to capture more of the value of their product by having drying facilities to process their leaves on-site. RSF recognised that demanding individual loans from each farmer would be both riskier and more expensive. Instead, it used the close relationship and trust it had with Guyaki, and, in turn, the trust relationship the company had with the growers, to offer Guyaki a larger loan so they, in turn, could finance each of their suppliers to meet this infrastructure need.
“RSF doesn't want to sit around in a conference room and say ‘hmm what should the interest rate be?’
We want to have a conversation with the investors who are putting the money on the table and the borrowers who are using it and paying it back.
If the investor is not happy with the rate of return they will take their money elsewhere.
We all get in one room and we flesh it out that way and it builds empathy, on both sides.
Our proof that this works is that we do it every quarter, and we have done since 2009.”
— Erika Williams RSF Social Finance | Vice President – Client Development | Interview 2022
This case study is an extract from Regenerating Investment in Food and Farming: A Roadmap.