The first loan on the Lendahand platform was made in March 2013 and the Dutch-based company is now one of the world’s leading with social impact lending and impact investing. Lendahand aim to create a sustainable business where investors can get a decent return on their money while at the same time investing in specific projects that make a positive impact. In this interview, we talk with Lendahand CEO Keon The about why he decided to leave the traditional banking world to start Lendahand, how investing on Lendahand works, the platform’s ownership structure and much more.
Building a Sustainable Business with Social Impact Lending
Lendahand is a well-established platform within social impact lending. This might, however, be a niche for many of our readers. Could you explain a bit about why you decided to found Lendahand?
Social impact lending is indeed still a niche, but it’s getting mainstream. That’s also what we realized when we started Lendahand in 2013. We were not aware of the terms ‘social impact lending’ or ‘impact investing’, but we knew that an increasing number of people would want to allocate a part of their money to specific projects that may not give you the highest financial return, but where you know for sure that positive impact is being created with your money.
How have you been able to balance between fulfilling your mission “to fight poverty in emerging markets by investing in people and businesses” and building a sustainable business?
It’s because of our mission that we are able to make decisions that on the long term lead to a sustainable business. Our mission-driven approach provides guidance and context as we are making strategic decisions to grow and become profitable. This is not a formula but a process. And a messy one at that! It involves difficult internal conversations, near identity crises, and more of the good stuff.
Lendahand’s Ownership Structure
How did you finance Lendahand in the beginning, and how is the ownership structure today?
We were in the privileged position to attract a few angel investors right from the start. That is a benefit of starting a company after a (corporate) career: we had a network to tap into. The team is holding the majority of the shares, but we also have institutional investors as shareholders and we’ve crowdfunded ourselves.
What is the relationship between the Lendahand crowdfunding platform and the Lendahand Foundation?
Next to financing it’s also important that entrepreneurs in emerging markets get appropriate training. The impact of knowledge sharing is not to be underestimated. That’s why we, as a crowdfunding platform, established an independent foundation. Together with our local partners, the Lendahand Foundation sets up, and funds, training sessions for entrepreneurs. For the training sessions we make use of local instructors.
The Management Team at Lendahand
What is your own background, and how did you become interested in social lending? Who are the other management members, and what skills do you think are necessary to run a platform like Lendahand?
I have a background in quantitative analysis and institutional fixed income solutions at various banks. What I learned there was that there is a decoupling going on of capital markets and the real economy. Banking ‘new style’ should be about banking how it used to be 50 years ago, but smarter. It should be about lending to businesses. The other management members are Peter Stolze (background in strategy and marketing) and Daniel van Maanen (background in investment and finance). What we’ve learned is that building a platform like Lendahand is mainly about operational excellence.
Why Social Impact Lending
As mentioned above, Lendahand focuses on social impact lending. Why did you choose to focus on lending instead of, e.g., donation-based crowdfunding?
We believe that if you want to tackle big global problems you have to tap into the capital markets. Also, loans will ultimately lead to more robust companies (and more jobs) than do donations.
Investing on Lendahand’s Platform
When I invest at Lendahand, I invest in people and businesses in emerging markets. Could you briefly explain what investment products you offer at Lendahand? How does it work?
We allow people to invest in the senior debt of companies and financial institutions in emerging markets. These financial institutions on-lend the money to small businesses. You can already invest as of EUR 50. By investing you are helping companies grow their business and create jobs. Quite a few of the companies on our platform are active in renewable energy.
If I decide to place money at Lendahand and build a diversified portfolio, how much can I expect in net yearly return after losses and delayed payments?
If you would have invested in each and every project on our website since 2014, you would have received a net return of 2-3%. Of course we don’t know what the future brings.
How do you calculate your returns? What method do you use to decide when a loan must be written off and accounted as lost or with minimal chance of recovery? Do you use an objective or subjective way of determining when to write off loans in the actual returns?
We have guidelines on writing off in our credit policy, but the reality is that it really depends on each case what is the best thing to do. We typically enter into an intercreditor agreement if a workout is needed. We are a platform for socially minded investors, so we don’t try to optimize for recovery at all cost. We take into account the (long-term) interest of the investee. But in the end we need to protect the interest of our crowd-investors and see if and how they can get their money back.
How Lendahand Handles Risk
At Lendahand, you offer both direct investments and investments via a local partner. How do you decide which projects to list and which local partners to cooperate with?
We currently have a 6-person investment team that does financial due diligence and assesses whether a company or financial institution can raise debt through our platform. The ultimate decision is with the external credit committee. Once we have the ‘go’ we start the KYC procedure. After that has been carried out, the investee can start uploading projects. The process tends to take 6-9 months.
Do you offer any protection schemes in case a loan goes bad? Why/why not?
We have started to work together with the Swedish International Development Agency and UK AID to provide (partial) guarantees. So far we have only been able to offer this for a few projects, but we hope to be able to do this more often.
If the unlikely event should occur that Lendahand goes out of business. What will happen to the investors’ money?
Lendahand operates under a MiFID licence and an important aspect of that is separation of assets. At no point in time should assets from the crowd be mingled with that of Lendahand. In case Lendahand goes out of business, the money and assets of the crowd are bankruptcy-remote.
How Covid-19 Has Affected Lendahand
Most platforms have seen a large negative impact due to the Covid-19 pandemic. How has the pandemic affected Lendahand?
2020 was a bad year for us in terms of end results. We quickly realized that we should not care too much about that and carry out strategic initiatives so that we would be well positioned for 2021, no matter how the world would look like. We’ve been able to do that and the first quarter of 2021 was one of the best ever.
Who do you see as your biggest competitors, and what sets Lendahand apart from them?
In the crowdfunding space we have a quite unique offering because we have a broad impact and regional scope. In that regard we probably experience most competition from retail impact funds from established investment managers such as Triodos. However, their offering is not totally comparable. On the Lendahand platform you decide which projects to fund. People appreciate that kind of control.
What do you think the future of social impact lending will look like? Which challenges do you see for the industry in the coming years?
Social impact lending will become much bigger as large institutional investors begin to understand its potential and asset owners become increasingly aware that the fate of many people is in their hands. The biggest challenge for the coming period is Covid. In Europe we are smiling at the prospect of having group dinners and attending events again. But in many poor countries it could be that the worst is yet to come.
The future of Lendahand
What is Lendahand’s strategy for the coming years? Have you planned any new initiatives?
The new European crowdfunding regulations that become effective by the end of this year will lead to consolidation. We are soon crossing the EUR 100 million mark and will try to achieve critical mass by expanding into a select few European countries. At the moment we are especially active in the Netherlands, Belgium, and the UK (with Energise Africa). We have many new initiatives up our sleeves. To give some examples: we will focus more on gender lens investing (financing women-led businesses) and soon offer (hedged) local currency loans.
If we look ten years down the road and Lendahand no longer exists: What went wrong?
If we don’t exist by then, it’s either because we have been regulated to death, or because we are no longer needed!