Socially Impacting Business Lending in Developing Economies
Lendahand is a social impact lending platform for individual lenders who want to invest in SME’s and entrepreneurs in developing economies. The purpose of the Lendahand peer-to-peer platform is to enable ordinary people to lend money as cheap as possible to projects and businesses with a social mission. To help developing countries meet the basic needs, some of the projects Lendahand mediates loans to are solar systems, biogas digesters, building toilets and reducing CO2. However, most importantly, the platform wants to help create jobs in developing economies.
|Business||Social Impact Lending|
|Founders||Koen The, Peter Heijen, Peter Stolze|
|Ownership||Private (But Seedrs Campaign)|
|Countries||Cambodia, Colombia, South Africa, Mexico, Nicaragua, Zambia, Indonesia, Uganda, Mozambique, Georgia, Ghana, Philippines, Mongolia, India and Kenya|
Explainer Video – What is Lendahand?
Lendahand Pros & Cons
- Supporting social missions throughout the world
- Many different projects and countries to support and lend to with a direct social impact
- Some of the loans are covered by a buyback guarantee up to a maximum of 50%
- Local Partner borrowers are carefully selected financial institutions with track record and solid credit portfolios
- No fees for lenders when investing – the borrower covers the commission of a fully funded loan
- Both Local Partners (credit portfolio) and Direct Investees (individual projects)
- Transparency is high
- Only direct investment structure
- All alternative investments envolves high risk
- The platform offers relatively low returns
- Buyback guarantee only available on a few selected loans
- The platform does not offer automatic investing
- It’s not possible to exit a loan before maturity
Characteristics of Loans
- Interest Rates: 2% – 7%
- Loan Durations: 6 – 60 months
- Currency: Euro
- Purpose: Social Impact
- Minimum Investment: 50 Euro
Loans on Lendahand
Lendahand is a peer-to-peer lending platform that focuses on having individual lenders invest in loans to SME’s and entrepreneurs that aims to make a social impact in developing economies. Through Lendahand’s partners (loan originators) in different countries, the borrowers can lend money for purposes such as working capital or project development and expansion of their business. To become a partner at Lendahand, the loan originators must hold to the platforms social mission and work together to provide loans as cheap as possible.
This means that the only loan type available on Lendahand is business lending. These loans are in the category of social impact lending, meaning that the returns are fairly low but instead the loans provided have a focus on making a social impact in a specific area. However, it is important to note that the platform aims to make possible for investors to both get a return and do good in the world. On the Lendahand platform, this can, for example, be done by investing in loans aimed at creating jobs in underdeveloped economies, building solar systems where there is need of power or simply reducing pollution and the amount of CO2 released in the atmosphere.
Local Partners and Direct Investee Partners
Most of the loans are to so-called Local Partners (loans to financial institution/bank) that operate a financial institution or bank in the country where lenders lend directly to the loan originator. However, there are also what they call Direct Investee Partners (loans directly to end-borrowers) where lenders invest directly in loan contracts to the end-borrower. Browsing the project page will allow you to see all former projects funded, all currently active project and projects soon to come. If you browse the active projects available for investing, you will find the following information:
- The type of investment: Local Partner or Direct Investee
- The issuer of the loan
- The amount available for funding
- The duration of the loan
- The interest rate of the loan
- The social impact: New jobs created and the number of people reached
For every funding project, Lendahand calculates the social impact if the total amount is reached and released for the issuer. If the loan is to a Local Partner (loan originator) that lends the money to several entrepreneurs, the impact is calculated based on who they provide the loans to and what the end-borrowers will use it for. If the loan is to a Direct Investee the impact is calculated based on that specific project. Lendahand measures impact in many different ways, but the two most important areas are how many jobs that are created and how many people are reached when the entrepreneurs fulfill the purpose of the loan.
Transparency with use of funds
Lendahand is very transparent with the description of where the money goes and what the intention of use is. This is especially applicant with the Local Partners where lenders are not lending directly to the end-borrowers. Here, the loan description will state what loans the financial institution will be able to provide. In the case of the specific funding project shown below, the borrower (Phillip Bank in Cambodia) will be able to provide loans to 8 different entrepreneurs. Thus, the description states the name, geographic area, the turnover and what the purpose is for these 8 small businesses as seen in the image here:
When lending money on the Lendahand platform, the borrowers are so-called issuers of mini-bonds that you can buy into. This means that the real borrower is either the loan originator (Local Partner) or an entrepreneur that seeks funding (through a Direct Investee). On every loan, you will be able to find a description of the issuer as below.
If you decide to become a social impact lender, diving deeper into the information about the issuer of the loan you are looking at and the specific investment details is a must. Here, as shown below, you will be able to find information such as sector, repayment period (usually every half year – semiannually), terms & conditions, loan portfolio size, and the equity/asset ratio.
Here is the full fact-sheet overview of a specific loan project and the complete investment details available as it is displayed on most loans:
Buyback Guarantee on Lendahand
Though Lendahand mediates social impact lending with the social mission in focus, the platform prioritizes that investors feel safe about entrusting their cash to small businesses and entrepreneurs in developing economies. This is done by providing a great deal of transparency about the borrowers and platform partners.
The buyback guarantee that Lendahand offers is limited to a few loans and it is more common that there is no buyback guarantee than that there is. Sometimes, and only for some specific direct investments in Africa, the partner Sida (part of the Swedish government) will provide a guarantee of a maximum of 50% of the loan. In case that a guarantee applies it will be stated explicitly. For most direct investments no guarantee is provided but the currency risks are covered.
If you make a loan to a Local Partner (financial institutions/banks), the Local Partner will take care of the repayment and even if some of the end-borrowers (entrepreneurs) are unable to pay, the Local Partner will, to some extent, cover the loans. This happens because the loans, in this case, is not made directly to the entrepreneurs but to the Local Partner acting as a loan originator. If the Local Partner is unable to pay, there is a risk of partial or full loss of money and therefore the platform only selects financially solid partners based on strict criteria to ensure that lenders on Lendahand get a positive return and that the platform survives long term.
What happens if Lendahand goes bankrupt?
If Hands-on BV that owns the Lendahand platform goes bankrupt, all trades between Lendahand and payment service provider Intersolve EGI stops right away and Intersolve will transfer all the money in the client account to your bank account. If you have invested in one or more projects and the funds have been transferred to the Local Partner, the payment provider can not and will not transfer this money to your bank account. However, in this case, Intersolve will, in consultation with a trustee, handle all repayments between lenders and borrowers up to the final repayment of the last project.
Furthermore, Lendahand is part of the investor compensation scheme (ICS) which aims to compensate individuals and small businesses in case the financial firm is unable to meet its obligations. In other words, if the platform is not keeping track of the acquired notes by investors in the Wge depot correctly, the ICS might guarantee an amount of up to €20,000 per individual. More information about this can be found here: https://www.toezicht.dnb.nl/en/2/51-202210.jsp
However, the platform going bankrupt is not the only existing risk. In the end, the ultimate risk lies with the borrowers/entrepreneurs and loan originators that receive the money for their business activities and social missions. This will be looked at in the following section.
What happens if a Local Partner or Direct Trustee on Lendahand goes bankrupt?
In peer-to-peer lending, you will find two different types of investment structure:
- The direct investment structure
- The indirect investment structure
In order to understand what happens if a P2P investing platform goes bankrupt or becomes insolvent, you need to first understand how these two structures differ from one another. The direct investment structure, to take that one first, implies buying a claim against the borrower directly. The indirect investment structure, on the other hand, implies obtaining exposure to a loan by investing in a loan issued by a platform company to the loan originator.
Lendahand offers both direct and indirect investments as it is possible to lend money to a loan originator (Local Partner) or directly to an end-borrower (Direct Investee). If the platform goes bankrupt, the Local Partner or the Direct Investee still owes you the money and will on the same terms be obligated to repay the loan.
If a Local Partner or Direct Investee goes bankrupt, there will be a risk that you lose all or part of the amount invested. The platform will try to recover outstanding payments, but the success rate of full repayment is usually limited in such a situation and the investor usually have no possibility of taking action against the financial institution. From a legal point of view, each Local Partner is separated and is their own entities. Therefore, as with all investments in P2P lending, it is recommended to spread loans across different Local Partners and Direct Investees.
Social Impact Effects on Lendahand
The social mission of Lendahand is to work towards eradicating poverty in developing countries. They do this through the platform by facilitating finance to small businesses and entrepreneurs that provide jobs which ultimately improves the social and economic status of people in these countries. So how do they track the social impact of the investments?
Lendahand tracks two important areas to see how big an impact the platform makes:
- Job Creation: Based on their research, an investment of €2,500 leads to creating one job on average.
- Basic Needs: kWh generated through utility systems, reduction in CO2 emissions, number of toilets built, solar home systems installed and bio-gas digesters placed.
As seen in the image below, it is always it is possible to see an overview of the number of jobs created through the platform and how Lendahand has helped improve access to basic needs.
Since Lendahand does not offer automatic investment, all investing will be carried out manually through their project page. Though automatic placing funds makes the investment process easier for lenders, it is not as necessary for this platform as it might be for others. The reason is that most projects are funded because of the specific cause of social impact and that the projects are relatively large and not funded quickly giving lenders a chance to get on board if checking the platform regularly. This means that investors have plenty of time to review the project and lend if they desire to support the entrepreneur(s) while over time expecting the payment back plus a smaller than usual interest rate in return.
As mentioned above, Lendahand does not offer an auto-invest function. Investors can only manually invest in loans with the funds available on the investor account and only with the clear consent of the investor. The need for auto investing on this platform is not that big since projects are quite large and lenders support specific projects with a social mission that the investors can associate with and wishes to help. On the contrary, this leaves investors with enough time to review the project details and decide whether to lend or not.
To make the lending process easier, the platform allows you to set up your own email settings based on project preferences so that you are informed every time a project with your specific criteria is available. Such criteria could be, for example, a certain range in interest rate, maturity and/or country.
Secondary Market – Early Exit on Lendahand
Some platforms offer a secondary market so investors can exit investments earlier than anticipated by selling loans to other lenders. On Lendahand there is no secondary market and as a rule of thumb, it is not possible to exit a loan agreement early.
However, there is a possibility for a loan contract to be repaid early if the entrepreneur(s) choose to pay it back early. This can, for example, be because of faster than expected growth making the loan unnecessary. When loans are repaid early, you get the remaining outstanding amount, the outstanding interest and additionally 1.5% interest on top. However, early repayments are not possible for borrowers in the first 12 months of the loan.
Nice to Know for Investors
Registration Process on Lendahand
Registering on Lendahand is a simple process and as with most peer-to-peer lending platforms and other financial services, you need to fill out a formula with personal information and verify your identity with passport or ID card. Before you can start lending and supporting projects, the platform will check your information and perform the so-called KYC to know who exactly is joining their network. If you decide to join Lendahand, remember to use our link to receive 25 EUR bonus when signing up and lending a minimum of 50 EUR (see how below).
Lendahand €25 Cashback Bonus
At P2P Market Data we have negotiated a cashback for all our readers, which means that Lendahand offers a 25 euro bonus to all new users that register through our link and promotion code. If you want to make use of the bonus, you must invest at least €50. To make sure you validate for it, go through our link and you will go to the landing page. Here you will see the page in the image below. After registering as seen above, you will receive an email from Lendahand to validate that the email belongs to you. From here you will be taken to the formula where you fill in your personal information. This is also where you can provide the promotion code MARKETDATA.
Deposit & Withdrawal Process
When successfully registered on Lendahand with the identification process completed, you will be able to attach a bank account with your IBAN number to your personal “My Lendahand account”. This will allow you to deposit and withdraw from and to your chosen bank account. It usually takes 2-4 days from initializing the transfer to it showing up ready for lending at the platform.
Lenders can use both normal bank transfer and creditcard. Dutch bank account holders can also use iDeal while Belgian bank account holders can use Bancontact. There are no additional fee charges using creditcard on the platform.
- SEPA Bank Transfer
When you are logged in on the Lendahand platform, you will gain access to a “Financial Dashboard” section under which you will be presented with a summary of all of your lending activity. Here you can see the following:
- The loans you are participating in
- The amount you are participating with
- The repayments to be expected
- The diversification of your portfolio
- The social impact you have created
The money lent to entrepreneurs via the Lendahand platform should be taken into account in box 3 for private investors.
For business accounts, the return on money lent is charged with company tax.
Lendahand FAQ: “How should I incorporate my investments in my tax report?”
For any questions, Lendahand refers to their comprehensive FAQ section. However, if you do not find what you are looking for, you can contact Lendahand on email ([email protected]) or by filling out their contact formula if you have other inquiries. It is also possible to reach Lendahand by calling them on +31 (0)10 71 71 81 5. They answer the phone in normal business hours. During weekends, support is closed.
- +31 (0)10 71 71 81 5
- Workdays: 09.00-17.00 (GMT+1)
- Weekends: Closed
Who can invest on Lendahand?
From many countries in the world, except Afghanistan, Belarus, Bosnia and Herzegovina, Burundi, Central African Republic, China, Congo, Egypt, Eritrea, Ethiopia, Guinee, Haïti, Iran, Iraq, Ivory Coast, Lebanon, Liberia, Libya, Mali, Moldava, Myanmar, North-Korea, Pakistan, Russia, Serbia, Somalia, South Sudan, Sri Lanka, Sudan, Syria, Trinidad & Tobago, Tunisia, Ukraine, USA, Venezuela, Yemen, Zimbabwe.
Lendahand FAQ: “From which country can I invest in projects via LendAHand?”
|First loan||5. March 2013|
|Total investments||€77.41 million|
|Total interest paid||€1.97 million|
|Average net interest rate||2.81%|
|Total number of investments||134,586|
|Total number of projects financed||2,762|
|Total loan amount repaid||€42,710,034|
|Total loan amount outstanding||€33,411,020|
|Total loan amount in delay||€1,562,474|
|Amount of loan originators||29|
Lendahand Seedrs Campaign
On May the 6th Lendahand launched a Seedrs campaign as the leading for-profit social impact investing platform in the world, seeking €1 million by offering 5.41% equity making it a valuation of €17.5 million – 10 days later the campaign was funded 100%. At the time of launching the campaign Lendahand had facilitated investments for over €75 million by roughly 7000 European retail investors. The platform has 29 active loan originator companies getting finance through Lendahand to its borrowers in developing countries and as a tribute has been named Crowdfunding Platform of the Year 2018 & 2019 in the Netherlands.
At P2PMarketData we are dedicated to providing unbiased reviews of peer-to-peer lending, real estate crowdfunding and crypto lending platforms. Among other, in our mission to bring more transparency to the market we closely monitor and track over 70 platforms funding volumes.
When reviewing an alternative investment platform, we consider a variety of factors such as:
- Number of investors
- Minimum investment requirement
- Historical annual returns
- Diversification opportunities
- Reinvestment opportunities
- Educational and informational offerings
- Platform fees
- Total capital invested
- Features (such as secondary market and automatic investing)
- General transparency (the difficulty of finding who the owners are, how they make money on the platform (fees), terms & conditions and more)
- Management team
We also look into the company’s online reputation (for example customer reviews, news, complaints, average monthly searches and social media).