Interview with Koen The, CFO of Lendahand

What is Lendahand about?

Lendahand is a Netherlands-based online lending platform with the objective to stimulate employment in emerging countries. Small and Medium Enterprises (SMEs) in these countries do not have proper access to financing as they are too small for banks and too large and complex for microfinance institutions. Hence they are not able to grow and percentage-wise only provide half of the jobs that SMEs in developed countries deliver. Financing the ‘missing middle’ leads to significant social impact while leaving room for a solid financial return. On our platform individuals can unlock this potential by choosing promising SMEs to lend to. We call this meso-credit.

What are the three main advantages for investors?

We’ve asked each and every new investor what they like about Lendahand and the three advantages that stand out are:

  • You know exactly how your money is used (in control)
  • You get a fair interest rate of 3-4% per annum (financial return)
  • You help creating jobs in poor countries (social return)

What are the three main advantages for borrowers?

One of my colleagues went to the Philippines where Lendahand’s first local partner is based and interviewed 15 borrowers. Key takeaways:

  • For some of the companies, the only alternative are so-called ‘Bombays’. These are men (usually from Indian descent, hence the name) that provide 1-month loans without credit checks. The interest rate is around 20% per month. Lendahand together with its local partner provides loans with interest rates that are closer to what banks are charging
  • Most of the companies are not eligible for bank loans because they’re too small. If they are able to get a bank loan then they need to go through a process that takes a couple of months before they actually get the money. These companies need funds quickly (e.g. a large order comes in) and can’t wait that long. At Lendahand’s local partners they get the funds within weeks if not days
  • Lendahand has set up a foundation that provides non-financial support to SMEs in the form of demand-based training. The funds come from NGOs that donate to the foundation. We’ve held three training sessions so far with a total attendance of 117 SME owners. Once Lendahand is profitable it will donate at least 10% of its earnings to the foundation

Koen The LendahandLendahand cooperates with MFIs. Which criteria do you use when choosing the MFIs you work with?

Lendahand carefully selects its local partners by going through a rigorous due diligence process where it assesses, amongst others, the financial position, portfolio quality, and governance. Typically a local partner has a loan portfolio of more than €5mio, a write-off ratio smaller than 2% and equity capital of at least 10% of the total assets. Although the local partners are for-profit organizations, it is a necessary condition that they have a social mindset and intend to offer competitive interest rates to their clients and screen them for environmental and social impact. The local partners take the full credit risk to the SMEs and so have skin in the game.

How did you start Lendahand? Is the company funded with venture capital?

Lendahand is a social enterprise, i.e. it has a social objective but is run as a business. It was founded in 2011 by Peter Heijen who got intrigued by the ‘missing middle’ and envisioned a solution in crowdfunding. Beginning of 2014 a team was formed: Peter Stolze for marketing and myself for finance and scalability.

Lendahand’s funding mix reflects its status as a social enterprise. It was first funded by a subsidy from the Dutch Ministry of Foreign Affairs and a Dutch NGO. Then angel investors came on board. We’ve also obtained funding through crowdfunding (both equity and convertible debt). Later this year we hope to speak to a few VCs as we are planning on a somewhat bigger funding round.

Is the technical platform self-developed?

We’ve hired an IT agency to develop the platform. We are the owners of the platform. Continue reading

Kiva Enters India

Today Kiva expanded its service to borrowers in India. India is the second most populous country and the largest democracy in Asia. India is an emerging economy (part of the aspiring fast growing so-called BRICS countries), but growth has slowed over the past years.

India is still country with large differences. Kiva states that ‘With more than 32% of India’s population falling below the international poverty line and 68% living on less than US$2 a day, the country is in dire need of responsible, affordable sources of capital. But India has a complex history with microfinance, leaving many financial institutions unable or unwilling to serve poor and socially-excluded borrowers. Recognizing this need and opportunity, Kiva wanted to give the global lending community a simple, ethical channel to support India’s most geographically-isolated, underserved and vulnerable groups. These groups include widows, the disabled, leprosy-affected families and many more who have had virtually no chance at making a sustainable living for themselves before now.

To start its p2p microfinance for India Kiva has partnered with 3 MFIs: People’s Forum, Mahashakti Foundation, and WSDS.

To comply with regulation in India loans will have a minimum term of 3 years and there will be no repayments to the lender during the 3 years. More details on Kiva’s country page.

Kiva Enters Direct P2P Microfinance

Kiva Zip is an experimental site facilitating direct p2p microfinance loans without any intermediaries. The original Kiva model relies on MFIs (microfinance institutions) which locally validate borrower request and disburse the money and collect the repayments.

Kiva Zip eliminates the intermediaries directly connecting lender and borrower in person to person microlending. This will reduce interest rates for the borrowers (which during the initial testing phase of Kiva Zip pay 0% interest). The use of direct electronic and/or mobile payments further reduce the costs of the loan transactions.

On the other hand Kiva expects that these loans carry increased risks for lenders. Continue reading

joinFITE launched by Kiva and Dermalogica

Announcement by Kiva on joinFITE a new microlending platform to fund woman entrepreneurs:

In partnership with Dermalogica and strategic partners, today Kiva.org is launching joinFITE.org to provide microloans to women entrepreneurs in low-income regions of the United States and 56 other countries.
A novel aspect of the campaign is its engagement of retail consumers as microlenders. Dermalogica, for example, will contribute $1 every time a consumer goes to the joinFITE.org Web site and enters a code printed on FITE-themed packaging that the company is using for five of its best-selling products. The resulting micro loan is made available to a designated entrepreneur within hours.
“We know the collective impact of consumer action and socially responsible business practices can create sustainable and far-reaching change,” said strategic partner actress Geena Davis. “Together, we can maximize our effort to empower women and girls around the world.”
So what does that mean for p2p microfinance? Kiva has found a way to combine microlending with product placement. A positive viewpoint on this will be that the codes on the products will invite new people to try the concept of microlending. A negative viewpoint might be that the positive image of p2p microlending is used for branding and advertising purposes.
Anyway: this approach could be copied by Kiva (and other p2p microfinance sites) with more partners/products. As long as the selection of partners is very responsible the p2p microfinance site avoids tainting its image.
Related article with some more background at Fastcompany.

MYC4 Chickens Out – Closes Forum

P2P microfinance platform MYC4 has closed its discussion forum. Links to the forum have been removed from main navigation.

The official explanation on the blog says: “The forum was originally created to ignite a dialog among the investors.  We haven’t seen all that many sparks recently. Most of the posts on the forum in the last year have been either investors asking specific questions to MYC4 or MYC4 communicating news to the investors. Not much dialog.

We decided to try something different, so we created a blog.

… You can still write questions to the Partners on the forum. But the other topics have been frozen. You can find all the old posts there, but you can’t write any new ones.”

It seems weird to argue that a forum is replaced by a blog because a forum is not fit for dialog. My impression is that the MYC4 forum had 3 aspects which can have caused the removal:

  1. Lenders pinpointed things that were not working properly on MYC4 (e.g. default levels, certain processes, provider quality). They kept track on the results following up earlier announcements of MYC4 on measures taken.
  2. In many cases answers by MYC4 did not satisfy the persons asking. This negative customer experience became publicly visible through the forums, possibly deterring new lenders.
  3. Possibly answering questions in the forums tied up to much staff time (but I would expect that the same questions are now send via email, therefore closing the forums does not change this issue)

So I do feel that MYC4, a company that at it’s launch trumpeted utmost transparency goals, chickened out. They no longer want to discuss and face customer demands and criticism in public, but rather elected to replace it with a blog, which is much more a one-way-communication channel.

Everyone is invited to continue the discussion on the MYC4 forum here on Wiseclerk.com.

Continue reading

P2P Start-ups: Finding an Opportunity in the Midst of a Lingering Recession

The global recession or what has come to be known as the ‘great recession’ –in direct reference to the 1930s era Great Depression-has been with us unbelievably for the last 3 and a half years. It doesn’t seem like it does it? Many had predicted that it would turn out to be a ‘W’ or maybe a ‘U shaped or even a ‘double dip’ recovery by now, with most commentators assuming that we would most likely have seen its tail end with a year or two. Most- if not all of them- have been proved embarrassingly wrong! Countries such as the UK, US, Spain, Ireland, Hungary, Portugal –the list goes one and on and on and on- are still counting the cost of the recession in terms of lost jobs, productivity and in some cases, sovereign default! Recovery it seems, whatever alphabet sounds sexy, W or U shaped –is still yet to be seen in many cases.

Looking at the effects of the recession from the microfinance industry perspective however is what makes very interesting reading. Microfinance as such, is an industry that is curiously not correlated directly to the mainstream financial markets. Continue reading