What is Lendahand?
Lendahand is one of five crowdfunding platforms in the Netherlands with the permission of the Netherlands Authority for the Financial Markets (AFM), mainly you can invest in entrepreneurs and SMEs in developing countries. The projects you can invest in at Lendahand are too large for microfinance but too small for a bank loan.
Lendahand vets all companies that register, which are checked for liquidity, client base, management, annual reports and possible irregular practices, such as money laundering or terrorist financing, among other things. They have strict requirements for this and are also transparent about any bankruptcy and late payments.
The average return in Lendahand is three percent. Less than investing in the stock market, but getting rich is not the most important thing, as the founder of Lendahand says “If you want to have a big impact, you have to invest in something else” Lendahand is primarily a social enterprise: people invest primarily for social impact, and also for financial return.
All you have to do is choose which project you want to support. Each project provides you with information on how your investment will be used. This will give you an idea of how many jobs will be created or how local communities will benefit from your investment. Whichever project you choose, you will be contributing to the fight against poverty in developing markets by investing in people and their enterprises.
The choice of how your money will contribute is entirely up to you. You will be in charge of selecting projects based on criteria such as location, your personal interests, social impact and maturity. The maturity refers to the total duration of the loan. Throughout this period, you will receive repayments every six months.
You can start investing with £10 in a Lendahand project. First, choose the project you want to invest in and select the amount you want to lend. Then proceed with the payment. It is important to note that there will be no additional commission charges. Once you complete your investment, you will receive a confirmation email.
Each of the projects specifies whether it is a direct investment or whether it involves a local partner, the impact it makes, the financial information of the project, the risks, etc. Although direct investments often offer higher interest rates than investments with local partners, they also tend to carry higher risks. Nevertheless, all parties involved in the projects meet rigorous social and financial criteria.
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What are the yields?
Yields vary depending on the project, the interest rate varies between 2% and 7% per annum, depending on the type of investment. For the duration of the loan, a fixed interest rate is maintained. The interest rate on the investment depends directly on the interest rate that Lendahand receives from the local entrepreneur or partner, thus reflecting the risk-return ratio. Usually, the borrower pays an up-front fee before the project starts, which serves as a margin for Lendahand. In addition, the borrower pays an annual interest rate on the outstanding amount, and this rate is paid in full to the relevant investors.
For example, a local partner pays an upfront fee of 3% to Lendahand to fund loans through the Lendahand website. This interest rate is retained as margin by Lendahand. The borrower then pays 4% interest per annum on the outstanding amount. This 4% is the interest rate shown in the corresponding project on the website. A higher interest rate implies a higher risk, while a lower interest rate implies less risk.
What are the costs?
There are no extra costs to invest with Lendahand, nor is there any cost to transfer funds via IDeal or credit card. Withdrawing money to your bank account is also free of charge.
What are the risks?
Lendahand examines all companies that register, which are checked for liquidity, client base, management, annual reports and possible irregular practices, such as money laundering or terrorist financing, among other things. They have strict requirements for this and are also transparent about any bankruptcy and late payments. It is recommended that you do not invest more than 10% of your total investments in crowdfunding. Having clarified this, the risks involved in investing with Lendahand depend on the type of project you invest in, and it is best if you diversify across several projects. The different types of projects and risks are:
- Investing through a local partner: This option is common and reduces risk, as local partners have financial reserves to cover defaults and currency fluctuations. However, there is the possibility of loss if the local partner faces problems such as bankruptcy, currency fluctuations, fraud, etc.
- Direct investment: Investing directly in entrepreneurs carries a higher risk, as defaults are not covered as with local partners. Lendahand performs an exhaustive risk analysis on each project, but this analysis should not be considered an investment recommendation.
- Co-investment: Investing alongside an established entity involves a varying level of risk depending on the contract with the co-financing partner. In the event of bankruptcy, investors may lose part or all of their investment.
Lendahand is a platform with which you can invest your money in projects that have a direct impact on developing countries. The fact that it is supervised by the AFM gives me a bit more security than other crowdfunding platforms. I personally started investing on this platform this year in a project in Mexico.