Lendahand has investments available in Euros (EUR), U.S. Dollars (USD), and local currencies.
Lendahand is now offering investments that will be held in U.S. Dollars. These investments work a bit differently from our previous investment offerings and carry an inherent currency exchange risk.
How USD Investments Work
Making investments in USD projects work largely the same as all of our other projects. Investors can make investments in projects in increments of €10 and all payments will be made in EUR, via any of our currently available payment methods.
How USD Conversions Work
Lendahand will be working with IbanFirst as our partner on currency exchanges. On the last business day of every month, IbanFirst will give Lendahand a conversion rate that will be fixed for the next 30 days. That fixed conversion rate will be used on all transactions in the following month, including investments in projects once they are fully funded on the 1st, as well as repayments coming back from companies to our investors around the 15th.
Once your investment in a USD project is confirmed, the money will be held in EUR along with all other investments in that project until the 1st day of the following month after the project is fully funded. On that day, the total sum in EUR of the fully funded project will be converted into USD at the exchange rate that was set prior by IbanFirst.
How USD Repayments Work
After companies make their repayments, the USD amount will be converted back into EUR using that exchange rate via IbanFirst that was fixed on the last business day of the previous month. On each repayment day, around the 15th of each month, the repayment amount due to you, principal and interest, will be deposited into your Lendahand wallet in EUR.
Due to the higher interest rates in the U.S. market, the interest rates of USD projects will be around 0.5%-1% higher on average (after conversion costs) for all USD projects, compared to similar EUR projects. This difference can go up or down over time depending on interest rates in the U.S., however, it’s worth noting that interest rates in the U.S. have always been higher than in the EU in recent history.
Important to note, just as in EUR projects, once the interest rate on a particular project is set, it will not change throughout the life of the project.
Currency Conversion Risk
It is important to note that investors carry currency risk when making investments in USD projects. Due to constant currency value fluctuations, you may receive a less favorable exchange rate on the day of your repayments than you received on the day your initial investment was converted from EUR into USD. Vice versa, you may also receive a more favorable exchange rate at the time of your repayments as well.
Please consider the added risk of investing in USD projects before adding them to your Lendahand portfolio.
Tracking Your USD Investments
You can view all of your USD investments in your MyLendahand dashboard. After you make an investment but before the project is fully funded, you will see your investment in the EUR amount you invested. As soon as the project has been fully funded and the first conversion into USD has occurred, you will then see your investment in USD in your dashboard.
Almost all of the investments in our portfolio up to this point have been held in euros, and the process of investing in euro projects for Europeans is relatively straight forward.
How EUR Investments Work
Simply decide how much you want to invest in a project in increments of €10 and pay for your investment in euros via any of our accepted payment methods. All repayments in EUR projects will always be in euros.
There are no conversions or currency exchange risk. Simply make your investments and track them in your MyLendahand dashboard. To learn more about investing in crowdfunding projects with Lendahand in general, visit our How it Works page here.
Investments in Local Currencies
By offering investments in Local Currency (meaning the currency local to a particular portfolio company), Lendahand is expanding access to financing for entrepreneurs in emerging markets, while investors will still be able to invest in euros. With this new feature, we are again opening new doors to businesses in emerging markets, as they usually provide money to their clients in their own local currency.
How Investments in Local Currency Work
Making investments in Local Currency projects works largely the same as all of our other projects. Investors can make investments in projects in increments of €10, and all payments will be made in EUR, via any of our currently available payment methods.
On the day of disbursement after a project is fully funded, the funding amount in euros will be converted and fixed in the given local currency at the current official conversion rate. All repayments, principal, and interest, will be deposited into your Lendahand wallet in EUR.
Possible currency value fluctuations between the local currency and EUR are hedged by a currency hedge contract between the Lendahand FX Foundation (a foundation set up especially for this purpose) and The Currency Exchange Fund N.V. (TCX). Read below for more information.
TCX is a development finance institution based in the Netherlands. With the Dutch government's support, they hedge currency risks worldwide to promote sustainable finance in developing countries.
How Repayments in Local Currency Work
Just like other investments through Lendahand, repayments take place every six months unless otherwise indicated. On each repayment day, around the 15th of each month, the repayment amount due to you, principal and interest, will be deposited into your Lendahand wallet in EUR.
If the local currency devalues, hedging partner TCX makes up the shortfall in the euros received so that you are not affected. This condition applies as long as the company pays the interest and repayment on the agreed date.
As with EUR and USD investments on our platform, investors only run the company's credit risk, which means the risk of the company failing to make a repayment. TCX assumes the currency fluctuation risk on financing in local currency and only makes payments on the currency hedge contract when the company makes timely repayments and pays interest. You can read more about special conditions in our FAQ, click here.
In the case of financing in a local currency, the entrepreneur's interest rate usually is higher than that of funding in euros. This higher interest rate only serves as compensation for hedging the currency exchange risk through the currency hedge contract with TCX and is defined by TCX. For its activities, TCX aims to generate a marginal profit.
The trend for emerging countries' currencies is to fall steadily, jerkily, or by leaps and bounds against the euro. As a development finance institution, TCX takes the risk because it is a safe and sustainable form of financing for the entrepreneur and the local economy. They, therefore, try to assess the risk as accurately as possible and adjust the interest rate accordingly.
Hedged Currency Conversion Risk
The currency conversion risk is hedged by a currency hedge contract between the Lendahand FX Foundation and TCX.
Regardless of how the local currency fluctuates compared to the euro, the entrepreneur will always owe the same amount in local currency, and the investor always receives the expected amount in euros as long as repayments are made. All fluctuations, negative and positive, are for the account of TCX. Lendahand FX Foundation was established to engage in currency hedging contracts with TCX exclusively and act as an intermediary between TCX and the Lendahand platform.
This allows you as an investor to help an entrepreneur obtain safe and transparent financing in his or her currency without leaving you or the entrepreneur at risk from exchange rate fluctuations.
For every form of financing in a local currency, special conditions apply. For example, the currency hedge may no longer be adequate if the entrepreneur doesn’t repay on time. More information about these special conditions are in our FAQ.
Who is TCX?
TCX is a Netherlands based development finance institution that was established to ensure that international financing flows into developing countries can be provided without exposing providers and recipients to exchange rate risk. TCX achieves that by offering currency derivative contracts to international lenders allowing such lenders to denominate loans in the local currency of their borrowers. To offer this service in a financially sustainable fashion, the TCX model is designed to generate a marginal profit.
TCX is a professional hedge-provider that is regulated by the Dutch financial sector supervisors AFM and DNB. The fund is supported by several European governments, including the Dutch government, and a wide range of development finance institutions active worldwide. TCX started operations in 2007 and has since gradually expanded. TCX’s creditworthiness is rated as good and stable (“single A”) by the rating agency S&P. For more information: see this link for the latest S&P report and visit the company website: www.tcxfund.com.