One of the most frequently asked questions is how Lendahand selects new projects for our platform. Find out in detail how we go about it and what the due diligence process looks like before a project is available for you to invest in.
Every project we offer is either for financing a financial institution or a business:
- A Financial Institution is an organization that offers loans to several Micro, Small, and Medium-Sized Enterprises (MSMEs) at the same time. Lendahand carefully selects impact-minded financial institutions that seek funding to ensure local entrepreneurs receive a fair loan.
- The individual companies you can invest in are primarily active in the clean energy and agricultural sectors. These companies must demonstrate that they make a significant contribution to theUN’s Sustainable Development Goals (SDGs).
Through Lendahand, these impactful businesses and organizations can access financing at a lower interest rate than typically available.
Our Investments Team is responsible for monitoring existing investment opportunities and for finding, screening, and monitoring new offers for the Lendahand crowd.
How is the selection process ofLendahand?
A thorough investigation precedes the admission of a financial institution or business on the Lendahand platform. As a social enterprise, we place quality over quantity. As a result, it sometimes takes months (up to a year) before a new company or organization appears on our platform. In doing so, we want to guarantee as much as possible that our crowdfunding activities actually reach those entrepreneurs who need it most and that the financing affects them positively.
Due Diligence and Approval Process
Lending to companies is done only and exclusively after extensive due diligence and internal and external approval processes. Broadly speaking, this process is as follows:
1. (Digital) introduction with a potential new borrower, gather basic information
2. Check by the Head of Investments at Lendahand if the borrower meets the minimum credit requirements
3. First impact screening by the internal Impact Committee to determine the impact made by the potential borrower
4. Collect documentation:
- Financial statements last 3 years
- Recent management information
- Financial model
- Policy documents (HR policy, security, risk management, and others)
- Product Catalog (offer of the borrower)
5. First negotiation to come to an offer (Term sheet)
6. After approval of the Term sheet, follows an analysis of the documentation from step 4 and the due diligence interviews (digitally or in person) with:
- Top management
- Board of Directors or shareholders
- Other creditors of the borrower
- Customers and/or suppliers
Know Your Customer
7. In parallel with due diligence, we collect and submit all Know Your Customer documentation (KYC) and anti-money laundering procedures to our Payment Service Provider (Intersolve). They do all necessary checks, including - but not limited to - screening management and directors of the companies based on sanction and exclusion lists.
Approval and Completion
8. Second impact screening and approval by the Impact Committee
9. Run the proprietary credit scoring model to estimate risks and set credit scores (on a scale from A to E). Lendahand only offers loans with a credit score of A or B.
10. Draft investing memorandum, with, amongst others:
- Description of the company or financial institution
- Macroeconomic analysis
- Financial analysis
- Regulatory framework
- Analysis of the company’s governance
- Impact analysis
- Identification of risks and their mitigation factors
- Pricing analysis based on an internally developed credit score model
11. Discussion of the investment memo with the external Credit Committee consisting of highly experienced investment professionals
12. Recommendations from the Credit Committee and Impact Committee to the Lendahand board
13. Approval for onboarding by the Lendahand board, after which all documentation and marketing materials can be drafted in order to launch the first project
14. Time to launch the first project of the new investment opportunity on the Lendahand crowdfunding platform!
Our team periodically re-evaluates the operations of all borrowers. Before each new project of a company can start, several checks are performed again:
- Is the borrower still in compliance with the contractual covenants?
- Is there any reason to believe that they could not meet the repayment obligation?
- Is the Key Investment Information Sheet (a compulsory regulatory document) still up to date?
- Is the new project (in terms of amount) still within the facility contractually agreed upon?
How does Lendahand make sure entrepreneurs don’t pay too much?
It is Lendahand's mission to make sure entrepreneurs in emerging markets get access to affordable financing. With our crowdfunding platform, we want to allow them to grow their businesses and create jobs in their local communities. Now, affordable is a stretch in developing countries, but it's really important for us to be convinced that the financial institutions you can invest in are charging manageable interest rates to their clients, the entrepreneurs.
In that context, we ask the following questions to the financial institutions, among others:
- What is the effective interest rate you charge your clients (Annual Percentage Rate, or APR)? Note: they often advertise with a ‘flat rate’, which doesn’t include supplementary costs, which we also consider.
- How many outstanding loans can clients have?
- How do you analyze clients?
- Is there a loan registration system in the country in question (like the BKR in the Netherlands)?
- What is the financial institution's vision regarding interest rates in the near future?
- How will they try to lower interest rates structurally?
Unfortunately, it’s impossible to prevent a potential negative effect from slipping through the analysis, but generally, we base our opinion on company policies, trust in management with whom we have extensive personal contact, and talking to customers when we visit. During these due diligence trips, we always try to visit at least 5 randomly selected entrepreneurs who receive loans from the financial institution.
Our goal is always to be the most advantageous alternative for entrepreneurs who are looking for growth financing. Lendahand's revenue model comes from fees from borrowers. The average margin is 3%, capped at 4%.
Countries on the sanction list
As mentioned in step 7, Lendahand (via Intersolve) screens different sanction lists, drawn up by national and international regulators, excluding countries such as North Korea, Syria, Cuba, and Iran. Since 2022, Lendahand has had a European Crowdfunding license. Because of this permit, the European Commission's sanctions lists have become even more important, as they are not static.
- You can view the EU Sanctions Map here
- Read more about the EU's high-risk third-country identification methodology here
The sanctions mean we can no longer enter into new collaborations with companies and organizations in these countries because their state policies against money laundering and terrorist financing are considered insufficient. Repayments on current projects in these countries can, however, continue as usual. As soon as a country puts things in order and is re-evaluated positively, the country will disappear from the list and we will be able to offer new projects in that country again.
The Lendahand Commitment
Lendahand is fully committed to minimizing the risk of overburdening the end customers of financial institutions in our portfolio by following the roadmap described above. We believe in the concepts of crowdfunding and microfinancing - if done fairly and affordably - to create a prosperous and equal world.