Impact crowdlending platforms: what you need to know

Last updated on October 1, 2020

In terms of risk/reward vs impact, crowdlending can be a good option for the general public looking to invest with impact. It is important to be aware of the risks, but done properly, investors have the opportunity to get a nice return alongside an impact that is usually very direct and very obvious.

Let’s have a look.

What is (impact) crowdlending?

Difference with crowdfunding

What is crowdlending and how is it different from crowdfunding?

Crowdfunding in itself is a busy term. We distinguish 3 types:

• donation crowdfunding
• presale crowdfunding
• equity crowdfunding

With donation-based crowdfunding, you get nothing back for your money, except for a warm fuzzy feeling inside (eg. GoFundMe). With presale crowdfunding, you get a reward or early copy of the thing you are supporting (eg. Kickstarter).

Equity crowdfunding on the other hand, is proper investing. With your money you are buying a stake in a company. If the company is successful and later on gets sold or goes to the stock market, you can cash in your investment. If it doesn’t, your money stays locked up (eg. Seedrs).

So now, what is crowdlending?

With crowdlending, you lend money to a company, together with dozens or hundreds of others, mediated by a platform like the ones mentioned below. The company pays the money back over time, with interest. Just like it would a bank.

What’s in it for them and where is the impact?

So why don’t these companies just go to the bank? Wouldn’t that be easier?

There are three answers to that.

In developed markets, “Founders like the idea of not being dependent on professional investors who might have their own ideas,” says Wolfgang Deutschmann of Austrian crowdlending platform Green Rocket. “The crowd diversifies interests and can also act as brand ambassador.

Secondly, similar to cooperatives, they might think it’s more fair that citizens get a chance to risk-together and take part in their success, rather than letting Big Capital hover up the gains knowing that potential losses will be paid for by the community anyway through bank bail-outs.

Thirdly, banks might not want to give them a loan at all, because the loan is too small and they don’t consider it profitable enough, or there is simply no proper banking infrastructure available, as is often the case in developing countries.

The impact then comes in 2 parts. The first is that all the platforms below focus exclusively on environmental and social goals. Your money isn’t funneled into burning down the Amazon or violence in the Gaza strip, instead you are funding agroforestry farms and solar panels.

The second part is that, without you, some of these projects would never happen, because regular banks do not want to serve them.

International crowdlending platforms

There are a lot of crowdlending platforms, mostly in Europe. However, they are predominantly focused on their national market.

Here, we discuss the platforms that are in English and are open to international investors. Additions are welcome in the comments!

Lendahand

Lendahand has been operating since 2014. Based in The Netherlands, their focus is on so-called meso-credit in the developing world: companies that are too big for microcredit institutions, but too small to raise capital with banks.

Investments can be direct or indirect, and you can get started for as little as 50€.

Investors are welcome from all 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. 

You can find out more through their website.

Goparity

GoParity has been operating since 2017. Based in Portugal, they offer direct investments in different sectors: renewables, forestry, the blue economy, … There is a focus on Portugal, but GoParity has recently expanded with projects beyond its national borders.

Investments are direct, and you can get started for as little as 20€. GoParity welcomes investors from all nationalities.

You can find out more through their website.

The Sun Exchange

The Sun Exchange started in 2014 and is based in South Africa. With their platform, anyone in the world can buy solar cells which are then leased through the platform to organisations in South Africa, who then pay for the power generated.

You can buy solar cells for as little as 60 rand (~4$) using a credit/debit card, bank transfer or Bitcoin. As the electricity your cells produce is consumed, payments are paid monthly into your Sun Exchange wallet for 20 years. The Sun Exchange estimates an Internal Rate of Return (IRR) of >11%.

You can find out more through their website.

Trine

Trine started in 2016 and is headquartered in Sweden. The platform focuses on funding solar in Africa.

Investments are direct, and the minimum amount is €25. Investors must live in the European Economic Area or Switzerland. 

You can find out more through their website.

Ethex

Ethex started in 2012 and is headquartered in the United Kingdom. There is a clear focus on investing in the UK. Ethex has a very diverse offering that goes beyond crowdlending and also includes equity crowdfunding, funds and a secondary market for shares.

Countries eligible for investment are: the UK and Channel Islands, all EU member states, Norway, Switzerland, Andorra, Liechtenstein, Monaco, Iceland, Australia and New Zealand.

You can find out more through their website.

Abundance

Energise Africa is a cooperation between Lendahand and Ethex, headquartered in the UK since 2017. All investments are geared towards getting more solar power in Africa. Investing starts from £50.

Countries eligible for investment are: UK, Austria, Belgium, France, Germany, Ireland or the Netherlands.

You can find out more through their website.

www.abundanceinvestment.com – where you are an individual, be permanently resident in the UK or an Eligible EEA Country and be over 18 years old;

Energise Africa

Energise Africa is a cooperation between Lendahand and Ethex, headquartered in the UK since 2017. All investments are geared towards getting more solar power in Africa. Investing starts from £50.

Countries eligible for investment are: UK, Austria, Belgium, France, Germany, Ireland or the Netherlands.

You can find out more through their website.

National impact crowdlending platforms

There are a lot of impact investing platforms, at least in Europe. In Germany alone, I counted almost a dozen. We will not be discussing them here, but if you speak the local language or are happy to invest through Google translate, many of these are open to a wider audience beyond the home country.

In the USA, the market is fledgling. So far, we have only been able to find one platform started in 2020, Raise Green.

Risk / reward

The risks are difficult to judge on your own. You have to admit that, unless you are a professional risk manager, you are basically groping in the dark.

What do you know about the Kenyan economy? About the quality of the management team of that particular cooperative? You have to trust the platform that selects these projects.

A clear indicator of risk is the interest rate. 2-3% equals low risk, 5-7% means it is a high-risk investment.

Risk analysis in crowdfunding projects is weak,” says Ulf Moslener, professor of sustainable energy finance at Frankfurt School of Finance. “Investors should diversify investments and check on the due diligence process of selecting projects.”

Prof Moslener argues that a crowdfunding platform’s biggest asset is its own reputation and that “it is lost after a couple of failed projects”.

Which platform is the best?

Unlike Professor Moslener, I don’t think worse of a platform after a couple of failed projects. Similar to venture capitalists who prefer startup founders who have a failed startup behind them, I actually prefer platforms that have had some losses. Those are experiences, lessons learned, and mistakes they won’t make again.

I do agree with everything else he says.

Diversify, diversify, diversify, should be the mantra of every investor. So really, why hunt for “the best platform”? Don’t put all your eggs in one basket. Diversify in terms of region, asset class, sector, project and, why not, platform.

Platforms don’t charge you for signing up, and the initial investment amounts are usually very low. So that is my advice.

As a whole, it is worth mentioning that the sector is very young. Even the oldest platforms, Ethex and Lendahand, were born in 2012 and 2014 respectively. So you can imagine there is still a lot to learn for them.

Some interesting tidbits here: https://www.ft.com/content/0b446c78-cb5e-4fc9-8ed7-02c4b5fab844

How (much) to invest?

You will find that most platforms themselves recommend that individuals invest a maximum of 10% of their investable wealth a year in crowdfunding. Partly because there is an undeniable risk, and partly because these investments are not very liquid, you cannot easily get out of them if you want your money back.

Your investable wealth is your free capital excluding your house and your pension.

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