Lendahand is adding USD to our portfolio

Written by Koen The on 21 January 2021

We’re excited to announce that Lendahand is adding investment offerings in U.S. Dollars to our portfolio. Up until now, Lendahand has always carried out deals with our portfolio companies in euros. Adding investment opportunities in USD means a fresh batch of new opportunities will be coming your way.

Visit this page to learn more about the currencies available for investments at Lendahand and how the conversion process works in detail.

 

Why are we adding USD?

The Demand for USD

The Euro has existed now for 23 years, and while it has certainly become a vital currency worldwide, its use is still a small fraction globally of that of the 228-year-old U.S. Dollar (USD). Of the total volume of currency trades worldwide, 85% is of the dollar, with over 3 billion in USD transactions occurring every day outside of the U.S.

Because of these factors, some countries even use the dollar as their official currency, like in Ecuador. In other countries, the dollar is the unofficial currency used on the streets instead of the official local currency. Many dollarized economies are among those that make up the ‘emerging markets’. If you lend in euros in those countries, the borrower (the SME or entrepreneur) runs a risk on the euro-dollar exchange rate.

So not only is the USD the most widely used currency in the world, but it is also the most commonly used currency amongst the SMEs in emerging markets that we usually fund. Generally speaking, SMEs seek financing in the currency that aligns with their income and expense streams to avoid foreign exchange difficulties.

Risks for SMEs in Emerging Markets

If the dollar versus the euro depreciates during the note term, then the borrower (the SME or entrepreneur) has to put more dollars aside to repay the loan. If the borrower is a local financial institution, it will eventually have to pass this risk on to the end customer, being the small entrepreneurs, or at least ask for an additional surcharge.

Opening closed doors

This means that many of the SMEs that would benefit from Lendahand’s mission have been ruled out because of the fact we have only been able to provide funds in euros. We have gradually found that doors remain closed when we only offer euro loans. Many parties (especially in dollarized economies) prefer to borrow elsewhere, even at slightly higher interest rates, as long as they can borrow in dollars.

 

What this means for you:

More new projects

By adding the ability to service debt financing in USD, we will now be able to work with more companies in emerging markets across the world that need funding, allowing us to ultimately have more projects on our platform and a broader choice of new investment opportunities in which you can invest.

We are continually looking for strong companies that want to create a positive impact in their countries and communities. This search will always be much more difficult if we only offer euro financing. In short, impact investing in emerging markets is inextricably linked to the U.S. Dollar, and by adding this new product offering, we will be removing one of the most challenging obstacles our company has been facing for years.

Higher interest rates

Because of the higher interest rates present in the U.S., the interest rates Lendahand investors will receive on USD projects will be around 0.5-1% higher on average than EUR projects.

Currency exchange risk

While the prospect of having new investment opportunities with slightly higher interest rates is obviously a positive one, it does come with the added risk of currency fluctuations that may cause you to lose money when converting money back from USD to EUR. This risk will be present when you receive your repayments, as the conversion rate from USD to EUR may be less favorable than the rate when your investment was originally made. 

Read here more about how this conversion process works in detail to make sure you have all the information you need before investing in USD projects.

Making impact across different currencies

Now that Lendahand is opening up the opportunity of investments in US dollars in addition to euros, many more companies can get access to capital to grow their businesses. We expect to introduce the first USD project before the end of this month. Be on the lookout for more blog posts in this USD series explaining everything you need to know about these new investments. And as always, if you have any questions, please email us at [email protected].

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