Scaling impact, with Adriaan Schiphorst

This week sees a Dutch double-header on HTLMTS, with two episodes I recorded in Rotterdam while attending Money20/20. First up, a bonus episode that explores how Lendahand gathers capital from socially conscious European investors to empower loans to entrepreneurs in the developing world.

250+ investors are backing d.light, for example, who, with a next loan of EUR 120,000, will provide product financing to families living in rural off-grid communities of Kenya. That project is currently fund-raising over here, by the way; Kaebauk Investimentu no Finansas is raising $150,000 to fund agri-loans to small farmers in Timor-Leste; or, if Modlova is more your scene, Mikro Kapital will provide loans to about 17 small and micro-entrepreneurs there. You get the picture. Choose from proven companies. Invest in the projects that fit your needs. Fight poverty in emerging markets.

It is a simple but effective model.

Lendahand is at https://www.lendahand.com/ (or jump straight to the Impact Report at https://www.lendahand.com/en-EU/blog/856-5-surprising-insights-from-the-impact-report)

Have you ever wondered why your non-ginger friend has a ginger beard? As you'll hear, Adriaan also has you covered on that in one of Vice's most-read articles: https://www.vice.com/en/article/ezv38a/why-do-so-many-men-have-red-beards-but-not-red-hair

You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24

If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Regards, Brendan

The full written transcript, with timestamps, is below:

Adriaan Schiphorst 0:00

So when I say we've invested, it means the crowd has invested. So we, as a facilitator have combined those investments. I think we're getting close to 175 million in euros mostly into renewables, agriculture and financial inclusion sectors.

Really from your traditional microfinancing to commercial and industrial solar, solar home systems, biogas digesters, you name it. There's still, in these markets, such a huge opportunity.

If you have the funding - and if you have the right mindset, of course - it is very easy to grow.

Brendan Le Grange 0:40

Martin Riese is a water sommellier to the stars. I'd heard of this once and thought it was silly, too, but then I stumbled on to an interview of his on an old Nickisnotgreen video. And yeah, let's just say that if you come to my house this summer, I'll probably be able to offer you a choice of exotic mineral waters.

I am incredibly privileged, I have all the clean water I need piped right into my house. And so I can amuse myself with naturally sparkling spring waters with sky high TDS numbers. But for most of the world, that's not the case. In Kampala, Uganda, Florence is an entrepreneur who sells drinking water to her neighbourhood - now from a bigger tank she acquired via a lease-to-own programme. The underlying credit for that lease was funded by European impact investors through Lendahand.

In rural Kyrgyzstan, Farida used a micro loan to buy a cow, a cow whose milk she sells for extra income, a micro loan that was funded by European impact investors through Lendahand.

Welcome to How to Lend Money to Strangers with Brendan le Grange.

Adriaan Schiphorst, data lead at Lendahand, welcome to the show.

Adriaan Schiphorst 2:02

Thank you for having me.

Brendan Le Grange 2:03

Lendahand is a different sort of lender to what I normally cover on the show, ad you've got a different sort of a background. So before we talk about the work you're doing to empower entrepreneurs in the developing world. Let's talk about Adriaan Schiphorst the student of physics and Adriaan Schiphorst the journalist.

How did your career begin?

Adriaan Schiphorst 2:23

So I had a on and off relationship with physics as a student. And during the final year of my Bachelor's, I decided to go into popular scientific writing or maybe sometimes a less scientific, just popular writing. And I was pretty proud to have, for one moment, the most read article on Vice of all time, why non ginger men have ginger beards!

And after that short escapade, I did a bit of students consulting and then decided to still do my master's in physics anyway. And that's led me to Caltech where I did work on experimental physical systems, mostly to do with vibrations and a lot of numerical modelling. And after it, I decided to leave California, leave physics, and go into the impact investing scene.

Brendan Le Grange 3:13

Yeah, which is quite a change from talking/ about writing about emerging technologies, robotics, autonomous vehicles, all sorts of cool things from their headlines to going into impact investment. I guess there's a lot of threads that link them, but also very different in some way - so what inspired that pivot?

Adriaan Schiphorst 3:30

No, absolutely. Personally, I was looking for something that had a positive impact, I was looking for something that had anything to do with technology, and I was also looking for startup/ scaleup type company.

And in the end, Lendahand, sorta fit all three, apart from the technology, which was more software oriented, right. FinTech or platformy, instead of like a physical product that I was slightly more writing about.

Inded, I've done a lot of work on folding objects, even space, I've been on this super cool personal tour of the JPL facilities from NASA. So I'd seen a couple of things. But Lendahand fit the impact story great, the right phase of company that wanted to join, growing, and it still had this technology component that they were really enthusiastic for me to work on.

Brendan Le Grange 4:20

Yeah. And we talked about impact investing, you do see a lot of interesting stuff happening in green energy in general in Africa and developing world drones delivering all sorts of things around Africa now at the moment as well. So I guess there's also a lot more to impact than just you know, loans for for small purchases.

But before we talk about the projects and things you're doing, may we take a step back at what is lend a hand and what is a sort of vision and goal in the world.

Adriaan Schiphorst 4:49

Absolutely.

So Lendahand's a crowdfunding platform - we started out in the Netherlands, but a European crowdfunding platform by now. And it's on a mission to fight poverty in emerging markets by investing in people and businesses.

So the model has always been to connect retail investors, first in the Netherlands, but now in Europe, with companies in emerging markets. We started off in Southeast Asia, but then actually pivoted to focus mostly in Africa for a number of years, and now we're in about 40 countries, and have invested over, I think we're getting close to 175 million in euros.

And when I say we've invested, it means the crowd has invested.

So we, as a facilitator, have combined those investments mostly into renewables, agriculture, and financial inclusion sectors, really, from your traditional microfinance institution to commercial and industrial solar, solar home systems, biogas digesters, you name it,

Brendan Le Grange 5:49

And it's a remarkable amount of money. You think, well, we're gonna raise $100 or $1,000, what impact will it make. And you indeed start from 10 Euros per person, so we're not talking people coming in all with 10s of 1000s. When you hear just how much money is being moved, you realise, actually, this does make a difference.

I've had Kiva on the show before, and I think Kiva are quite well known. And at least the way they tell the story is very peer to peer. So I give $10, $10 goes to the cause, and hopefully there's enough $10 that that person benefits, but you work more on investment pool that, as a consumer with my 10 euros to spare, I put that into an investment pool, and then that is lent over to a local partner to do the on the ground work.

Adriaan Schiphorst 6:35

That was the initial model, but there's a couple of key differences now.

I think, for example, if you compare it to the to the Kiva model, that is more, let's say, revolving donation based model, and lender and from the start has been an investing platform. I think, also the differences in volumes, if you look at what do people donate in a year, and what do people invest, right investing, depending on of course, or funds, but usually will for most people be 10, maybe 20%, of what they earn. Whereas donation is more, maybe you're on Christmas, you give to someone that comes to your door, it's it's a much smaller amount of money.

So we do target people that want to do good with our money, right, but by investing. And then separately indeed, we did start off by also working with this sort of direct model where you see the end clients, but that is always a way to connect to the people that you invest in.

Whereas we work directly with these microfinance institutions. But these microfinance institutions, or now fintechs, that essentially the same, they go through a pretty intensive due diligence process, also on the impact side of things. And then through them, they can fund their own end clients.

Since 2016/ 2017ish, we also started direct lending. So then you have to think about the renewable energy sectors or the agriculture sectors where we directly fund companies, and its most of it is working capital related, right. So it's financing the purchasing of solar panels, so they can instal them and then charge customers for them so they can pay back the loan. Whereas with a microfinance institution, it might be funding portfolio growth, so they can send out more loans.

Brendan Le Grange 8:19

Yeah, and I think it's a really important distinction to make, because there's a lot of unintended negative consequences of a charity model. And so my area of expertise I won't go into, but the one that does sort of apply to the lending world is that it's given away not expecting to come back, which is fine, but it's not a multiplier, versus the mindset that says this money is to invest.

Of course, it doesn't guarantee success, but it does encourage somebody to work towards building a business building impact building growth in the markets, I think it's fundamentally a stronger way to put money into into these projects. Yeah, I believe that too.

And I think what's interesting with the partner model as well, is that when you think about where the buck stops, you know, in a business, who's accountable, a clearer and more transparent model also is better from that, that we are actually seeing where the money's going, and maybe the best stories and the best investment of money.

Adriaan Schiphorst 9:13

No, absolutely. And I think it's it's very important to note because it is from a marketing point of view, and from an investing point of view, it's great to see the client and I've done a number of personal visits. And it is very good to see that the money going somewhere and good being done with it. But it's also important to note that people that invest in Lendahand are mostly retail investors. So the higher you make the risk, you come to lend and for the impact investing and then you go towards the company that's that speaks to you most right the energy project in let's say, Mozambique, I've just finished a restructuring deal with a company in Mozambique, which was long and difficult. The country had been hit by Typhoon, then a civil war and then a pandemic. And that background info doesn't necessarily reflect all at once on a project page of investments that you think does good, the money will go to a place where it's definitely needed.

But that risk is hard to translate to reach of essence. So you have to strike a fine balance between fund type investing that you can do by investing in a portfolio of a microfinance Institute, and the direct type of investing, because people love direct investments, but they're also risky.

Brendan Le Grange 10:29

Let's talk about some of those projects: 3,000 projects, I see, done, and probably more by now.

Adriaan Schiphorst 10:35

The first thing - and it makes me smile, when I think about it - is, I think at end of 2021, we did a site visit, also due diligence visit, to East Africa.

So we did a two week trip. And in Uganda, we visited EFC Uganda which stands for Entrepreneur Financial Centre, where we would call like a traditional MFI, right, so they have multiple offices throughout the city, the one we visited was in Kampala. And it's a small office building and entrepreneurs go there to apply for a loan.

So you go, you go to a bank till you apply for loan two, three weeks, you get it or you don't get it, there's not a lot of automation. At this level, you have a loan officer, and you get a loan.

And we visited Richard who had a chicken farm about an hour away from the city. And he came greeting us. And they usually don't allow visitors on the farm because because of hygiene, and he visited us and he told me that he had gotten his computer science degree. He showed it to his dad, and a day later, and he started with 65 chickens to start a chicken farm. And by now, I think he'd gotten about 8,000 to 10,000 chickens every every six or eight weeks.

So he had definitely grown.

And I just love his energy. And it was inspiring to see that that's possible through these loans, right to see a very bright young man go from a completely different fields, which resonated with me into seeing an opportunity, right into working as a sort of contractor for this large chicken processing company.

That's an example right of seeing directly how there's still in his market such a huge opportunity, if you have the funding, and you have the right mindset, of course, it is very easy to grow.

Brendan Le Grange 12:22

But I think it speaks really well to that scale. Because you know, this is not about helping Richard to go from not being able to feed his family to being able to feed his family, which is a type of charity that is often needed. But it's taking Richard from 60 birds to 8,000 birds, it's building a business that knocks on to the community in obviously very direct ways.

But also indirect ways.

We're having role models out there that have done this can only be good to produce even more entrepreneurs and even more people with that sort of drive to see a way to to replicate his success.

Adriaan Schiphorst 12:54

You do see the trickle down effect there. Because like he started by himself, and now employs around 25 people. So that brings direct jobs into a country that desperately needs them.

Maybe another fun example is it's completely an opposite side of things. So when I joined the first company, I onboard, it was funding societies, which is a very large SME lending platform, the largest in Southeast Asia, yeah. And so far, we've done around seven and a half million with them. And this is a completely different concept, right?

So their way of working is like a like through FinTech or you apply for a loan. And depending on the size, you get it within a minute. And if it's a large loan, up to a million you can get within a day, right. So this is not only a way for us to work with upcoming technology, but also realising that it's the next level of, let's say, microfinance Institute's, or the next level of financial inclusion, because we do realise that the time it takes to get a loan is important, especially for young companies, right?

If you have to wait on a loan, if Richard would have to wait nine months for every loan, then he could have done, you know, another six business cycles.

Brendan Le Grange 14:06

Yeah, yeah. The time is also representative, how much manual input is in these and it was interesting talking to Naureen Hyat, who's one of the FinTech drivers of Pakistan. And she was talking about the cost of lending, how it used to be in the MFI model. And we tend to think, oh, the interest rates were high, because risk was high. And she said no, it was high, because processing costs was so high, that no matter what you did, there was kind of a minimum 20% or 30% interest rate just to cover all the manual steps and the fact you're doing very small loans in very distributed places. If we can find ways to do it quickly. It also means we found ways to do them digitally and efficiently. And that means we can bring down interest rates to something that that's affordable.

And if people go to www.lendahand.com they can see the projects.

There's a capital up there that are being funded now but also past projects. I've seen things like well, small loans entrepreneur about loans for installing power backups of solar panels, equipping entrepreneurs with electric motorbikes, all sorts of projects.

So you could get involved, if it's a region you're interested in, or a type of technology or an impact you're interested in, there's a lot to choose from there.

But while I've got you here, as the data lead, I'm quite interested in what the world of data looks like in this space.

Now, I've not worked directly in this segment of the market. But when I was working in kind of high street finance in markets, I Kenya and Botswana that are kind of middle, but let's just call them developing countries, they're certainly ones that are more developing still. But even then, in a market, like Kenya, working for a bank, who's got international offices, there was very little data available, to the point that sometimes you're talking about getting printed out copies of receipts and trying to add something in and capture the data that was 15 years ago, which is not, you know, not a lifetime ago.

But what does the world look like now, where we've got micro lenders doing loans in minutes, you've got to try and keep a watch over a world of different countries, different levels of development, different languages, what sort of data do you get to see at Lendahand, but then also, maybe some of the highlights that you're seeing coming out of that?

Adriaan Schiphorst 16:19

It has definitely been a journey.

Lendahand was my first job after I came from a world from physics. And most of the data that I worked with, I produced myself in a simulated environment, right. So everything is perfect, as you just mentioned, and definitely in the finance and investments world, data is never perfect.

So you really have to adjust to that, and also work with people that really are using and making use of it, and typing in our xls.

And working with PDFs. And indeed, I've had like, audited reports in French from West Africa being sent sort of, at a 30 degree angle, from a fax machine, from a cashew processing company, you know, all of it with handwritten notes on it.

So there's a lot that has happened in the past three years.

The first step for every company, no matter how big you are, is mapping that and trying to get to a type of uniformity, to get to a set of rules, where you have to sit, okay, we have to make an agreement on the level of detail you're asking for, and the level of uniformity and how general our benchmark our KPIs, our financial metrics are going to be because if you ask for everything, you will get everything in the end.

But you'll also have to do all of it yourself.

And every single company will be different, like you don't need AI, you don't need super cool app for it, you need to get to a conclusion of, hey, I know you want to get this highly specific metric for this company, because you think it's the most relevant. But if you leave in two years, no one will understand why you ever asked for it. Right? So it's this mix of trying to get people with a finance background to work with people with a development background. Yeah, right. And I try to be the the man in the middle.

So what are we've mostly been doing over the past years is among artists, because we got a grant from USAID to work on automation on working with third party vendors, to optimise processes of making sure we can work through that data and get it into standardised setups to make sure we can evaluate data automatically.

Let's say we we meet a company, right? You can just send an email, or you can ask for information automatically, the way you parse that information can be done in every possible way imaginable. But right now, we're actually in the process of using GPT to allow our investments team to ask questions to their documents, right, which I see as one of the greatest opportunities for like this super difficult emerging markets lending, working with such a diverse number of companies and diverse sectors. If you can have this versatile AI assistant.

Yeah, then please use it for good, right. And there are so many things that are possible right now. But also looking at standardising the data for reporting. We started working with a company called Atlas sort of was born out of a European initiative to standardise microfinance, institution data reporting and they've set up a data platform it actually allows companies to report once and then share with other NFS in one time, these can be small things, but to me like coming from a non financial backgrounds, like seeing that companies have to send almost the same reports to all of their investors. It was just so painful. Yeah. Oh, that's what everyone is asking for, oh, no, but I want you to feel my Excel template....

Brendan Le Grange 19:55

Yes, and that Excel template may have been done on a whim by somebody else a few years ago, who just that's how they wrote it. They didn't know somebody else has almost the same thing. Exactly. And a different way. Yeah, it used to be such a pain.

So it's great to hear that they're these initiatives to bring some standardisation. But of course, also things like Chat GPT, that that's where it really does well is asking you to query something, and give you back a sensible answer from data that is all existing. It's all there somewhere, but it saves you from having to pick through it. So that's great to hear.

You've also just released the most recent Impact Report for Lendahand. And I know it's only hot off the presses, but are there any major trends or storylines emerging?

Adriaan Schiphorst 20:37

Yeah, so definitely invites all listeners to go and read it.

One of the key highlights for me is not necessarily something that you see in the impact report and on the first paragraph, but what do you do, for example, with war in Ukraine, and I remember that we had a project life funding, Mikro Capital Moldova, microfinance institution in Moldova. And I think we'd launched it on like a Sunday and Monday morning, the Dutch national news broadcaster as a headliner, will Moldova be next? Right?

That's not the greatest marketing for an investment product that you can get. And so we had an internal discussion, right? Do we pull the project off the website, because we always have to weigh investor risk versus what we think is right, the right balance for our crowd.

And we actually decided to leave it on there, but to allow all the initial investors already in there, we send them a message, we updated the project description that they could get their money out if they want, but we will keep the project on. And actually, it was one of the fastest funded projects on the platform for this company.

I think that's making impact, right.

And that's the power that you have as a crowdfunding platform where people invest where they want to invest, instead of indeed, having a automated portfolio, or only investing in ETFs, or following the market. And that's the personal impact crowd investor can have this guy See, this is high risk. But I do still feel it's important to support these institutions that are actually making the country stronger, right. It's the power of institutions in the ends that that sort of formed the backbone of these countries.

Brendan Le Grange 22:16

Yeah. And I love that communication to the to the investors, because as a first was a traditional lending product, a chief risk officer somewhere is going to be sitting in a room saying, what if this goes wrong, what's going to happen, and they're going to be very conservative in their decision and act on my behalf to protect my interest as an investor, which is great, but maybe I was willing to take that risk. And I mean, I think we maybe didn't go right into the details upfront.

But when I'm investing, when I go to Lendahand.com and I see those projects, you've got a description of the project, you've got the terms as well, the repayment is going to be this return. And it's going to be repaid every six months for this period of time. So I've been fully informed, I've made a choice. And then you say something dramatic changes a day later, but you can get back to me and ask me how that impacts me which most portfolios couldn't?

Adriaan Schiphorst 23:04

I think that's the power of the model. It's also the difficulty of the model. It's the direct connection to investors, that is a power. And it's also the thing that makes it difficult that we are dealing with real people here, right?

It's not as anonymous as working for large brokerage app. This week, we're celebrating our 10 year anniversary, and we will host a big investor event. And there will be lots of investors that come to talk to us ask questions about the impact they've made, but also about their investments and investments that have gotten wrong because right it can go wrong here and situations where doing is as much as we can where we have multiple licences. We have too many licences!

When we were first in the Netherlands to get the European crowdspring licence. But actually, we used to have a method to licence I'll I won't go into the details. But it's we realised as an investment broker, so even more compliance. So there's so many things that we have to do that can make scaling as a platform difficult. And especially you can imagine working with financial institutions in emerging markets. I think a great example was going through this new licence, where suddenly we couldn't work with Nicaragua and Uganda anymore, because we went from Dutch rules to European rules.

So suddenly, we lost like 10 deals in our portfolio.

And we had to stop funding existing companies that we're working with in Uganda, Nicaragua, actually, with some of our best companies. In terms of impact as well. I think we were trying to read focus on on gender and female for companies great company, me credito in Nicaragua, I think all female but one boards focusing on women loans, and then because of new regulations, this is no longer allowed. And I understand the regulations are but can also be very frustrating business, right that you just are sort of left up to the decisions of the people up above where where the money can go.

Brendan Le Grange 25:03

I've been recording an interview with an Azerbaijani entrepreneur who talks about how they set up their their business in Singapore, that now would be impossible because Azerbaijan is on our High Risk List. Yeah, there are an unexpected or unavoidable negative consequences from rules that do need to be in place, but unfortunate when it gets in the way of good work as well.

Adriaan Schiphorst 25:25

But during this East Africa due diligence trip, also attended a conference in Rwanda. And there was a big delegation from Sudan to try to promote investing in Sudan, and the head of the Central Bank was there. And we talked to his delegation to see if there was any opportunity to invest in a microfinance institution, and almost before the conference, and I think we had just returned home a news bulletin that there was a civil war starting, that the army had taken over. So these things happen in the countries that we work with.

Brendan Le Grange 25:55

Yeah, I guess if it wasn't risky, then the normal high street banks would be there. And I guess the curse of doing the good work is you've got to do it in places where, where it's needed. And that's not always the the easiest places to work.

But, Adriaan, thank you so much for coming out today, especially in middle the transport issues. If people want to go and see some of those Lendahand projects, if they want to download the impact report and just learn more about impact investing and the work you're doing. where's a good place for them to go to follow the story,

Adriaan Schiphorst 26:25

Go to www.lendahand.com

We have a lovely marketing team. We have a great blog, we have newsletters, impact reports, follow us on socials, we do videos, interviews with all of our companies in emerging markets, so there's a lot to see and follow.

Brendan Le Grange 26:40

Yeah, actually, I had a note that I forgot to say. But it is a fantastic blog, there really is a lot of resources. And I did look for your byline, from your journalism days, if you would, you'd be there, but I see you've got other people doing the writing. But really nice writing really nice reports, as you say from projects about the team just about a wide range of things.

So for anyone who's interested in microfinance, in seeing what's happening in the world, whether or not you want to be directly involved, it's just a great insight into the sort of work that microfinance institutions and the sort of projects that you help are doing from financial services to all sorts of renewable energies and all sorts of other interesting things.

So yeah, thank you again, for for coming out and wish you the best of luck and encourage everybody to check out lend a hand and if you've got 10 years or so lying around, maybe get involved in a project,

Adriaan Schiphorst 27:31

Or a bit more always. Thank you so much.

Brendan Le Grange 27:34

And thank you all for listening.

Please do look for and follow the show on your favourite podcast platform and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.

This show is written and recorded by myself Brendan le Grange in Brighton, England and edited by Fina Charleson of FC Productions.

Show music is by Iam_wake, and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show and I'll see you again next Thursday.