Investor Roundtable: Funding Platforms

Wednesday 23 November, 2016

Investor Roundtable: Funding Platforms

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The GSMA Mobile for Development (M4D) Utilities team curated the Investor Roundtable webinar series to help entrepreneurs leveraging mobile to understand the range of funding options available. The first two webinars had presentations by traditional investors on Foundations and Impact Funds. The third (and last) webinar on 17 November 2016 focussed exclusively on Funding Platforms which typically use the crowd as a source of funds, though we are also seeing more and more institutional investors pledging funds during campaigns.

The presenters were:

Carlos Pierre, Senior Manager, Strategic Initiatives, Kiva
Koen Thé, CFO, Lendahand

Both presenters outlined their business models and highlighted subtle differences between their approaches. For instance, the loan amount that companies can raise under Kiva’s Direct to Social Enterprise (DSE) model is between $10,000 to $50,000. In contrast, Lendahand focuses on larger amounts, allowing up to 2.5 million Euros through an annual loan facility. Both the platforms aspire to increase their reach globally but presently focus on specific countries.

Irrespective of the differences in their models, both presenters noted some key considerations while raising funds using crowdsourcing:

‘Impact’ is the top priority for crowd lenders

Both presenters highlighted the need for fundraisers to measure and clearly communicate impact. Carlos mentioned that Kiva sees campaigns struggle to raise funds when lenders are not able to understand the impact of the initiative. Koen re-emphasised the need to clearly communicate impact as that is seen as the main driver for these lenders too, given that they usually take below market returns (in Kiva’s case zero returns).

Tackling challenges with local currency and regulations

Kiva has been unable to launch its DSE model in some countries due to local regulations. Carlos cited India’s example where the central bank is hesitant to allow USD denominated loans, yet Kiva is unable to lend in local currency. Koen also mentioned currency as an issue; Lendahand is actively working on how they can help entrepreneurs deal with the risk.

Trust is paramount

“Unlike traditional businesses, social entrepreneurs will live and die based on their reputation”. This was the statement made by Carlos when explaining that the risk of defaulting on payments lies with the lender. This is why Kiva depend on their referrals as it provides a foundation for trust. Furthermore, high value is placed on transparency and communicating to the lender when there are challenges. Both Kiva and Lendahand support being flexible but a lack of communication can lead to bad faith and could be costly.

Technology promises efficiency but is still some distance away

In response to the moderator question on the role of mobile in helping businesses attract capital, both presenters agreed that digitising operations had a huge potential. However in the present scenario, they saw a number of limitations that hinder a more direct connection with a borrower e.g. low smartphone penetration in emerging markets and a lack of mobile money penetration in markets outside of Kenya. Both speakers highlighted that, due to these limitations, the benefits of digitising operations only extends to their lenders who generally come from more mature markets.

Here is the full recording: