Here are some questions we get asked a lot…
What are the requirements to become a philanthropic investor?
- 700+ credit score
- DTI (debt-to-income) ratio of 35% or less (to include est. monthly payment on guaranteed amount)
- Net worth of at least four times guaranteed amount
What happens if a loss occurs in the portfolio?
- Every new philanthropic investor that joins the Arrow platform becomes part of the pool, meaning that any loss would be shared pro rata across the pool, and would be tax deductible for each party. Additionally, Arrow has negotiated a 24-month loan reconciliation timeline should any portion of a default be called on by the guarantee pool.
What sort of term would I be signing up for?
- 4-5 year term; however, you can exit the pool within 18 months of notifying Arrow team in writing, or as soon as we can find a replacement.
What does becoming a philanthropic investor with Arrow mean for my financial portfolio?
- Investments and assets all remain intact – Arrow is not seeking your cash, but the ability to leverage your financial standing to provide debt financing to vetted emerging market entrepreneurs as they scale, create jobs, and transform communities. The financial partners we work with currently are not required to submit the guarantees to credit bureaus, meaning that participation with Arrow has no effect on your consumer credit rating. As such, it would not impact your ability to buy a house, a car, or take out a personal loan.
What does the verification process with the bank look like?
- To execute the guarantee, one of our U.S.-based lending partners will need to verify basic financial information. This process is made much easier with the philanthropic investor calculator, which serves as a sort of self-qualifying tool from which input information can be verified. If you want to participate in the Arrow platform but don’t wish to send basic financial info to the bank for verification, you can collateralize the guarantee at one of Arrow’s lending partners, opening up credit to Arrow at an even lower rate and taking the verification process from a few days to a few minutes — a signature is all that would be needed.
What is the minimum guarantee commitment?
How does Arrow mitigate risk to protect my investment?
- $50k first loss reserve currently in place
- Repayments for SMEs globally sit at 94-96%, before Arrow’s risk mitigation measures and partnerships
- All loan documents were drafted by our legal team at Kirkland & Ellis in New York, adapted to reflect local bank conditions, and verified by local legal counsel to ensure they meet jurisdictional requirements
- Underwriting for each loan is done through an intensive two-tiered process, ultimately being approved (or denied) by our Loan Committee, made up of members from Arrow’s Board and outside advisors
- Local accelerator partners provide ongoing business mentoring/coaching throughout the loan cycle
- Per our negotiated agreement, they’re tasked with identifying possible trouble spots and delivering reports to Arrow, for which they’re paid a success-based fee at the end of the loan cycle
- They have an incentive to see the business succeed (aside from the strong relationship they already have) in the form of a reducing and ultimately bottomed-out fee, should a series of late and/or missed payments occur
- Local bank partners provide entrepreneurs with a credit history and give Arrow local legal jurisdiction
- Should a default occur, the local banks Arrow has partnered with have the authority to make collections, something we as a U.S.-based institution would have a tough time doing without this relationship
- Additionally, each entrepreneur understands his/her future borrowing capacity in that country is tied to repayment of the loan from Arrow because of the bank’s deep involvement and regular reports to the national credit bureau
- In Africa, collateral is defined upfront in the loan agreement; in Latin America, there is a “collateral” clause in the loan agreement, allowing Arrow to seize any and all property (up to the value of the loan), which is enforceable by the local bank
- Although unanticipated, there are numerous measures in place to deal with delinquent loans should they go off track
- Arrow receives quarterly reports on each loan, the information from which is passed on to the pool of guarantors
What sort of personal or social rewards/benefits can I expect from engaging with the Arrow platform?
- Continued control of assets & investments; no cash upfront
- Unparalleled risk mitigation measures you wouldn’t find if investing directly in a company or fund, including the pooling of all risk
- Promotes local access to future lending for entrepreneurs: business, construction, education
- Negotiated partnerships allow money to be recycled, achieving compounded impact
- You can “invest for impact” in the developing world with a model that has less risk than direct financial investments
- Creates steady employment opportunities, provides food & healthcare security for the employed, supports education access for children of the employed
- Allows otherwise “idle” capital to achieve global impact while continuing to earn you market returns