Alternative finance market boosted to £4.6bn by start-ups and institutions

THE UK’S alternative finance market grew by 43 per cent in 2016, new research shows, with interest from start-ups, small businesses and institutional investors helping to boost demand for services such as crowdfunding and peer-to-peer lending.

Last year, £4.6bn was raised through alternative channels, according to a survey of investors and crowdfunding or peer-topeer platforms.

“Alternative finance has entered the mainstream and is likely here to stay,” said Byran Zhang, executive director of the Cambridge Centre for Alternative Finance at Cambridge University’s Judge Business School, which conducted the survey.

Around 72 per cent of the year’s market volume, or £3.3bn, was driven by demand from start-ups and small businesses – up from 50 per cent the year before.

Peer-to-peer business lending was the largest market segment, growing by 36 per cent to £1.23bn, providing an equivalent of 15 per cent of all new loans lent to small businesses by UK banks.

The other biggest categories were peer-to-peer consumer lending, peer-to-peer property lending, invoice trading, equitybased crowdfunding, real-estate crowdfunding and reward-based crowdfunding.

The survey showed that institutional investors including pension funds, asset managers and banks are also increasingly backing the platforms, providing 34 per cent of peer-to-peer property lending, 28 per cent of peer-topeer business lending and 32 per cent of peer-to-peer consumer lending.

Peer-to-peer lending can offer relatively high returns, but the sector’s fast growth has also caught the attention of the Financial Conduct Authority, which is considering new regulation for the sector, highlighting concerns about past loan losses and due diligence.

This week, the UK’s third-largest peer-to-peer lender, RateSetter, reported a pre-tax loss of £23.7m after it took a hit from a bad loan.