In a study carried out by the Cambridge Centre for Alternative Finance at the University of Cambridge along with Nesta and in partnership with KPMG, growth was shown in online alternative finance which continued to be strong in the UK during 2015. After surging 161% in 2014, the market grew 84% to £3.2 billion in 2015. While 84% growth can hardly be considered a meaningful slowdown, it does represent that more moderate growth can be expected in the future as the alternative lending industry becomes more mature and tracks the country’s overall loan trends.
Analyzing the UK’s alternative finance industry, the report reviewed performance from 94 crowdfunding and P2P lending platforms. Among the key findings was that alternative lenders composed 3% of lending to small and medium enterprises (SMEs) in the UK. With nearly one in every thirty pounds borrowed by SMEs coming from non-traditional lenders, it displays that they are able to successfully compete against established banks in the country.
The maturing sector was also noted to be attracting institutional investors. According to the findings, 26% of P2P business loans and 32% of consumer lending was funded by institutional investors with both areas showing an increase from 2014. For investors, the appeal of P2P marketplaces is higher yields than those offered by traditional fixed income securities.
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Heading the list of popular sectors is real estate where £700 million was invested on alternative finance platforms. Of the £700 million, investments were split between equity and debt based real estate deals.
Also worth noting was the sharp increase in equity based crowdfunding. According to the report, the industry grew by 295% to £332 million raised in 2015 compared to £84 million in 2014. The growth was witnessed by record funding reported by crowdfunding platforms such as Seedrs and CrowdCube.
Despite the overall rosy outlook on the alternative finance sector, the report did highlight one important of concern: fraud and malpractice. When asked what the biggest impediment to market growth for P2P lending and equity crowdfunding platforms was, 57% of survey respondents answered “potential collapse of one or more of the well-known industry player due to fraud or malpractice”.