Alternative Credit Investor October 2023

Simple Crowdfunding’s Atuksha Poonwassie on IFISAs and retail money

New era for alternatives as investors flock to fixed income

ALTERNATIVE debt is set to benefit from the move towards fixed income, as investors fall out of love with volatile equities in a turbulent economic environment.

Recent data from Interactive Investor showed that private investor demand for fixed income has hit new highs.

The investment platform said that its customer purchases of direct fixed income and corporate bonds combined has grown by 678 per cent over the past 12 months, compared to the previous year.

A UK two-year gilt yield was 4.75 per cent on 19 September, up from 4.6 per cent on 30 September 2022, according to MarketWatch data cited by Interactive Investor. Short term fixed income yields are even higher than they were a year ago, and July 2023 saw the platform’s highest monthly spike to date as bond

yields climbed higher.

“While the end just might be in sight for UK interest rate rises, for now private investors have been taking advantage of attractive bond yields and locking in an income assuming they intend to hold the bonds to maturity,” said Sam Benstead, bonds specialist at Interactive Investor.

While Interactive Investor’s focus is on gilts and corporate bonds, some stakeholders suggest that this trend could

filter into alternative credit strategies.

“Something of a seesaw movement between fixed income and equity is quite normal, but I think that many of those discovering alternative lending now will see the benefit of committing a greater portion of their wealth in fixed income for longer periods, even when the see-saw dips back the other way,” said Neil Faulkner, managing director of peer-to-peer lending research and

ratings firm 4th Way.

“Fixed income has generally been considered boring and low return, but P2P lending and similar investments have shown highly satisfactory, stable returns – but also with the opportunity to invest in more exciting types of loans too. As a result, less cash will return to equities when the tide changes.”

Bruce Davis, founder and joint managing director of ethical crowd bonds platform Abundance Investment, agreed that alternative investments could benefit from this shift.

“The rise in interest rates has rekindled interest in longer term investments which pay a fixed income that either compensates for the accompanying inflation increases in prices or which gives a degree of certainty to future income earned from an investment pot,” he said.

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EDITORIAL

Suzie Neuwirth

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This

month I’m excited to unveil our rebrand to Alternative Credit Investor

.

While we’re really proud of the Peer2Peer Finance News brand and what we have achieved over the past seven years, we feel that the name is no longer reflective of our content and audience. The peer-to-peer lending market has gone through a period of consolidation over the last few years due to the regulatory environment, meaning that there are fewer and fewer companies for us to report on. We’ve had some feedback from our investor readers in this respect and we are keen to be able to extend our coverage to other alternative debt investment platforms to ensure we maintain an engaging publication.

I want to underline our continued commitment to reporting on the P2P lending market. The rebrand in no way means that our coverage of the industry will be diminished. It just means that we are opening up our coverage to a wider audience of investors and advisers, and can juxtapose reporting on the leading P2P lending platforms with other high-quality alternative investment firms.

We welcome feedback on the rebrand, so please feel free to email me directly at suzie@alternativecreditinvestor.com with any questions you may have.

SUZIE NEUWIRTH EDITOR-IN-CHIEF

cont. from page 1

Municipal Investments –which have seen returns for investors increase fivefold in the last few months – are definitely benefiting from this trend.”

Furthermore, recent research from European P2P platform Robo.cash suggested that P2P investments could replace bonds for investors seeking fixed yield.

“Fixed-income instruments are a good ‘support’ for portfolio returns, that help to offset losses from high-risk assets such as stocks, futures and options,”

a Robo.cash analyst told Alternative Credit Investor via email.

“According to the latest investor survey conducted by Robo.cash, the top three investments for 2023 include stocks, ETF and P2P, which also emphasizes the quality approach investors take to portfolio composition.

“In terms of historical dynamics, fixed income instruments show positive shifts. For example, deposit rates started to rise in the second half of 2022, although inflation gave a

quick start in mid-2020. The BGATRI (Bloomberg Global Aggregate Total Return Index) bond index also began to grow in 2022 after the growth of the key rates of the central bank.”

The Robo.cash analyst also noted increasing yields in the European P2P market since March last year, which have now breached the 10 per cent mark and are expected to rise further towards the end of the year.

“In combination with other alternative assets such as cryptocurrency,

P2P can bring even higher returns but at the same time increase the risks,” the analyst added. “This is something to keep in mind for investors who prefer more traditional instruments. But to cover inflation, you need to take risks. And in this case, the choice of a better combination is left to the investor.

“Being a fixed instrument by nature, P2P investments may become a great alternative to deposits and bonds in the future when they become more solid as an asset.”

59 firms have EU crowdfunding licence

59 CROWDFUNDING

and peer-to-peer lending platforms are now authorised under the EUwide rules, as the deadline approaches for all firms to attain the new licence.

Data from the European Securities and Markets Authority, as of 19 September, showed significant traction in the number of approvals, up from 21 authorised platforms in March this year.

The European Crowdfunding Service Providers Regulation (ECSPR) was introduced in November 2021, aiming to harmonise the industry across the bloc.

All nationally licensed crowdfunding and P2P lending platforms must attain an ECSPR licence by 10 November 2023.

The latest firms to receive the ECSPR licence include Romania’s

Stock.estate, PeerBerry’s sister company Crowdpear, which is based in Lithuania, and HeavyFinance, also in Lithuania.

They join authorised platforms including

Sweden’s SaveLend, Lendahand in the Netherlands and Crowdcube Europe – the Spanish subsidiary of UK-based Crowdcube.

Dublin-headquartered P2P lending marketplace Lendermarket is among the firms that are currently undergoing the approval process.

Earlier this year, Tara Cantwell, legal and compliance manager at Lendermarket, said she considers the ECSPR to be “more robust” than UK equivalent regulations due to their additional requirements around borrower due diligence.

Covid loans “hobbling the restructuring space”

LENDERS are unwilling to extend or amend borrowers’ Covid loans as it would remove the government guarantee, which is leaving some businesses “hamstrung”, a business advisory expert has said.

The coronavirus business interruption loan scheme (CBILS) was introduced during the pandemic to support struggling businesses. The UK government guaranteed 80 per cent of the value of each loan, to encourage lenders to get money out quickly to the businesses that needed it.

“We’re seeing over leveraged balance sheets where borrowers have got themselves into a bit of a pickle with Covid loans,” said James Dowdall, partner – deals

advisory at ReSolve.

“Despite being supported during those challenging times by their lenders, repayment holidays have come to an end and these firms now have cashflow constraints as capital obligations have kicked in.

“Some lenders are telling us that they’re happy with borrowers’ turnaround plans and forecasts but are unable to extend and amend their credit facilities.

Their credit officer will not sign it off as it would remove the government guarantee. This issue is hobbling the restructuring space during this cycle.”

Dowdall noted that one iteration of the recovery loan scheme – a followon scheme introduced by the government post-pandemic to help businesses grow – is designed to refinance CBILS loans, but this comes with “a revenue and limit cap and some other limitations”.

“Some larger corporates are hamstrung by the good intentions set out previously,” he added. Dowdall said that ReSolve mostly tends to refinance from a mainstream lender to

IFISA “still a viable product”

THE INNOVATIVE Finance ISA (IFISA) is “still a viable product” and can offer higher returns than traditional forms of investments, Simple Crowdfunding chief Atuksha Poonwassie has said.

The UK Crowdfunding Association director heralded the peer-topeer lending tax wrapper and highlighted the fact

that investors can enjoy tax-free earnings while having a social impact.

“If people can fund an investment opportunity that does have some sort of asset backing as well and helps bring homes to market, it is a very viable option,” she said.

“The feedback we are getting is that people want to use their IFISA allocations

to fund projects. Our average investment on the ISA side per project is currently £15,000 and transfers are often higher.”

Investment into IFISAs rose in the last tax year to £144m but is still substantially down from the £995m put into the product in the 2019/20 tax year.

an alternative lender, as they have different levels of risk tolerance.

“We understand alternative lenders’ risk parameters and find them to be very responsive,” he said. “In general, they move much faster than clearing banks, are very competitive plus they understand the turnaround space, think creatively, and often have a greater risk appetite.

“Mainstream lenders, on the other hand, seem to be less willing to extend or amend facilities which would mean forgoing government guarantee(s). It’s not unheard of but they do seem to be taking fewer chances with these Covid loans.”

Some have suggested that stricter investor marketing restrictions have led to less interest in IFISAs, which are a retail-friendly product.

However, Poonwassie underlined her platform’s commitment to retail investors.

“Retail investors are part of the charm and benefit of being in the crowd space,” she said.

Read the full interview with Poonwassie on page 16.

CrowdProperty wins ‘most nominated platform’ ahead of P2P Finance Awards

CROWDPROPERTY has earned more nominations than any other platform at the forthcoming Peer2Peer Finance Awards. The property lender has been shortlisted in nine categories at the industry awards ceremony, which takes place in December.

CrowdProperty is up for Property Developer of the Year, Bridging Lender of the Year, Property Lender of the Year, Commercial Property

Lender of the Year and Residential Property Lender of the Year, as well as Innovative Lender of the Year, IFISA Provider of the Year, CEO of the Year, and P2P Lending Platform of the Year.

“CrowdProperty has had an excellent year, hitting new milestones and attracting institutional investment,” says Suzie Neuwirth, editor-in-chief of Peer2Peer Finance News

“Its no surprise to see it sweep the

nominations this year, in our most propertyheavy shortlist to date.

“The quality of the submissions this year was extremely high so we congratulate all the finalists on standing head and shoulders above the rest.”

Fellow property lender Kuflink is the secondmost nominated platform at the 2023 awards, with eight nods. It will go up against CrowdProperty in the categories of Property

Developer of the Year, Bridging Lender of the Year, Property Lender of the Year, Commercial Property Lender of the Year, Residential Property Lender of the Year, IFISA Provider of the Year, CEO of the Year, and P2P Lending Platform of the Year.

The winners will be announced at an awards ceremony at London’s Hurlingham Club in London on Tuesday 12 December 2023.

Rate wars heat up as savings accounts hit 8pc

THE LAUNCH of Nationwide’s eight per cent savings account last month has put further pressure on peer-to-peer lenders to keep pace.

The building society’s Flex Regular Savings account, available from 21 September, is the best rate on the market for a decade.

It's not the only competitive deal available. According to Money.co.uk, as of 20 September 2023 savers could earn 6.2 per cent from NS&I’s one-year guaranteed growth bond issue 72. Ford Money was offering the next best deal on the market, with two fixed rate bond

accounts paying 6.05 per cent, over an 18-month or a two-year fixed term. Meanwhile, the toppaying cash ISA was

at Shawbrook Bank. Savers were being offered 5.83 per cent to lock their money away for one year.

P2P lending platforms have also been increasing their rates in an effort to compete with savings accounts. easyMoney last month unveiled its latest rate hikes, which will bring its returns to between 5.28 per cent and 10 per cent. Similarly, property lender Loanpad has been raising investor rates almost every month for the past year. At the time of writing, its investors were earning between 5.5 and 6.3 per cent.

Folk2Folk, Kuflink and CrowdProperty have all increased their target returns this year to between 8.75 and 10.5 per cent.

Why P2P investing is still attractive compared to savings accounts

SAVINGS ACCOUNT RATES

have risen to levels not seen for many years. The top-paying instant access accounts are now offering up to around five per cent per annum, while some fixed-term savings accounts are advertising rates of around six per cent.

However, these rates are not quite as attractive as they may seem on first glance. With the rate of inflation now at 6.7 per cent, even the highest-paying fixed term cash accounts are still unable to keep pace with the higher cost of living.

By contrast, peer-to-peer lending platforms such as Folk2Folk have been offering inflationbeating returns for many years.

Folk2Folk’s interest rates start from 8.75 per cent, but according to Roy Warren (pictured), the platform’s managing director, some of its loans are currently paying 10 per cent or more.

Despite the higher returns offered by P2P lending, many savers and investors prefer to accept a lower rate of return in return for protection under the Financial Services Compensation Scheme (FSCS). This scheme protects consumer deposits up to the value of £85,000, and it is seen as a safety net to cautious savers who may have witnessed the chaos of the 2008 financial crisis, when several banking institutions failed overnight. The scheme only kicks in after a bank or building society has gone into administration.

“P2P is still an inflation-busting form of investment,” says Warren. “But it is a struggle for P2Ps at the

moment because traditional deposit takers are offering rates that are tantalisingly higher than before.

“There’s a lot to be said for taking five per cent with the perceived safety net of the FSCS, but having said that you’ve still got good levels of protections around P2P, and there’s still quite a good margin between us. We’re seeing loans now consistently above 10 per cent and you won’t get that at any high street bank.”

While P2P platforms are not eligible for inclusion under the FSCS, the Financial Conduct Authority (FCA) requires platforms to have other protections in place to manage the same scenario. All P2P platforms authorised by the FCA are required to have a wind-down plan in place, in the event that the platform goes into administration.

“In the event of something happening to the platform, the wind-down provider would step in and continue to run the business and manage the loans,” explains Warren. “This plan should enable a continuation of business as usual, that is: investors receiving their monthly interest and a return of their capital at the end of the loan term.”

Furthermore, P2P loans typically come with a form of security. All of Folk2Folk’s loans are backed by UK property or land, with a maximum loan-to-value of 60 per cent, so in the case of a default the property or land can be sold to recoup the initial investment.

This means, should something happen to Folk2Folk, its winddown service provider – RSM – will step in to take over the running of the loan book and in theory, the loans should run their course with payments made to investors as planned. And should something happen to an individual loan on the platform, the security can be sold with the proceeds going to the investors.

In an unpredictable economic environment, the benefit of inflation-beating returns with the reassurance of property as security and a wind-down plan in place, can help investors to manage their risk while earning an attractive return on their funds. As inflation remains stubbornly high and the economic recovery promises to be a long, slow process, consumers need to make informed choices when deciding where to put their money.

The Peer2Peer Finance

The Peer2Peer Finance Awards take place on Tuesday 12 December 2023, at the Hurlingham Club in London.

This glittering event will celebrate the best and brightest players in the peer-to-peer lending industry and the stakeholders who support them.

Attendees can enjoy a sparkling drinks reception and gala dinner. This year we are delighted to announce a Hollywood theme for the event, as well as a live band for attendees wishing to celebrate (or commiserate) after the awards ceremony!

There is limited space at this event, with many tables already sold. For table sales and sponsorship enquiries, please email sales and marketing manager Tehmeena Khan at tehmeena@ alternativecreditinvestor.com for more information.

Photo from last year's awards event

Photo from last year's awards event

Finance Awards 2023

Peer2Peer Finance Awards shortlist announced!

Business Advisory Firm of the Year

Kroll

RSM

BDO

Evelyn Partners

Deloitte

Debt Advisory Firm of the Year

EY

KPMG

RSM

Deloitte

Evelyn Partners

Restructuring Firm of the Year

Kroll

Quantuma

Moorfields

BTG Advisory

CG&Co

Open Banking Provider of the Year

Yapily

ClearScore

TrueLayer

P2P Software Provider of the Year

Crosslend

White Label Crowdfunding

Lenderkit

P2P Institutional Partner of the Year

Crosslend

Fasanara

British Business Investments

Fintex Capital

Law Firm of the Year

Shearman and Sterling

Gunnercooke

Hogan Lovells

RW Blears

Pinsent Masons

MSB Solicitors

Property Law Firm of the Year

Gunnercooke

VWV

Stephensons Solicitors

Farrer

Freeths

Ashfords

Consumer Lender of the Year

Lendwise

Elfin Market

The Money Platform

Unbolted

Business Lender of the Year

HNW Lending

Qardus

Folk2Folk

Rebuildingsociety

Property Development Lender of the Year

Relendex

easyMoney

Property Bridges

CrowdProperty

Invest & Fund

Kuflink

CapitalRise

Bridging Lender of the Year

easyMoney

Kuflink

Shojin

CrowdProperty

Blend

Property Lender of the Year

easyMoney

CrowdProperty

Folk2Folk

Kuflink

Shojin

Simple Crowdfunding

Commercial Property Lender of the Year

Proplend

CrowdProperty

Kuflink

Relendex

Residential Property Lender of the Year

Relendex

easyMoney

CrowdProperty

Kuflink

Sourced

Ethical lender of the Year

Lendwise

Folk2Folk

Abundance

Qardus

Lendahand

The Money Platform

Rising Star

Lande

Nester

Qardus

Financial Inclusion Award

Lande

Loanpad

Plend

Elfin

The Money Platform

Innovative Lender of the Year

Qardus

Shojin

AxiaFunder

CrowdProperty

CEO of the Year

Roy Warren, Folk2Folk

Jason Ferrando, easyMoney

Narinder Khattoare, Kuflink

Uma Rajah, CapitalRise

Jatin Ondhia, Shojin

Mike Bristow, CrowdProperty

IFISA Provider of the Year

easyMoney

Kuflink

CrowdProperty

Invest & Fund

Abundance

P2P Lending Platform of the Year

Relendex

easyMoney

Folk2Folk

Kuflink

CrowdProperty

SaveLend

Bridging Broker of the Year

Fluent Money

Propp

Clifton Private Finance

Capricorn Commercial

Tapton Capital

Connect for Intermediaries

Development Broker of the Year

Finspace Group

Aureum Finance

Pure Structured Finance

Positive Commercial Finance

Sirius Property Finance

Commercial Broker of the Year

Capricorn Commercial

SPF Private Clients

Propp

Watts Commercial

Synergy Commercial Finance

Investor’s Choice

Winner to be announced on the night

Behind the scenes of Kuflink’s collections boost

LAST MONTH, KUFLINK revealed that it had almost doubled the rate of its loan collections quarter on quarter, thanks to some behind-the-scenes changes that were made to the platform’s risk management process.

Just under £9m was collected during the first quarter of the year, rising to more than £16m by the end of the second quarter. And the pace of loan collections continues to rise. In August alone, more than £10m was collected from completed loans, and Hiran Patel, chief risk officer at Kuflink, believes that across the first three quarters of 2023 loan collections are expected to be in excess of £48m.

“This is a great result for our investors and a testament to our ability to manage risk in our loan book,” Patel said.

“We expect to have passed £48m in collections by the end of the third quarter, with collection volumes rising month on month.

“At Kuflink, we have always been completely transparent with our investors about our loan collection processes and we have kept our investor base informed of any and all risk management changes over the past year.

“We will continue to work closely with borrowers and to feed back all relevant information to investors going forward.”

The rising rate of collections is especially impressive given that it is happening against a background of ongoing economic instability, with

rising base rates and stubbornly high inflation heaping pressure on investment platforms and consumers alike. Many peer-to-peer lending platforms have opted to raise their target returns, typically paid for by raising borrower rates. Kuflink has been able to continue to offer inflation-beating returns of up to 9.83 per cent to investors, but the platform was determined to do this without increasing the risk of borrower defaults.

“Prudent risk management is at the heart of what we do at Kuflink, and we are always looking ahead to identify any potential challenges that might affect our borrowers’ ability to repay their loans,” explained Patel.

“The recent rise in loan collections is a testament to this approach. We are proud to say that our investors have still not lost any money, and we expect the volume

of loan collections to continue to rise towards the end of the year.”

So how did Kuflink do this? It all started back in March, when the platform’s credit committee met for one of its regular risk management discussions. After every meeting of the Bank of England’s monetary policy committee, Kuflink’s senior management has a discussion about what the latest interest rates mean for the UK economy as a whole, and for the lending sector more specifically.

At the start of the year, management correctly predicted that ongoing hikes to the base rate would lead to a spike in the number of borrowers seeking refinancing or extensions to their term times. In anticipation of this, Kuflink implemented a new loan book management system. This involved setting up an eight-step system of oversight on all loans, as follows:

• STEP ONE: Each approved borrower will receive a welcome letter. This letter will confirm any conditions associated with the loan, such as the completion of a damp and timber report, or an asbestos report.

• STEP TWO: Communication with the borrower continues until these conditions are satisfied.

• STEP THREE: At the halfway point of the loan, Kuflink will contact the borrower again to remind them about the conditions of their loan, and

to gauge whether any steps have been taken to arrange an exit or to repay the loan.`

• STEP FOUR: 12 weeks before the expiry date of the loan Kuflink will contact the borrower again. At this point they should have begun the process of repaying the capital via refinancing into a longerterm loan, or via the sale of that property or another property that they own. The platform will also engage with the borrower to find out what their exit strategy is for the loan.

• STEP FIVE: Eight weeks before the expiry date of the loan, Kuflink will again check in to ensure that the borrower is on track to refinance or repay the loan.

• STEP SIX: Six weeks before the expiry date of the loan, the platform will appoint its own solicitor (paid for via borrower fees) who will make contact with the borrower directly, introduce themselves, and provide clear instructions on how to redeem the loan.

• STEP SEVEN: Four weeks before the expiry date of the loan Kuflink will once more reach out to the borrower to ensure that their refinancing or repayment plans are progressing as planned.

• STEP EIGHT: Two weeks before the expiry date of the loan, Kuflink will make further contact with the borrower to see where they are in their exit strategy. This includes getting evidence of a refinancing process, such as a mortgage offer or evidence from solicitors confirming that a sale or refinancing plan is in progress.

“We are delighted with the success that we have seen through this new process so far,” added Patel.

“By engaging more closely with our borrowers we have been able to anticipate any issues with late repayments, and step in more quickly with potential solutions. This method is already paying off for both borrowers and investors, as we have been able to increase the rate of collections while maintaining our record of zero investor losses.

“We will continue to monitor macro-economic changes and we will adjust our risk management processes as needed.”

This hands-on approach to loan management is being adopted across the alternative finance community as lenders across the country attempt to reduce the risk of loan defaults in a rising interest rate environment. However, few have been able to implement such sweeping changes as quickly as Kuflink.

This ability to act decisively in response to wider economic issues is what sets P2P lenders such as Kuflink apart from the mainstream. While many banks are pulling back on their lending activities, or hiking rates to an unaffordable level, Kuflink continues to list new loans and onboard new borrowers. To date, the platform has returned more than £183m to investors, and loaned more than £281m to borrowers with no investor losses. By prioritising prudent risk management and acting quickly to bolster its systems, Kuflink’s stellar track record is only set to continue.

P2P’s USP

Peer-to-peer lending occupies a unique space in the private debt sector. Kathryn Gaw explains…

THE PRIVATE DEBT sector has risen to a new level of prominence over the past year. Rising interest rates and the higher cost of living has piled pressure onto borrowers across the world, forcing lenders to make difficult decisions about who they back and where they secure their

funding. For the biggest lenders –high street banks and other legacy institutions – this has led to an overall reduction in lending activity.

According to the Federation of Small Businesses (FSB), by the start of 2022, there were 5.5 million small- and medium-sized enterprises (SMEs) in the UK,

making up 99.9 per cent of the business population of the country. The FSB found that these SMEs account for three-fifths of the employment and around half of turnover in the UK private sector. The success of these businesses is therefore paramount to the health of the overall economy,

yet few mainstream lenders are stepping up to offer support when it is arguably needed the most.

This has created an SME funding crisis in the UK. The Centre for Economics and Business Research (CEBR) has predicted that approximately 7,000 SMEs will go bust during every quarter of 2024, as pandemic-related debt, higher borrowing costs and the cost-of-living crisis take a toll. Meanwhile, the British Chambers

of Commerce (BCC) has joined other business representatives to call on the Treasury to improve access to finance for SMEs amid some of the most difficult economic conditions seen in generations.

“The system desperately needs to change,” said the BCC in a recent

statement. “With investment in the UK economy continuing to toil in the doldrums, we must widen the pool of financial options available to firms to kickstart the growth we need.”

This is where the private debt markets come in. Preqin has

“

P2P lending adds a new source of funding for borrowers”

estimated that the private credit space has grown to almost $1.2trn (£970m) globally, and it is set to double in size by 2026. This space is dominated by large institutions such as mezzanine lenders, distressed debt funds and private equity firms. The largest names in the UK include Ares Management, Pemberton Asset Management, Permira and Ardian, who collectively manage private debt portfolios worth hundreds of billions of pounds.

By contrast, the total value of the UK’s peer-to-peer lending sector is less than £2bn – a relative drop in the ocean of private debt financing.

Yet despite its small size, P2P lending occupies a crucial space in the private debt market that cannot be understated.

“P2P lending helps facilitate growth for young businesses,” says Roy Warren, managing director of Folk2Folk. “No one else can be bothered to deal with them.

“Traditional high street banks and private debt funds are moving up the food chain and selecting their top 20 clients, so there is less space for the smaller enterprises to secure funding. P2P fills a very valuable gap in the market.”

The majority of the larger firms focus solely on high-value deals, worth £1m or more. By contrast, P2P property lender Kuflink is currently listing a series of loans valued at between £8,384.49 and £354,000. The flexibility to offer funding for smaller SMEs is what truly sets P2P lenders apart from the rest of the private debt world.

“We provide borrowers with an alternative method for borrowing and a number of avenues for credit as we’re not only funded by institutions but by high-net-worth individuals

and sophisticated investors,” explains Narinder Khattoare, chief executive of Kuflink.

“No matter what the financial climate looks like, you can see evidence of that during Covid when most lenders stopped lending and the P2P platforms were still trading.”

The investor experience is another way in which P2P distinguishes itself within the

private debt space. The majority of private debt lenders are funded either by institutions or by private equity funds. And while P2P loans are becoming more popular with institutional investors, they are primarily set up to serve retail investors. By definition, P2P lending involves individuals lending to other individuals (including business owners). This means that the average investor can support SMEs and their role in the economy, while also earning inflation-beating returns that are usually much higher and more consistent than bank or stock market earnings.

“P2P is about democratising

“ P2P lending helps facilitate growth for young businesses”

investment,” adds Folk2Folk’s Warren.

“Even though we have a relatively high investor threshold of £20,000, it’s not £2m or above like some private debt specialists. It’s still accessible for an individual sophisticated investor.”

Neil Faulkner, managing director of P2P ratings agency 4th Way, agrees that P2P lending expands access to bank-like money lending, adding that it “has become one of the most transparent types of investment available, which is essential for assessing the risk-reward balance.”

“P2P lending also adds a new source of funding for

borrowers,” says Faulkner.

“This helps to fill a funding gap and creates more stability in the wider credit market. It is also a seeding ground for budding lending businesses, as well as a new route to fund loans for established alternative lenders that see advantages in expanding into P2P.”

Clearly, P2P lending occupies a niche but vital space in the private debt market, but as banks withhold their lending, is there room for that space to grow?

Recent research from Ares

Management noted that analysts have observed tightening credit across most non-bank lenders for the past year, with signs pointing towards credit performance deterioration in the future. As a result, Ares said that nonbank lenders are recalibrating their underwriting models, with originations by US-based private debt funds slowing by an average of 33 per cent since 2020.

This could represent an opportunity for P2P lenders.

“I do think there is an opportunity for P2P to grow its share of the alternative credit space,” says Khattoare.

“There is also an opportunity for some of the bigger players in this space to collaborate more and make it bigger than what it is – previously you had the big three or four who no longer exist in this space but the current crop are doing great things and I totally believe it’s here to stay for the long term as we do all plug a gap in the market.

“If we were solely reliant on

the high street banks then the SME space would be dead. SMEs make up the majority of the UK economy so you need alternative lenders to operate in the market providing innovative solutions for borrowing – there are some great alternative lenders doing good things aways from the high street.”

P2P lending may represent just 0.1 per cent of the private debt space, but that 0.1 per cent is working hard to support 99.9 per cent of UK businesses during a period of unprecedented rate

rises and economic instability. It is a small but vital share of an increasingly relevant sector of the financial services market which deserves its due.

As the newly-rebranded Alternative Credit Investor, we will continue to cover and support the P2P sector as we monitor its role within the wider private debt space in the years to come. Our hope is that P2P will continue to grow and thrive without sacrificing the tenants that make it so special.

There are many private debt firms out there willing to invest in debt packages, or to lend to established players with books full of multibillion-pound projects. But there is a clear need for the sort of lenders who can pick up the slack during an SME funding crisis and provide financing to smaller firms which deserve a chance to grow, no matter what the economy is telling them. P2P is a particularly special corner of the private debt market, and whatever the future brings, its impact will not be overlooked.

“

There is an opportunity for P2P to grow its share of the alternative credit space”

A compelling asset class

Atuksha Poonwassie of Simple Crowdfunding and the UK Crowdfunding Association talks to Marc Shoffman about the past, present and future of peerto-peer lending

AS CO-FOUNDER OF property lender Simple Crowdfunding and a director of the UK Crowdfunding Association (UKCFA), Atuksha Poonwassie wears many hats and has seen the impact of regulatory change at platform and industry level. She explains why she feels the future for peerto-peer lending remains strong.

Marc Shoffman (MS): Are developers still seeking loans in the current economic climate?

Atuksha Poonwassie (AP): We have seen a change in that there are more developers approaching us who are looking for funding. They tend to be larger. This is for both equity finance and P2P loans.

MS: What is driving borrower demand?

AP: The market conditions. The traditional finance options are potentially proving a little more challenging.

A lot of developers are embracing the crowd as they see the longer-term benefit of having a multitude of investors who will continually back their projects as long as they are delivering.

We are also seeing developers embracing the crowd on the P2P

lending side as they can then access investors who may want to invest through an Innovative Finance ISA (IFISA), which is a great asset and also pension investing through a small, self-administered scheme.

MS: How much demand are you seeing from investors?

AP: Lots of investors are coming through. September is really the start of when the ISA investments ramp up so it isn’t a huge surprise for us. One of the things we are

seeing is that these investors tend to be slightly older, more than 50 per cent are above the age of 45. We also have investors over the age of 75.

The feedback we are getting is that these investors have ISA pots available, are looking for straightforward returns and like being able to invest in opportunities that have some sort of asset backing. They understand what developers are looking to achieve. It is a regular, steady return for them.

MS: How do your interest rates compare with the wider market?

AP: Our interest rates have gone up in line with other lenders. Before

“

Our interest rates have gone up in line with other lenders”

we were seeing investor rates on first charge loans of between eight and 10 per cent, they are now between 10 and 13 per cent, that’s at 75 per cent loan to value.

Our second charge loans used to be between 10 and 13 per cent, now we are seeing those at between 12 and 16 per cent on average.

The market hasn’t changed, it isn’t even because we are looking to attract more investors, that is just what the market is demanding in terms of conditions such as inflation and the wider trends.

MS: Is the IFISA still appealing?

AP: The IFISA is still a viable product. The returns tend to be higher than traditional products and if people can fund an investment opportunity that does have some sort of asset backing as well and helps bring homes to market, it is a very viable option.

of the charm and benefit of being in the crowd space. We started off saying this is a great opportunity to allow everyone to be involved and we stand by that. Things have changed because of new regulations such as appropriateness tests and the Consumer Duty but we are sticking with it as we regard it as an important service for customers. We are still early in this space. There is a lot of work to be done to bring it to the forefront.

MS: What else can be done to improve the uptake of P2P lending?

AP: There needs to be more education and a better understanding from other sectors that manage or work with investors or customers such as independent financial advisers, providing a better understanding

from appropriateness tests to marketing restrictions and the Consumer Duty in recent years. It would be nice to allow things to settle down a bit. As platform owners we are constantly managing all the regulatory changes as well. It would be good to allocate time to focus on our businesses and users.

MS: What is your outlook for the industry?

AP: There will be more platforms exiting the space as it is a tough environment. It is more challenging to join this industry now. In terms of the opportunity it presents, my view has not changed one bit.

The opportunity is immense and it will absolutely benefit the general public and also fundraisers looking to bring projects and homes to market, allowing their businesses to flourish.

MS: What does the future hold for the UKCFA?

The feedback we are getting is that people want to use their IFISA allocations to fund projects. Our average investment on the ISA side per project is currently £15,000 and transfers are often higher. Our minimum investment tends to be higher as well, which helps.

Depending how much a borrower is looking to raise, if they are raising a million or two, we may ask for a minimum investment of £5,000 or £10,000 depending on the offer. We are not at the £100 level of investment.

MS: Are you committed to the retail P2P lending market?

AP: Retail investors are part

of what can or cannot be done.

MS: What trends are you seeing in the market?

AP: There is definitely a reduction in the number of smaller investors coming through but there is a certain level of people who will just continue. We haven’t seen a drop in the £12,000 to £15,000 mark. However, when investors register on the platform it takes longer for them to start investing. Part of that is due to the appropriateness tests.

MS: What are the biggest regulatory challenges?

AP: The landscape is constantly changing. We have had everything

AP: The UKCFA has been very focused over the past eight months in conversation with the Treasury and the Financial Conduct Authority (FCA), and we have also made changes within the organisation. Our 36h group is still going. It did take a break while we were looking at more recent changes. We have reinstated meetings and will be picking that up again.

Our priorities haven’t changed. We are still talking about lobbying the Treasury, the FCA and the British Business Bank. We are still looking at what can be done to remove P2P lending from high-risk investments, to generate standardised performance reporting and ultimately to present P2P lending as a compelling asset class.

“ Retail investors are part of the charm and benefit of being in the crowd space”

INVESTMENT PLATFORMS

Assetz Exchange is a property investment platform delivering long term stable income for investors, primarily through the purchase and leasing of housing for social good. Regulated by the FCA, it provides the opportunity for investors to create a diversified property portfolio and alternative funding options for the housing sector.

www.assetzexchange.co.uk

T: 03330 119830

E: info@assetzexchange.co.uk

easyMoney is a peer-to-peer property lending platform that is fully authorised by the Financial Conduct Authority #231680. It has £164m+ in investor funds currently deployed and £280m+ in total loans written to date. It has had no borrower defaults and no investor has ever made a loss. Among P2P firms surveyed by Alternative Credit Investor it has the largest active Innovative Finance ISA portfolio, with over £66m currently invested. easyMoney.com

T: 0203 858 7269

E: contactus@easymoney.com

Folk2Folk is a profitable UK lending and investment platform. More than half a billion pounds has been invested via the platform with no investor losses to date. Loans are a maximum of five years, secured against land/property at a maximum 60 per cent LTV, with a fixed rate of between 7.5 and 9.5 per cent, per annum.

www.folk2folk.com

T: 01566 773296

E: enquiries@folk2folk.com

Invest & Fund is an established alternative finance platform that has deployed over £257m on clients' behalf and has repaid over £158m to lenders with zero per cent bad debts written off. Lenders can achieve a diversified, asset-backed portfolio with gross yields averaging from 6.75 per cent to 7.5 per cent per annum with an option to lend through an ISA or a SIPP for tax-free returns.

www.investandfund.com

T: 01424 717564

E: lending@investandfund.com

JustUs is an innovative peer-to-peer lender that provides a range of consumer and property-backed loans. It has lent out more than £25m and paid more than £1.7m in interest to lenders to date. Investors can enjoy returns of up to 10.98 per cent, with all products eligible to be held in an Innovative Finance ISA for tax-free earnings.

www.justus.co

T: 01625 750034

E: support@justus.co

Kuflink is an award-winning lender and online investment platform. With over £280m invested through the platform, investors can customise their own portfolio investing in specific loans or in a pool of loans diversified across a number of opportunities. Earn up to 9.73 per cent (compounded) per annum, with an IFISA available.

www.kuflink.com

T: 01474 33 44 88

E: hello@kuflink.com

LANDE is a crowdfunding platform that gives investors access to secured agricultural loans. It has created a unique scoring model, accessible infrastructure, and a variety of products so that farmers are able to access financing quickly and easily. With LANDE and its investors as partners, farmers can become more independent and sustainable, while improving their yield, efficiency and profitability. Projects offer interest rates of up to 14 per cent per annum.

https://lande.finance

T: +371 20381802

E: info@lande.finance

Lendwise is the UK’s only peer-to-peer lender that is dedicated to impact investing in education finance. Investors finance education for borrowers at universities and business schools across the UK and globally. Investors define their own risk appetite and use Lendwise’s AutoLend feature to diversify their strategy across a pool of loans, which can be invested in an IFISA wrapper earning average returns of up to nine per cent per annum.

www.lendwise.com

T: 0203 890 7270

E: lenders@lendwise.com

Lending for over eight years, Somo is a seasoned bridging lender specialising in providing short-term secured loans against UK property. Somo gives its lenders the opportunity to tailor their investments according to their risk tolerance, selecting interest rates and loan-to-value ratios that align with their preferences, with a minimum investment of £5,000.

W: www.somo.co.uk/how-it-works

T: 0161 312 5656

E: investors@somo.co.uk

SERVICE PROVIDERS AND INDUSTRY ORGANISATIONS

The European Crowdfunding Network (EuroCrowd) is an independent, professional business network promoting adequate transparency, regulation and governance in digital finance while offering a combined voice in policy discussion and public opinion building. It executes initiatives aimed at innovating, representing, promoting and protecting the European crowdfunding industry. www.eurocrowd.org

E: info@eurocrowd.org

Q2 creates simple, smart, end-to-end lending experiences that make you an indispensable partner on your customers' financial journeys. Its modular platform gives you the ability to manage lending simply throughout the entire loan lifecycle, from application, onboarding, servicing to collections. The result is a better experience for both borrowers and lenders.

https://eu.q2.com

T: 020 3823 2300

E: info@Q2.com