The Cambridge Centre For Alternative Finance (CCAF) has just issued its latest global report on alternative finance. Money&Co. participated in this important piece of research. The full report is available here.
Debt-based platforms obviously dominate the sector providing a key resource to both consumers and, mostly, smaller businesses – an important aspect of any economy.
“Small and Medium-sized businesses actively utilise online alternative finance channels and instruments for their funding needs. Since 2015, alternative finance firms have increasingly serviced SME clients, with discussions around SME-focused Fintech activity serving as a key priority for policymakers globally. The utility of alternative finance for SME clients is undeniable; our data suggested that volumes going to entrepreneurs, start-ups and small and medium-sized businesses (SMEs) globally is on the rise and proving to be a viable and long-lasting funding source, which may be even more critical during COVID-19 and its impact on small business operations and cashflows.”
Importantly, there has been a trend in the “institutionalization” of these debt-based platforms as institutions now provide the bulk of the funding. The Benchmarking Report explains:
“2020 firms saw almost an absolute concentration in institutional funders, with over 98% of regional volumes originating from such sources, also representing the highest rate globally. This is mostly a reflection of regulatory conditions favouring accredited investors in debt-financing in North America, as well as conditions of highly developed financial market where retail investors use professional intermediaries more readily. Following is the United Kingdom market, where companies reported a significant growth of institutional funders between 2019 and 2020, leaping significantly from 43% to 66% of funding proportion as well as reaching a volume of approximately $15 billion and $29 billion respectively.”
Financial inclusion remains an important thesis when it comes to Fintech and alternative forms of finance. While in developed countries, access to banking and other financial services firms is fairly accessible in less developed regions, Fintech and alternative finance may offer a valuable path to providing financial services to an underserved segment of the population.
The report shows that in a developed market, like the UK, alternative finance primarily caters to already banked customers. But it is important to highlight that progress is being made in boosting access to financial services – even if on an incremental basis.
Historical Performance And IFISA Process Guide
That figure is the result of over £24 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
The ISA allowance for 2020/21 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.