LONDON (Reuters) - Britain’s alternative finance market is forecast to more than double this year and next, said a study published on Friday, as peer-to-peer lending, invoice trading and crowdfunding shift into the mainstream.
The report from innovation charity Nesta and the University of Cambridge said alternative finance to businesses and consumers was set to hit 1.74 billion pounds in 2014, before jumping to 4.4 billion pounds in 2015.
The market totalled some 666 million pounds last year.
A raft of finance providers have sprung up in the wake of the financial crisis when banks cut back on lending to SMEs, forcing them to look for alternative sources of credit.
“With bank lending to SMEs down again this quarter, it’s no wonder that alternative finance is fast becoming an important source of funding,” said Liam Collins, a researcher at Nesta and co-author on the report.
By the end of 2014, it is expected that alternative British lenders will have provided more than 1 billion pounds of business finance to over 7,000 SMEs during the year - or 2.4 percent of all bank lending to such companies, the study said.
The sector is dominated by peer-to-peer (P2P) lending, where investors give money directly to businesses and consumers, usually through online platforms. P2P will account for 1.3 billion pounds in total in 2014, while invoice trading will pull in 270 million pounds and crowdfunding 84 million pounds.
The market has caught the attention of some big names of late. The chief executive of corporate finance firm Perella Weinberg joined the board of P2P loan company Funding Circle this year, while major British hedge fund Marshall Wace also launched the world’s first listed P2P investment trust P2PG.L.
However alternative finance remains off the radar for almost half the people in Britain, with 42 percent unaware of it, the study found. Fewer than 10 percent of the surveyed SMEs had approached an alternative platform for finance.
Reporting By Freya Berry; Editing by Crispian Balmer