The minutes of the
February Bank of England monetary policy committee meeting hit
the headlines because of divisions over the need for further
quantitative easing, something governor Mervyn King advocated
but found himself outvoted on.
Sterling fell on the news. Continuing worries about the
failure of the banking system to lend drew less attention. The
committee said that consideration of measures to support the
flow of credit more broadly, including from non-bank lenders,
was warranted but went into few details of who these lenders
Could crowdfunders be
part of the answer? The top four of them in the UK are
responsible for close to £100 million of lending. The
sector is growing fast on both sides of the Atlantic.
In January, UK equity
crowdfunder Crowdcube became the first of its kind to receive
approval from the Financial Services Authority, in a sign of
growing acceptance of
alternative means of finance such as crowdfunding, peer-to-peer
lending and lender/borrower matching platforms.
Luke Lang, co-founder and
marketing director at Crowdcube, says the approval is a vital
step in ensuring that crowdfunding becomes mainstream in the
UK. "If you ask people who work in the City to name three
venture capital firms they should be able to do that, but the
average person may not even know what a business angel is. We
want to break down those barriers and move beyond just
corporate finance to help businesses raise money."
The FSA has appointed an
officer dedicated to overseeing approvals for the crowdfunding
industry. Lang says he expects other crowdfunders to be
encouraged and that now, with that extra layer of credibility
from the FSA, the next step for Crowdcube is to start building
relationships with entrepreneurs and partnerships with venture
capital firms to propagate deal flow. The firm also hopes to
expand internationally into Europe and North America.
Crowdfunding has stalled
in the US as the
Jobs Act regulation takes time to be finalized. "Its
dragging on a little more than people expected, but there are
lots of sites in the US that started planning the minute the
Act was passed and now they are using the extra time to garner
as much attention around their models as possible," says Kevin
Berg Kartaszewicz-Grell, research director at massolution, the
research and consultancy arm of crowdsourcing.org.
He says the next wave of
crowdfunders are likely to be geography- or sector-specific.
"There are already niche platforms out there that focus on
niches such as photojournalism (Emphas.is), gaming
(Gambitious), music (Pledgemusic) and then various green energy
crowdfunders. There is a lot of potential there and the reason
is that financing efforts always will be closely linked to the
exchange of information; and the most efficient exchange of
information happens between people who either already know each
other, share an interest in specific projects, or perhaps both.
Creating an ecosystem where this exchange is made possible is
the hallmark of the crowdfunding model."
While equity and
rewards-based crowdfunders await the green flag in the US,
crowdlending platforms are booming. Peer-to-peer lending in the
US has taken off over the past 12 months. There are still just
two key players Lending Club and Prosper. Lending Club
is the larger of the two, accounting for $1.4 billion of the
$1.85 billion combined total of loans advanced. Lending Club
has tripled in size over the past 12 months and expects to
advance $1.5 billion in loans this year and $3 billion next
year. It is now one of the largest personal loan providers in
the US, on a par with Wells Fargo and Discover.
The appeal for investors
in loans is clear. Ron Suber, head of global institutional
sales at Prosper, says that it has become accepted by lenders
as a "valid, uncorrelated, self-paying asset class". Suber
says: "It pays more than cash, is less volatile than equities,
does not get impacted by rising interest rates and offers a
monthly income." He says family offices, particularly the
second and third generations, have been drawn to peer-to-peer
lending as an investment. "They are looking for a monthly
income and it offers an alternative to dividend stocks."
Renaud Laplanche, chief
executive of Lending Club, says his firm works with a number of
wealth managers that use Lending Clubs loan portfolios
"to provide predictable high-yield investments for their
clients". Laplanche says financial advisers are often advising
clients to allocate a portion of their portfolios to Lending
Club. A large number of retail investors, he says, are using
their retirement accounts to invest, as the structure allows
for a tax deferment.
As peer-to-peer lenders
become more mainstream, they are attracting greater interest
from industry stalwarts and Wall Street firms.
Morgan Stanley alumni John Mack and Mary Meeker are on the
board at Lending Club and in December
Larry Summers, the former US secretary of the Treasury,