'P2P Crowdfunded Loans Can Offer Steady Returns Like Fixed-Income Assets'


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The Judge Business School of Cambridge University is a beacon of clarity and measured thought in the field of alternative finance, of which crowdfunding is an increasingly important part.

Today, we offer extracts of a new report, published online. The outline features key figures at the Judge school, including Bryan Zhang, director of policy and operations at the Cambridge Centre for Alternative Finance (CCAF). Bryan was kind enough to speak at the recent Discovering The Power Of The Crowd conference (see a video of some of the day's events here), co-sponsored by Money&Co. Crowdfunding, in case you were wondering, is a very old phenomenon – and we've stolen one of Bryan's presentation slides (above) to make the point.

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"One of the less predictable consequences of the financial crisis has been the growth of alternative finance providers, particularly online platforms," begins the Judge report. "These services have become more popular in part because of the regulatory constraints imposed upon mainstream financial providers in the aftermath of the crash, but also as a result of a perfect storm of low interest rates and technological and social change.

"New online platforms – crowdfunding, peer-to-peer lending and invoice trading (where businesses sell their accounts receivable invoices at a discount to individual or institutional investors) – have transformed the definition of alternative finance, and the sector has prospered in developed countries in recent years, outside mainstream banking and capital markets. And, far from being a passing trend associated with favourable but temporary conditions, it now seems more and more likely that alternative finance will go on to alter the shape of the global financial sector and the business world.

"That can only mean good news for SMEs, since arguably the most significant role played by alternative finance is as a supplier of working capital to small businesses.

"Even with increased interest rates, crowdfunding borrowers and lenders can be better off"

"'Alternative finance models, such as peer-to-peer lending, are popular because of their relatively low risk profile, and they can offer steady returns akin to a fixed income asset class,' says Bryan Zhang, Director of Operations and Policy at the CCAF.

"Although low interest rates may have helped make these investments look more attractive, the efficiency of alternative financing processes is also playing an important role, he asserts. 'Savers are chasing the yield, but if you think about why these platforms are competitive, it is because of their underlying cost structure and innovations in credit risk modeling and customer services. They don't have physical branches and many platforms have better, more efficient technology to evaluate credit-worthiness and control risk. Even with moderate increases in interest rates, borrowers and lenders can still be better off in the peer-to-peer lending marketplace with attractive rates, more flexible terms and speedy services.'"

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*** Real Engineering is now over 62 per cent of the way to its £376,000 target. The loan is A-rated, and has a current gross indicative yield of 8.6 per cent.

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