Alternative finance market hit £3.2bn in 2015

The UK’s alternative finance market grew by 84% to facilitate £3.2bn in investments, loans and donations over the course of 2015, according to research from the Cambridge Centre for Alternative Finance and Nesta.

The research claims that crowdfunding was “by far 2015’s biggest success story”, with donation-based crowdfunding growing by 500% from £2m to £12m and equity crowdfunding seeing a 295% increase from £84m raised in 2014 to £332m in 2015.

Online alternative finance platforms are estimated to have provided the equivalent of 3% of all lending to UK small and medium enterprises, while peer-to-peer (P2P) lending accounted for the equivalent of 13% of all new bank loans.

Despite the significant increase in volume, the growth of the alternative finance market is showing signs of slowing down with annual growth more than half of the levels seen from 2013 to 2015 – 161% down to 84%.

The report also highlighted the risk of fraud and malpractice in the market, with 57% of alternative finance platforms voicing their concerns, and the threat of increasing institutionalisation was also raised as 25% of all P2P loans last year were backed by banks.

Robert Wardrop, executive director of Cambridge Centre for Alternative Finance, said:

“The substantive growth of alternative finance in the UK last year is not surprising, given that these new channels of finance are increasingly moving mainstream. One of the key drivers underpinning this development is the growing institutionalisation of the sector.”

Stian Westlake, Nesta’s executive director of policy and research, continued: “As the sector grows and matures it is sure to face challenges – investors will be keen to see returns, and another financial crisis would certainly test the robustness of P2P lending. “