Can alternative finance help build a better economy?
The UK is the home of Europes rapidly-growing Alt Fin movement encompassing peer-to-peer lending, community share schemes and crowdfunding.
A new report into the UK’s burgeoning alternative finance industry was published today, Financial Innovation Today: Towards Economic Resilience, which examines the sector’s role in democratising finance and building economic resilience. It calls on the Government to underwrite consumers’ investments in the sector in a bid to encourage wider participation.
The UK is the home of Europe’s rapidly-growing “AltFin” movement – encompassing peer-to-peer lending, community share schemes and crowdfunding. Fast becoming a major player in the financial sector, it was valued at £3.2 billion in 2015 – almost five times the 2013 figure.
In what is the first independent qualitative evaluation of the sector, academics from the University of Leeds interviewed companies at the vanguard of the movement to understand their motivations. They found a dynamic social movement encompassing multiple innovative finance models, trade bodies and regulators.
Lead author Dr Mark Davis argues that to deliver progressive social change, people need to do different things with their money and break the habit of using high street banks. He said:
“A big part of the appeal of alternative finance is that we can know precisely where our money is and what it is doing. This moral appeal to people’s wallets is already building renewable energy infrastructure, supporting small- and medium-sized enterprises and helping to fill the funding gap for a range of public services.
Despite the loss of reputation suffered by high street banks following the financial crisis, we still trust them with our money – even though we know little about what they do with it. One of the reasons might be that we don’t know what else we can do with our money.”
The report recognises that alternative finance is unfamiliar territory for many people, and that taking any risk can be off-putting. But in continuing to assume banks are the best place to invest, it argues people might be missing the opportunity to make their money “do good” by investing in good causes in their communities.