Pushing boundaries: what’s new in alternative finance?

On Tuesday this week, NESTA and the Cambridge Centre for Alternative Finance published “Pushing Boundaries”, their latest annual report on the state of alternative finance in the UK. Their earlier reports established this as the single most authoritative source of data on the sector in the UK (despite some competitors). What does the new report tell us? And what does this have to do with our work on alternative finance, resilience and democracy?

Firstly, it shows the sector is still growing fast. And while most attention is on the big volumes in P2P lending, it’s interesting that two of the smaller but more socially-focussed areas – donation crowdfunding (e.g. Crowdfunder) and community shares – are also on the up, with donations growing the fastest of all sectors.

Secondly, it emphasises again the diversity within the sector. Say “crowdfunding” to someone and they will mention Kickstarter within 30 seconds. But there’s much more to it than that. In fact the report shows that today “rewards-based crowdfunding” is one of the smaller parts of the market: only two-thirds the volume of community shares for example. Another interesting area that has taken off is crowdfunding of property development (or “real estate” as the report has it). Most of this is focussed on funding residential rental developments, whether new builds or buy-to-let deals.

The report interestingly highlights the gender gap in alternative finance. They note that across commercial return activities (loans and shares), men outnumber women as funders and fundraisers, but that the reverse is true in donation-based crowdfunding. What does this say about alternative finance’s ability to reflect, or to change, the wider world? Some data suggests that women run about 20% of UK SMEs – and the new report finds that 21% of business borrowers were women. However, it estimates that only 8% of equity fundraisers were women – whereas women are estimated to actually outnumber men in “early stage entrepreneurial activity”. Research into the formal third sector suggests that management positions are much more equally gender balanced – but what about the more informal activity that donation crowdfunding is often about? What does this say about power and responsibility in community and social action? All this suggests plenty of questions for further research.

So, what next for alternative finance? It’s likely to grow further: this April will see the “Innovative Finance ISA” come onstream, giving the general public the chance to invest tax-free on alternative finance platforms. On the downside, the businesses surveyed see fraud by their users, and cyber-security attacks, as the greatest risks they face. And consolidation within the sector, and increasing connections outside of it to mainstream finance, are two of the main trends the report identifies. Our research for Friends Provident Foundation has also picked up on these trends, and we’ll be discussing their implications for the potential for alternative finance to democratise finance, and contribute to local economic resilience, in our report out later in the spring. Watch this space!