Mind the credit gap! UK P2P market ripe for business loans
THE UK P2P market has more scope for lending to businesses than households, research suggests.
A new alternative lending index, launched by European peer-to-peer lender TWINO and accountancy firm KPMG, assesses the availability and cost of credit in the sector across the continent and opportunities for platforms to fill the gap.
The UK was found to have a low level of loans outstanding to businesses and a higher cost of corporate borrowing than the Eurozone, leaving a gap for P2P lenders.
In comparison, the index showed credit was more easily accessible in the mainstream market for households.
Household debt was assessed by looking at outstanding loans per person at the end of the year divided by net annual income per person.
The higher the indebtedness of households or businesses, the less additional borrowing they would need from alternative lending.
The UK had a score of 75.3 per cent, compared with 76.5 per cent in the rest of the bloc, but the costs in both regions were broadly the same.
In comparison, the business indebtedness, calculated by dividing the total outstanding corporate loans at the end of the year by total annual gross domestic product (GDP), was just 19 per cent, compared with 40 per cent in the Eurozone.
The report also estimates a credit gap for each country, calculated as the difference between actual loans to GDP ratio and the long term trend of loans to GDP ratio.
The higher the credit gap in the country, the more underserved the market is. The UK came up with a credit surplus of 4.3 per cent.
Poland was named as the country with the highest potential for alternative lending, with business indebtedness at just 16.8 per cent and household borrowing at 52.7 per cent, while the cost of finance was above average in both cases.
Its credit gap was 5.6 per cent.
Meanwhile, Germany, despite having a credit gap of 5.1 per cent, had the least room for alternative lending, as the cost of corporate borrowing was below average and household debt was above average at 77.7 per cent, suggesting an efficient market.
Overall, the European credit gap was 11.3 per cent, amounting to £410bn.
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“Alternative lending in Europe has demonstrated remarkable growth since the financial crisis, yet the European Central Bank does not currently intend to closely monitor its development,”
Jevgenijs Kazanins, P2P platform lead at TWINO, said.
“In the absence of an official industry metric, our alternative lending index highlights the health and growth potential of this sector, which is fast-becoming a significant part of Europe’s lending landscape.
“As our report shows, the alternative lending industry is showing great potential for growth in many European countries. As it becomes more unified across Europe, the need for a supervising body and regulation will become more pressing.”