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Peer2Peer Finance News | September 23, 2018

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Why it’s worth looking at crowd bonds

Why it’s worth looking at crowd bonds
Tim Evershed

THERE are a growing number of crowd bonds on the market, particularly in the green and ethical investment space.

Crowd bonds give individuals the opportunity to lend to companies over a fixed-term period, often with alluringly high rates of return.

The minimum investment can be as low as £100, as crowd bonds look to attract large numbers of small investors for a variety of projects.

These products sometimes offer the added benefit of an Innovative Finance ISA (IFISA) wrapper, enabling investors to enjoy tax-free earnings on their income.

However, crowd bonds tend to be larger than peer-to-peer loans, which can make it harder for investors to diversify. Please note that crowd bonds are all investment products and come with risks attached.

Here we look at some of the crowd bond investments available on the market.

Positive impact

Ethical bank Triodos launched its own crowd bond platform earlier this year, named Triodos Crowdfunding.

It offers green investments as bonds, all of which can be folded into the IFISA wrapper. Past projects have ranged from solar schemes, to heat pump installations, to wind farms.

Read more: Ethical lender Triodos raises over £7m on its crowdfunding site

Interest rates range from five to seven per cent with minimum investments starting at £100.

Most recently Triodos launched a crowdfunded solar bond to raise £4m for a 36,000-panel solar farm in Somerset.

Investments in the community interest company Burnham and Weston Energy CIC will return an inflation-linked interest rate of five per cent a year.

Further afield

Positive investing platform Lendahand Ethex offers the opportunity to invest in African solar projects through an IFISA-eligible crowd bond.

In April it teamed up with utility company BBBOX to raise £2.5m to fund solar systems across Africa. The partnership’s initial offer looked to raise £250,000 from UK-based investors to fund solar systems for 2,500 rural Rwandan households.

The bond aims to generate an annual return of five per cent over a 36-month period.

Read more: Lendahand Ethex hits £5m milestone for solar projects in Africa

The firm also offers an Energy Garden Community Bond, which targets a four per cent return for investors.

It allows institutional and retail investors to support the work of the London-wide Energy Garden initiative, which creates gardens, food-growing plots and solar energy stations on London Overground platforms.

Infrastructure projects

Another P2P crowd bond platform is Amberside Asset Lending Platform (ALP), which invests in high-yielding private debt in infrastructure projects, including solar parks, grid support facilities and hydroponics projects.

ALP is a joint project between Amberside Capital and CH1 Investment Partners and offers investors five per cent returns.

The minimum investment is £100 and it is possible to hold the bonds in an Innovative Finance ISA (IFISA) wrapper.

Driving change

Downing Crowd boasts one of the widest ranges of investment options on its crowd bond platform.

The platform invests in “businesses that make a difference”, including renewable energy, care homes, health clubs and children’s nurseries.

It typically offers asset-backed bonds offering returns from four to seven per cent per year.

And this autumn Downing is launching an opportunity to back an electric vehicle project to retail investors.

The £1.6bn project will aim to create a world-first 2GW network of grid-connected batteries and rapid electric vehicle (EV) charging stations across the UK.

Downing’s investments are also IFISA-eligible.

Property

Outside of the green investment space, Crowdstacker’s launched its first crowd bond in September 2017, enabling investors to back property developer St Mark Homes.

The 30-month bond finances residential developments, the majority of which will be eligible for the government’s Help to Buy scheme.

Investors are offered six per cent annual returns, with a minimum investment of £500.

The bond was the first fixed-income investment offered by Crowdstacker since the platform announced it would be offering more than just P2P loans.

Pitfalls

However, the potential perils of crowd bond investing were laid bare this year when energy regulator Ofgem rejected an application for subsidies on a debenture offered by crowd bond platform Abundance. As a result, investors’ capital is now at risk.

The £3.9m Monnow Valley CHP (MVCHP) facility is now listed as ‘overdue’ on the Abundance website although investors had received the 12 per cent interest which was expected from the loan.

Abundance says it is working with investors and MVCHP to appeal the Ofgem decision via a statutory review. And the company is prepared to take the case to a judicial review, if necessary.