THE GOVERNMENT should guarantee the money consumers invest through peer-to-peer platforms as it will boost local economies, according to a new report.
The proposals outlined by the Bauman Institute at the University of Leeds said that the alternative finance sector could provide a cheaper alternative to direct government investment for the taxpayer.
“Central government should consider guaranteeing a maximum amount of investment in alternative finance products, perhaps up to £5,000 per investor, in order to encourage wider participation,” said the study.
“There should also be a requirement that these investments be direct investments in the ‘real economy’ in a transparent and accountable way. This will empower the sector to democratise finance.”
P2P investments are currently not covered by the Financial Services Compensation Scheme (FSCS), which protects consumers’ savings in bank accounts.
“Alternative finance prioritises direct investment in what is often called the ‘real economy’ – local businesses, infrastructure, and community projects that are intended to generate social and environmental benefits as well as a financial return,” said the report.
“It represents a growing and dynamic social movement sharing a set of common values and aims across a highly diverse set of companies, trade bodies, regulators, civil society organisations and investors.”
The FSCS announced earlier this year that it may be able to provide compensation of up to £50,000 if consumers received unsuitable advice about investing via P2P lending. However, how this would work in practice is a little unclear as there are various conditions to claiming, one being that the platform must have become insolvent.