CBILS will have long-term benefits for P2P sector
Mark Turner, managing director in Duff & Phelps’ compliance and regulatory consulting practice, shares his thoughts on how peer-to-peer lending platforms can retain and grow institutional investment in a post-CBILS world…
The inclusion of alternative lenders in the government-backed coronavirus business interruption loan scheme (CBILS) will have long-term benefits for the peer-to-peer lending community – but only if platforms can administer their loans effectively.
According to Mark Turner (pictured), managing director in Duff & Phelps’ compliance and regulatory consulting practice, CBILS inclusion will ultimately be a positive thing for the P2P sector, even for those platforms which did not secure accreditation.
“It’s almost a coming of age for the sector,” he says. “It’s a recognition that the P2P sector is an effective way of getting money into the economy.
“And, of course, that’s what CBILS was all about – getting money into the economy effectively, efficiently and quickly.”
Read more: P2P lenders give CBILS mixed reviews
He adds that there is every reason to hope that CBILS inclusion will help to attract and retain new institutional investment in the sector, but only if CBILS-approved firms can demonstrate that they have strong controls, and that their default rates are properly managed.
“If new institutional investors are dipping their toe into the sector for the first time and they have had a good experience because they’ve generated returns and the firms have demonstrated that they can operate in a well-controlled and profitable way, then I don’t see them necessarily pulling their money out of the sector as soon as the scheme ends,” says Turner.
But he warns that platforms need to be ready for a wave of defaults and the scrutiny that this will bring.
“One would expect there to be, on average, higher levels of defaults for CBILS loans than in the business that preceded it, because by definition the scheme is about trying to get money out to firms that maybe lenders wouldn’t lend to otherwise,” he says.
“If default rates are very high, there will no doubt be scrutiny by the government as well as by the investors themselves. So, if a P2P platform – like any other firm that was involved in CBILS – has an outlying default rate, then they can expect the government to ask questions of them.
Read more: Government unveils changes to emergency loan schemes
“Of course, the positive thing on the other side of that is that the platforms that actually have managed to keep defaults low and provide returns to their investors without extensively calling on the government guarantees, they will be in a really strong position after CBILS ends.”
In order to make the most of the opportunities offered by the government support loans, platforms must ensure that they follow good governance, maintain good audit trails, and document decision-making processes.
This will show the government, the public and institutional investors that P2P platforms have what it takes to compete with the big banks.
“Even after CBILS has been unwound, firms will still have that badge that says we were accredited by the government,” adds Turner.
“The sector as a whole can benefit from the fact that a number of firms in the sector were accredited.”
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