The Bank of England has rejected calls for peer-to-peer lending platforms to gain access to the Term Funding Scheme.
The Term Funding Scheme provides funding to participating banks and building societies at interest rates close to base rate, which is currently 0.1 per cent.
Without this cheap funding, some alternative lenders claimed that they were unable to participate in the government’s emergency loan schemes during the pandemic.
A spokesperson from the Bank of England confirmed that the Term Funding Scheme with additional incentives for small- and medium-sized enterprises (TFSME) is only open to banks, but explained how the initiative can benefit non-bank lenders in other ways.
“The TFSME was designed primarily to facilitate the pass-through of cuts in bank rate, and so was deliberately designed to operate through the banking sector given the key role played by deposit-taking institutions in monetary policy transmission,” the spokesperson said.
“For that reason it is not open to non-banks to directly participate, although a proportion of non-bank lenders are part of banking groups, and so can benefit directly from the TFSME.
“Where that is not possible the TFSME seeks to reinforce incentives for participant banks to use cheap funding to extend loans to non-banks by giving participants £1 of additional cheap funding for every £1 of such lending.”
Innovate Finance was in talks with the Bank of England last summer, in a bid to open up the Term Funding Scheme to non-bank lenders. The fintech trade body expressed disappointment when non-bank lenders were blocked from accessing this funding.