Samir Desai, CEO of Funding Circle, dismisses the notion of a middle ground between marketplace and balance sheet lenders.
Speaking at today’s LendIt Europe conference, Funding Circle boss Samir Desai (pictured right) doubled down on the marketplace lending model, claiming that “there’s no such thing as a hybrid lender”. In his opening keynote speech, Desai argued that commentators who use the phrase “hybrid lending” are fundamentally misunderstand what marketplace lenders are attempting to do.
He said that the primary purpose of marketplace lending is to provide the most efficient mode of connecting capital to borrower demand, and that acting as a pure marketplace is the only way to achieve that.
Speaking exclusively with AltFi, Desai further explained that he believes the most efficient form of balance sheet lenders (while still inferior, in his opinion, to marketplace lenders) are the banks, due to their ability to access deposit money. He said that Funding Circle could have progressed towards profitability (the company lost over £30m in FY2016) far more quickly had it chosen to lend the c. $300m in equity capital that has been raised by the firm to date. But Funding Circle has stuck to the pure marketplace model as the result of a fierce belief in the long-term efficiency gains that Desai and his team believe are encompassed by the model.
Funding Circle boasts a highly diversified investor base, comprised of retail and high net worth individuals, institutional investors and a range of government organisations, such as the British Business Bank, KfW (the German development bank) and various local councils in the UK (the US government is yet to invest via the platform).
The platform also has a £150m fund listed on the London stock exchange. This fund, named the SME Income Fund, invests exclusively in Funding Circle loans. Desai believes that these “single platform-funds” represent a better way of solving supply-demand shortfalls than holding loans on balance sheet.
Desai also pointed to the increasing importance of securitisation, although he stressed that marketplace lenders must be careful not to become over-reliant on ABS markets. Funding Circle pulled off the UK marketplace lending sector's inaugural securitisation in May of this year. The senior tranche was rated AA by Moody's.