As part of the Government’s inquiry into SME Lending, the Treasury Select Committee last week held its sixth evidence session, this time focussing on alternative finance. Representing the SME peer to peer lending industry was Funding Circle’sSamir Desai and Market Invoice’s Anil Stocker who set out their aspirations, concerns and achievements. The inquiry is focussed on three main issues; access to finance for SMEs, the scope for opening up the sector to more competition and the treatment of SMEs by banks.
Alongside the big bosses from two of the UK’s most successful alternative finance platforms were Tim Hinton (Lloyds Bank) and Rebecca McNeil (Barclays). The two bankers were somewhat brutally questioned before giving way to the P2P bosses - for whom a more inquisitive, fact-finding approach that was adopted.
The committee was keen to know how the peer to peer industry saw the SME lending landscape and also what the government could do to encourage further competition within the SME Lending arena. Desai thinks the country’s banks are still facing legacy issues and referred to a “very benign environment to be competing with banks.” During the hearing, a committee member quoted Desai’s written submission that “In due course Funding Circle could represent 10-20% of lending to SME’s”. In agreement with this bullish statement, Stocker professed that the peer-to-peer industry could definitely reach that level considering the growth rates over the past three years.
Both Desai and Stocker were also asked their opinions on government efforts within the sector.
Desai used the opportunity to push for an overhaul of the UK tax system that currently does not allow investors to offset capital losses on loans against income from other loans in their portfolio. He pointed out that this tax distortion, which puts individuals who lend to businesses at a competitive disadvantage to corporations who lend to business, does not exist in other countries such as the US and is the result of an outdated tax system being applied to innovative technology.
Stocker expressed his appreciation to the British Government for giving alternative finance the opportunity to participate in the Business Finance Partnership where funds are being deployed through platforms. He stated that this is really welcome and aids the industry in building trust.
The committee were keen to understand how the FCA’s crowdfunding regulations had been received by the industry following their introduction in April of this year. As part of the Peer-to-Peer Funding Association, alongside Zopa and Ratesetter,Funding Circle sought to lobby for regulation three years ago. The Association worked closely with the FCA urging the necessity of regulation in the event of platform failure with Desai describing the resultant regulations as “proportionate.” Market Invoice is currently unregulated. They have, however, become a member of the Peer-to-Peer Funding Association and Stocker explained that the company wanted to run themselves as if they were regulated and would embrace official regulations over the work they conduct.
Desai and Stocker gave a good account of themselves and the industry and it is a measure of how far the peer to peer industry has come that this inquiry has seen fit to devote a significant amount of time to this fact finding mission. The Select Committee has now heard all the evidence and its report is expected in the coming months.
The full hearing can be seen below, Desai and Stocker appear from 15:30 onwards.