16th Nov 2019

Crowdfunding and alternative finance to top €7bn, new research finds

  • Crowdfunding could be worth €7bn across the EU in 2015, according to research by Cambridge university. (Photo: Ken Teegardin)

Alternative online finance methods such as crowd-funding and peer-to-peer loans could top €7 billion across the EU in 2015, according to a report published Monday (23 February).

The sector grew by 144 percent last year to nearly €3 billion in 2014 and, having averaged growth of 115 percent over the past three years, should more than double this year, says the report by the Judge Business School at the University of Cambridge.

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In relative terms, the sector remains small compared to traditional banking but is increasingly being used by small businesses and start-ups who struggle to access loans from banks who remain reluctant to increase lending.

Robert Wardrop, co-author of the report and executive director at Judge’s Centre for Alternative Finance, said “alternative finance, at least in some European countries, is on the cusp of becoming mainstream”.

The report estimates that nearly 10,000 European start-ups and small firms have benefitted during the last three years, most of them in the UK, which is Europe’s centre for alternative finance.

The UK accounted for €2.34 billion of the market in 2014, followed by France and Germany on €154 million and €140 million respectively.

The report’s authors estimate that their research covers around 90 percent of Europe’s online alternative finance market.

Peer-to-peer lending by consumers and business accounted for €368 million in 2014, while €203 million was raised through crowdfunding, which has become the most well-publicised form of alternative finance.

It usually involves open calls through the internet to the public to finance specific projects through lending, investment or donations, using an intermediary who charges a fee for driving interest in the project or business.

In March 2014, the EU executive published a paper highlighting crowdfunding’s potential as a source of business finance, and has set up an expert group to explore whether it can be regulated.

Steven Maijoor, chairman of the bloc's securities and markets watchdog, warned last December that common EU regulation was needed to protect investors in alternative finance schemes.

Last week the European Commission launched plans to harmonise Europe’s capital markets to make it easier for companies to raise money from the stock, bond and debt securities markets.

The Association of Financial Markets in Europe, meanwhile, in a report Monday warned that a shortage of risk capital and under-developed capital markets are holding back growth on the continent.

Fragmented markets, the EU’s economic weakness and differing national rule-books were cited by investors as the main barriers to investment.

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