Alternative finance refers to financial channels, processes, and instruments that have emerged outside of the traditional finance system such as regulated banks and capital markets. Examples of alternative financing activities through ‘online marketplaces’ are reward-based crowdfunding, equity crowdfunding, revenue-based financing, online lenders, peer-to-peer consumer and business lending, and invoice trading third party payment platforms.
Alternative finance instruments include cryptocurrencies such as Bitcoin, SME mini-bond, social impact bond, community shares, private placement and other ‘shadow banking’ mechanisms. Alternative finance differs to traditional banking or capital market finance through technology-enabled ‘disintermediation’, which means utilising third party capital by connecting fundraisers directly with funders, in turn, reducing transactional costs and improve market efficiency.
Alternative finance has grown into a considerable global industry in recent years following the financial crisis according to various reports, particularly for small and medium enterprises. For instance, the European online alternative finance market is estimated to have reached nearly €3bn in 2014 and is projected to reach €7bn in 2015. For the United Kingdom, according to the University of Cambridge and Nesta, the UK online alternative finance market reached £1.74bn in 2014. In comparison, the alternative finance markets in France and Germany reached €154m and €140m respectively in 2014.
Alternative finance activities such as equity crowdfunding and peer-to-peer lending are now regulated by the Financial Conduct Authority in the United Kingdom from 1 April 2014. Peer-to-peer lending investment will be eligible for an Innovative Finance ISA from 2016. In the US, under the Title II of the JOBS Act, accredited investors are allowed to invest on equity crowdfunding platforms from September 2013. The SEC then announced the updated and expanded Regulation A mandated by the Title IV of the JOBS Act to allow non-accredited investors to participate in equity crowdfunding.
- ^“Cambridge Judge Business School: Cambridge Centre for Alternative Finance”. Jbs.cam.ac.uk. Retrieved 2015-07-24.
- ^Schueffel, Patrick (2017). The Concise Fintech Compendium. Fribourg: School of Management Fribourg/Switzerland. ISBN 978-2-940384-44-0. Archived from the original on 2017-10-24. Retrieved 2018-02-18.
- ^“The Rise of Future Finance” (PDF). Nesta.org.uk. Archived from the original (PDF) on 2015-02-26. Retrieved 2015-07-24.
- ^“Crowdfunding: Disintermediated Investment Banking by Brian J. Rubinton :: SSRN”. Papers.ssrn.com. doi:10.2139/ssrn.1807204. S2CID 53662264. SSRN 1807204.
- ^“The Future of Financial Services” (PDF). Weforum.org. Retrieved 2015-07-24.
- ^“Ripe for the picking : A guide to alternative sources of finance” (PDF). Cbi.org.uk. Archived from the original (PDF)on 2015-09-23. Retrieved 2015-07-24.
- ^“Global insights from regional Alternative Finance studies”(PDF). home.kpmg/uk/en/home.html. Retrieved 2019-03-07.
- ^Harriet Agnew (2015-02-23). “European market for online alternative finance surges”. FT.com. Retrieved 2015-07-24.
- ^“Moving Mainstream” (PDF). Jbs.cam.ac.uk. Retrieved 2015-07-24.
- ^“Understanding Alternative Finance” (PDF). Nesta.org.uk. Archived from the original (PDF)on 2015-05-20. Retrieved 2015-07-24.
- ^“Crowdfunding in Deutschland wenig verbreitet – SPIEGEL ONLINE”. Spiegel.de. 2015-02-20. Retrieved 2015-07-24.
- ^“L’essor du prêt en ligne booste la finance participative en Europe”. Lemonde.fr. 2015-02-23. Retrieved 2015-07-24.
- ^“A review of the regulatory regime for crowdfunding and the promotion of non-readily realisable securities by other media”(PDF). Fca.org.uk. Retrieved 2015-07-24.
- ^“Including peer-to-peer lending in the new innovative finance Isa will provide boost for millions of Brits | City A.M”. City A.M. 2015-07-09. Retrieved 2015-07-24.
- ^“Jumpstart Our Business Startups (JOBS) Act”. SEC.gov. Retrieved 2015-07-24.
- ^“SEC Adopts Rules to Facilitate Smaller Companies’ Access to Capital”. SEC.gov. 2015-03-25. Retrieved 2015-07-24.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.