Institutional Investors Forecast Big Alt-Lending Growth

Institutional investors are considered by some analysts as key to the survival of the alternative finance industry. As alternative lending to SMEs declines, institutional lending to those businesses is on the rise — and many of them are increasingly using alternative lending platforms to flow their investments into borrowers.

New research from Amicus Finance, the results of which were published Monday (Aug. 10), reveals that institutional investors are expecting a new surge in institutional investment in the alternative finance industry.

About three quarters of European institutional investors surveyed by Amicus said that they are anticipating an increase in alt-lending investments within the next two years and agree that growth in alternative finance could make the overall financial system more resilient.

Overall, respondents predicted the alternative lending market to grow by nearly a quarter by 2017.

The majority of those surveyed (64 percent) said that small businesses across the U.K. and Europe are too reliant on traditional banks for their financing needs, and that alternative lending could lessen that reliance.

“As the economy continues to recover, institutional investors see a strong opportunity for the capital markets to play a bigger role in financing SMEs, which continue to face capital constraints due to bank deleveraging,” said Amicus CEO John Jenkins in a statement.

He added insight into why institutional investors are particularly interested in alternative lending. “Institutions increasingly recognize they can generate attractive returns through investing in alternative finance without taking on large risks,” he said.

Last June, separate research from Amicus found that SMEs are beginning to prefer alternative lenders over traditional banks, with nearly half of small businesses agreeing that these players provide greater flexibility than traditional ones. But the research also found that despite the growing popularity of alternative lenders, only one quarter of businesses surveyed believe that alt-lenders offer better customer service than banks, suggesting that alternative lending players will not only have to grow but will also have to improve their services.

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