The British Business Bank (BBB) is to inject an additional £40 million ($49.5 million; €46.7 million) of capital into UK small and medium-sized enterprises (SME) through the marketplace lender Funding Circle.
It’s the latest vote of confidence in the fintech sector by government-backed entities with the latest investment following a £100 million commitment from the European Investment Bank (EIB) in Funding Circle completed just days before the referendum vote on the UK’s membership of the European Union.
Unlike the EIB, which had completed its first investment in the sector in June, the BBB is familiar with the market having partnered with five institutions and invested £95 million according to a report on its full accounts up until March, but published on Companies House in December. Funding Circle, RateSetter, Liberis, marketinvoice and Urica are the named MPLs.
According to a statement from the BBB, it has obtained a 6.2 percent annual net return on its investment with Funding Circle.
Catherine Lewis La Torre, chief executive of the BBB, said: “Peer-to-peer lending is becoming an increasingly important source of finance for small businesses. A key part of our remit is to support the development and growth of such finance markets, while earning an attractive commercial return for the taxpayer.”
James Meeking, co-founder of Funding Circle, described the latest investment from the bank as a “recognition of the success of the partnership to date and we look forward to working with BBB to help thousands more small businesses”.
Established in 2013 by the then UK coalition government and spearheaded by the business secretary Vince Cable, the BBB has worked with a range of mid-market direct lenders and debt funds. The Companies House documents outline a total of £855 million in investments across six mid-market lenders, including Alcentra, Ares and ICG. The bank has placed £250 million across eight debt funds, including Beechbrook, Muzinich and Cordet.
The fintech lending sector has faced a number of criticisms over its practices in the last 12 months. The former head of the now-defunct Financial Services Authority Lord Adair Turner expressed concerns about the industry’s ability to do “good credit underwriting” early last year. Although he later clarified his comments at the LendIt conference in London, stating that his concerns were directed to individual investors selecting individual loans which makes up only a “very minor role in the growing direct lending market”.
Conservative MP Chris Philp has called for a parri passu proposal for fintech lenders requiring them to have “skin in the game” to improve incentives to lend to borrowers with better credit quality.
Shortly before Christmas, the Financial Conduct Authority (FCA) indicated it would tighten up regulation of the sector following a consultation with stakeholders. Rules surrounding risk disclosures and concerns about the growing complexity of the operators, making comparing platforms for investors difficult, were central to the FCA’s report. The regulator said it will continue to consult with the sector on its findings this year.