Crowdfunding surges as banks bypassed

The alternative finance industry in the UK is set to burst through the £4bn mark for fundraising by next year, according to the biggest study of the sector to date.

By the end of 2014, £1.74bn will have been raised in the UK through sources such as crowdfunding and peer-to-peer (P2P) lending, says the study, from the charity Nesta and the University of Cambridge. The report predicts that the market will grow to £4.4bn next year, continuing the average annual growth rate of 250 per cent over the past three years.

Alternative finance typically allows investors to lend directly to people or businesses, bypassing banks.

The study reveals that P2P business lending is the biggest part of the alternative finance sector, with £749m handed to companies. However, there will be concerns about whether there are adequate safeguards for consumers. Alternative finance lending is not covered by the Financial Services Compensation Scheme, which protects deposits of up to £85,000.

The Financial Conduct Authority said: “Our rules focus on making sure people are given accurate information on the nature and risks of the investment.”