Catalyst CEO Jonathan Willder responds to Lord Turner's comments published in The Telegraph
Lord Adair Turner’s comments on the Today programme, as quoted today by The Telegraph, might be seen by many in the Alternative Funding sector as inflammatory:
“The losses on peer-to-peer lending which will emerge within the next five to ten years will make the worst bankers look like absolute lending geniuses”
His comment was made on the back of an assumption that the peer to peer industry is simply picking up opportunities to lend money to borrowers, who have been rejected by the banks, without applying proper risk assessment.
This is a particularly challenging comment coming, as it does, in a year in which the government is seeking actively to pass legislation specifically to drive such rejected borrowers towards the very funders that Lord Turner so fears.
So who is right? Is the government being reckless or is Lord Turner scare-mongering?
In my experience, the alternative funding market is populated by a prudent group of finance professionals who have embraced technology to support an approach to provide much needed funds to SME’s where traditional funding sources have been unable to help. Not only does Alt-Fi have the ability to deliver traditional funds more efficiently than many of the existing players but new products, like, for example, Selective Invoice Finance, have evolved to complement the options that traditional funders offer.
It is all about delivering choice to customers, to ensure that they are offered the right product at the right price – whether from traditional funding providers or the new breed of alternative funders.
But in delivering such solutions it is critical that a quick response is not achieved at the expense of prudent lending. To suggest that all opportunities being presented to peer-to-peer investors aren’t being properly risk assessed is at best disingenuous to those who have developed robust systems to manage risk.
For our own part, Catalyst supplements financial analysis with personal relationships, where we carry out a site visit better to understand the company and the individuals involved in every transaction. We believe that the personal relationship piece enables us to identify the risks that we need to manage if we are to proceed with a transaction.
So, for me, the warning from Lord Turner is wholly valid – let us all in the Alternative Funding sector, whether peer-to-peer or otherwise, raise our game to ensure not only that we understand the risks involved, but that we take the necessary actions and security to protect our funds in the event that we are called on to do so. We certainly don’t want a repeat of the Trust Buddy experience of a 25% write off!
And if we do this, maybe Lord Turner will enjoy reflecting in five to ten years time at the success of an industry that has been at the heart of SME growth in the UK. And he may also feel then that the comments he made way back in 2016 might have played a small part in driving the right behaviour of participants in the Alternative Funding market.
Jonathan Willder is the CEO of Catalyst Finance
Contact Catalyst on 01453 758365