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Fasanara Bi-Weekly Digest



Alternative Gen Investors from Chinese SMEs

Topic News and Records Today:

  • Morgan Stanley: An introduction to alternative lending

  • Who can get money? Evidence from the Chinese peer-to-peer lending platform

  • Next Gen: Investors and savers

  • SMEs unaware of the risk of personal guarantees for business loans

  • Why the banks don't care about SMEs

  • Why are we still talking about AI?


Morgan Stanley: An Introduction to Alternative Lending

As investors grapple with the portfolio implications of a low interest rate environment alongside a continuing search for yield, alternative lending may offer attractive absolute and risk-adjusted return characteristics. Positioning investors at the intersection of technology and finance, alternative lending may provide diversified exposure to a secular shift in the way that consumers and small businesses access capital.

Indeed, Morgan Stanley expects the nascent asset class's growth trajectory to continue, reflecting the potential benefits to both borrowers and investors.

Who Can Get Money? Evidence From the Chinese Peer-to-peer Lending Platform

This paper explores how borrowers’ financial and personal information, loan characteristics and lending models affect peer-to-peer (P2P) loan funding outcomes.

Using a large sample of listings from one of the largest Chinese online P2P lending platforms, they find that those borrowers earning a higher income or who own a car are more likely to receive a loan, pay lower interest rates, and are less likely to default. The credit grade assigned by the lending platform may not represent the creditworthiness of potential borrowers.

They also find that the unique offline process in the Chinese P2P online lending platform exerts significant influence on the lending decision. They also discuss the implications of their results for the design of big data-based lending markets.

Next Gen: Investors and Savers

This report surveys 2000 UK adults and explores how the UK population behaves and their attitudes towards the alternative finance market. Under a third (30%) of UK adults would not be able to cope if their mortgage repayments increased by £50 a month.

Millennials are more willing to push the boundaries and make short-term, high yield investments. In a challenging economic environment, both savers (67%) and investors (33%) need to embrace alternative forms of finance in order to maximise returns while balancing risk.

P2P is set to be a key part of the next generation of investment in the UK as people seek for higher returns. In total, 6% of UK investors are turning to P2P platforms that offer average returns of 7.5%, while only just 4% of savers are using P2P lending or crowdfunding.

SMEs Unaware of The Risk of Personal Guarantees for Business Loans

The idea of asymmetric information has come to light as more than 1/3rd  of SMEs are unaware that their personal assets such as their homes are at risk when securing finance for their business.

Purbeck is urging business owners to seek professional, independent advice; it also welcomes the launch of the Business Finance Council with the hope that it will educate borrowers.

Ultimately, this will help businesses deepen their underlying knowledge of personal backed guarantee loans.

Why The Banks Don't Care About SMEs 

Despite facing a £22bn funding gap, almost half of all UK SMEs have no plan to utilise external financing sources, either because they aren’t aware of the wide range of financing options now available to them, or they assume their application is likely to be rejected.

At the same  time, banks aren’t lending to SMEs because it’s not profitable for them to do so; under Basel III, banks are obliged to reserve more capital against an SME loan which means less profit.

The Bank of England recently announced that it is keen to champion a data platform to assist SMEs in applying for, and obtaining, credit – with a single ‘data passport’. 

Why Are We Still Talking About AI?

The digital era has required legacy banks to move beyond their traditional business models and adopt new technology but even if they start implementing AI, not all of them have the infrastructure in place to immediately support it. Fintechs, on the other hand, have the advantage as their systems have been built with data in mind from the ground up, not dragged down by dated legacy IT systems.

AI will play a more prominent role in helping to reinvent the financial system. With the ability to be moulded to individual businesses, AI has the potential to challenge new innovations that may arise, matching its services. AI can be better than humans in certain aspects, but AI without humans holds far less value.


Thank you for the attention!


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