One of the fastest-growing forms of investment, both domestically and abroad, is peer-to-peer lending, otherwise known as P2P lending.
Peer-to-peer lending involves individuals, or groups of individuals, pooling their money to lend to individuals or businesses. It allows investors to take advantage of the returns available from investment classes traditionally open only to large financiers and banks.
Peer-to-peer lending is not a new concept. In Australia, fund managers, like Trilogy Funds, have been acting as intermediaries between investors and borrowers for many years. What is new is the use of online systems and services – much like online investment shopping lists – that allow investors to browse potential loans.
This online innovation is leading to an exponential increase in the number of peer-to-peer loans. Investment bank, Morgan Stanley, forecasts that peer-to-peer lending in Australia will reach a staggering $22 billion within the next five years. $10.4 billion of that forecast is attributed to consumer lending, and the other $11.4 billion to small businesses.
The growing popularity of peer-to-peer lending is not limited to Australia – America, the United Kingdom, and China are also early adopters. Globally, lending via peer-to-peer platforms reached US$50 billion in 2015. This is predicted to grow to approximately US$290 billion by 2020. Two of the big players in America, Lending Club and Prosper, have already issued over US$20 billion in loans between them.
Even the public sector is dipping its toes in the P2P water. In the United Kingdom, the federal government have thrown their weight behind peer-to-peer lending, having lent £80 million of their own funds to peer-to-peer lending platforms prior to October 2015. They are also putting the final touches on the Innovative Finance Individual Savings Account scheme, allowing U.K. citizens to invest through peer-to-peer lending platforms tax-free via their Individual Saving Accounts.
Despite their growing popularity and public sector endorsement, not all peer-to-peer loans are created equal. It is important for investors to investigate what the loan is for, how it is secured and to balance these factors with their risk profile.
However, regulation of the industry in Australia is a great deal more stringent than in many other countries. All loan intermediaries, or lenders, must hold an Australian financial services licence, and must meet a number of requirements and thresholds in order to hold a licence. They must also satisfy responsible lending obligations in order to maintain their Australian credit licence.
Trilogy Funds currently has two peer-to-peer investment options open to investors, the Trilogy Monthly Income Trust and uSelect Mortgage Investments. The Trilogy Monthly Income Trust pools investors’ funds to loan to a pool of borrowers. To find out more about the Trust click here. uSelect Mortgage Investments pools investors’ funds to loan to a single borrower. To find out more about uSelect click here.
Disclaimer: While every effort is made to provide accurate and complete information, Trilogy Funds Management Limited does not warrant or represent that the information in this article is free from errors or omissions or is suitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Trilogy Funds Management Limited accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omissions or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated. This information is issued by Trilogy Funds Management Limited (AFSL 261425) and provides general information only. It does not provide financial product advice nor is it an offer of securities. Applications may only be accepted by completing the applicable application accompanying the relevant PDS. If you require personal advice on the suitability or other aspect of this investment, consult a licensed adviser, who will conduct an analysis based on your circumstances. Past performance is not a reliable indicator of future performance.