The Innovative Finance ISA (IFISA) is attracting new investors to peer-to-peer (P2P) investing, and potentially opening up access to billions of pounds of financing for UK SMEs, according to Crowdstacker.
The data is taken from a six-month summary of Crowdstacker, one of the few P2P platforms authorised to offer an IFISA since the product was introduced in April 2016.
It shows that for every 10 IFISA investments made, nine come from investors who have not invested with the platform before. The average amount invested using the IFISA is GBP7,700. Just under one in five (18 per cent) have used their full ISA annual allowance of GBP15,240 in the IFISA.
“2015-16 government data shows that GBP80 billion was invested via other types of ISA, typically in cash accounts or stocks and shares. But the popularity of the IFISA suggests that within a few years a sizeable portion of this could be providing a direct boost to the UK economy by being invested straight into growing UK SMEs,” says Karteek Patel, CEO of Crowdstacker,.
The data shows the IFISA appeals to all age groups ranging from investors in their 20s through to those in retirement. Investment levels have remained steady in each month since launch.
Nearly one in 10 (7 per cent) people have taken the opportunity to move money from other types of ISA investment.
To date only a handful of platforms have the full FCA authorisation and HMRC license required to offer the IFISA. According to Nesta, the alternative finance industry already creates GBP3.2 billion of investment annually.
“IFISA money was, for example, a big contributor to one of our current raises, for BurningNight; an exciting, innovative and already very successful business which operates bars in City centres in the North and West of Britain,” says Karteek. “All the money we raise for businesses comes from everyday investors and roughly half was invested by people using our Innovative Finance ISA, helping us hit GBP1 million within just a couple of weeks of launch.
“But as other platforms are able to offer the IFISA and awareness about it grows further, we expect to see the success of this investment wrapper grow even more. It could be a great investment for consumers who have a variety of choice about how their money is invested depending on the investment structure used by each platform.”
Crowdstacker’s IFISA is structured in a similar way to a stocks and shares ISA. Investors can deposit some or all of their GBP15,240 annual ISA allowance and then choose specific businesses featured on the platform to lend to. As with a stocks and shares ISA, these investments can be reviewed in depth with a thorough explanation of each business, its financial track record, and market opportunities to sustain and grow financial health.
“The Crowdstacker proposition is about helping investors make informed choices. We aim to do this by taking a bespoke approach to due diligence, meaning we can use tried and tested methods of interrogating a business’s financial health, which includes standard credit-checking right up to management interviews and forensic reviews of accounts,” says Karteek.
“Loans are then structured in a way that aims to offer a good level of security to lenders, for example first charge over easily accessible assets valued at multiple times more than the actual loan. And offering an interest rate which is sustainable for the business in its current sector climate, and attractive to investors who are looking for higher returns than those offered by other types of investment,” says Karteek.
