Peer-to-peer lending as an ethical investment

Socially responsible, or ethical, investments have accelerated in popularity in recent years, with the global sustainable investment market growing from around $800 billion in 2018 to nearly $4 trillion in 2021.

Ethical investments take many forms. One of the most popular is peer-to-peer (P2P) lending, where individual investors lend money directly to other individuals without going through an intermediary such as a bank or credit union. By cutting out the costs of a middleman, while leveraging data such as credit scores and social media activity, lenders can get higher returns and managed levels of risk, while borrowers should also see reduced rates.

This is a win-win for both parties. But why should it be seen as an ethical investment opportunity?

P2P lending often has a charitable aspect. For example, potential borrowers may have had an unfortunate past and a difficult financial history that would exclude them from getting a loan with a traditional provider. With P2P, however, a borrower with a credible story to tell can often find a sympathetic lender who will willingly accept a greater risk, or perhaps just a different type of risk, in order to help the borrower.

This is a natural human instinct. In fact, many small investors like to know who they’re lending money to and why they need it. By helping individual people, P2P lenders get a sense of personal satisfaction. Because of this, there is often a real sense of community at P2P investment sites, with active forums where users swap stories about lending and borrowing experiences.

P2P platforms will often use these communities to ensure that investors are properly educated about risk. As well as providing a place for investors to discuss opportunities, for instance debating changes in policy conditions, forums are places where platform operators can explain difficult concepts to investors, answer questions and propose solutions.

In addition, P2P platforms are generally far more transparent for borrowers than alternative lenders such as payday loan companies. Loans are not offered indiscriminately. Instead, borrowers are rigorously screened to ensure they will be able to afford to pay interest and repay loans in full and on time.

For both borrowers and lenders, P2P platforms present a very flexible opportunity. Borrowers can select the lenders they prefer, while lenders can choose the opportunities they wish to invest in, selecting individual projects or spreading their loans across multiple projects as a way of spreading their risks.

And while the risks for lenders may be greater than they would be with more established (and lower-yielding) investment opportunities, with some P2P platforms, such as Kuflink, investments are at least partly protected by being secured against property assets. Kuflink takes other steps to protect investors as well. Its investor appropriateness (“APT”) test is more rigorous than mandated by the FCA. And Kuflink proactively hides higher-risk investments from less experienced initial investors.

This ethical approach to recruiting investors is mirrored by strong governance. Taking a lead from FTSE 100 best practice, the Kuflink platform operators have implemented specialist sub committees, such as their property development committee, which generates new ideas in property investment for both borrowers and investors.

The opportunity for P2P lending would not exist without advances in digital technology. P2P platforms leverage data sharing and data analytics technology to provide more efficient lending services, allowing them to provide competitive loan facilities to underserved populations.

Because they facilitate interactions between buyers and lenders without actually owning the loans, they are able to keep costs for borrowers low. And because they use online technology, they are able to service markets around the globe where P2P opportunities do not exist.

However, P2P platforms are not just about using technology well. Rawinder Binning, Chief Compliance Officer at Kuflink, explains: “We use a mix of technology and people. Our technology is powerful and helps us make things more efficient. But more important is our unique set of people. We have technologists, data scientists, banking and investment specialists, property development and planning experts who all work together to share expertise, connecting people to financial freedom and reducing their risk.”

Kuflink is typical of P2P investment platforms in that it has a social as well as a financial purpose. This family-run business aims to give investors the freedom to invest more knowledgeably and to take financial risks they fully understand, while at the same time helping other individuals who are in need of finance.

This type of investment, which can deliver returns well in excess of those available in traditional savings accounts, represents a valuable option for investors wishing to diversify investment portfolio. Because of this, its increasing popularity is sure to continue.

The Kuflink Peer to Peer lending platform offers the opportunity to invest in short-term bridging loans secured on UK property and yielding returns of up to 7.44 per cent gross per annum*. The Kuflink Foundation was set up in 2008 by the Binning and Chattha families to provide education, sporting and health opportunities that enrich the lives of young people and children in care across Kent.

*Capital is at risk and Kuflink is not protected by the FSCS. Higher rates of up to 7.44% could be available if you compound appropriate Select/Select IFISA investments. Past returns should not be used as a guide to future performance. Securing investments against UK property does not guarantee that your investments will be repaid and returns may be delayed. Tax rules apply to IF ISAs and SIPPs. Tax treatment depends on the individual circumstances of each client and may be subject to change in future. Kuflink does not offer any financial or tax advice in relation to the investment opportunities that it promotes.