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Alternative finance volumes soar

Australia’s alternative finance market grew in volume by 88 per cent to US$1.1 billion last year, according to KPMG’s Third Asia Pacific Region Alternative Finance Industry Report

The biggest share of market volume came from balance sheet business lending, which was worth US$574 million. Peer-to-peer (or marketplace) consumer lending volume was US$256 million.

Invoice trading volume was $142.6 million and P2P property lending was worth US$85 million.

The biggest increase was in P2P consumer lending, which rose from US$15.8 million in 2016 to US$256 million in 2017.

Despite the strong growth, the figures clearly show that alternative finance remains a small fraction of overall credit outstandings.

One segment of the market went backwards: equity-based crowdfunding volume fell from US$56 million in 2015 to US$10.5 million in 2016 and then to just US$2 million last year.

Institutionalisation of funding is a significant regional trend. Institutions now funds 93 per cent of balance sheet lending, 43 per cent of P2P consumer lending and 42 per cent of invoice trading. In Australia, the overall institutional funding level is 65 per cent – the highest participation rate in the region.

Across the region, China’s alternative finance industry accounted for 99 per cent of Asia Pacific market volume, reaching US$358 billion. The Chinese market grew 47 per cent in 2017 but that rate actually represents a slowing of growth.

Another trend is the pursuit of global strategies. Despite the fact that many of the alternative finance businesses in the region are small, 25 per cent report that they have operations outside their home market and more than half have established a “global website or brand”.

The most significant risk factor that businesses reported was fraud, followed by cybersecurity breaches and regulatory change. Sixteen per cent of operating expenses are committed to cybersecurity measures and 23 per cent to other IT costs.

The report cites the Asian Development Bank, which says small and medium enterprises account for 60 per cent of the national labour forces across Asia Pacific. Yet poor access to finance, in particular credit lines, is holding these businesses back.

“The health and strength of the SME sector is considered a key priority across the region, yet business development is often inhibited by an inability to access finance,” the ADB says.