>> 5
NEW KIDS ON THE BLOC
More EU lenders could enter UK
BRAVE NEW WORLD
>> 10
P2P globally is evolving
Qardus’ Hassan Daher on Shariahcompliant P2P >> 18
ISSUE 76 | DECEMBER 2022
Calls for EIS shake-up to support P2P growth THE UK government has been urged to amend Enterprise Investment Scheme (EIS) rules to allow more peer-topeer lending platforms to utilise the scheme. The EIS is designed to help companies raise money to grow, by offering tax reliefs to individual investors who buy shares. However, lending is not a permitted activity under the EIS rules, whereas broking is allowed. This means that P2P platforms are unable to hold loans on their balance sheet if they were funded with EIS capital in the preceding three years, and instead can only act as a broker. Typically, early-stage P2P platforms are purely funded by the crowd, while more mature firms will want to take on some balance sheet risk alongside their funders, giving them ‘skin in the game’. Industry stakeholders warn that the EIS rules are holding back more established P2P platforms from growing their business.
“I think the issue is that as businesses grow and mature, they want to expand their sources of funding, including their balance sheet,” Mike Carter, head of platform lending at the 36H Group, told Peer2Peer Finance News. “If you started your firm with EIS money you can’t
do that, which restricts the platform as it grows.” Peer2Peer Finance News understands that at least one P2P platform encountered issues due to the EIS exclusion and decided to set up a complicated legal structure to be able to take on balance sheet risk. Fintech trade body
Innovate Finance submitted a response to the Treasury select committee over the summer, following the committee’s call for evidence on the venture capital market. It recommended that EIS rules be changed to include lending risk as a permitted activity without the threeyear look-back restriction. “[The exclusion of lending risk] is a material drawback in building a lending or insurance business using EIS funding because most early-stage companies will have raised funding in any threeyear period, and that funding will likely have included EIS investors,” Innovate Finance said. “In effect it means the business must operate only as a broker and cannot take advantage of the profit on the risks it is originating, and this holds back the growth of the business. This is also relevant given the decline in P2P lending due to the continued tightening of financial promotion rules by the Financial >> 4