Loan-Based Crowdfunding Investment as an Alternative Vehicle for Channelling Institutional and Personal Savings: The Collaborative Economy
Abstract
Loan-based crowdfunding, which is already well established in the US and Britain and is a new phenomenon in the Spanish market, is an investment vehicle for retail investors and institutional funds and also an interesting financial product for the small and medium enterprise segment (henceforth, SME). The recent regulation of crowdfunding in Spain (called “inclusive finance platforms†in the corresponding legislation) increases transparency and legal certainty for both investors and companies requiring credit; it establishes a legal framework, specifies the entities authorised to act as platforms, and clarifies the rules applying to the various stakeholders. This standard should promote the consolidation of this new mechanism of financial disintermediation based on the new technologies. It is likely to increase the number of financial suppliers in Spain and in Europe as a whole where, unlike the US market with its financial diversification, the capital market is characterised by its dependency on the traditional banking system. The inefficiency that this creates in the financial market has an adverse impact on the financial structures of the SME segment and, as a result, on its productivity, employment, and returns. In this situation, loan-based crowdfunding may be part of the solution.Through the collection of empirical data from a crowdfunding reference platform in Spain, this article analyses the profitability-risk trade off of crowdfunding and compares loan-based-crowdfunding with other traditional investment vehicles such as investment funds, equities and pension funds. In addition, the factors that explain the cost of capital for loans, in particular loan maturity and company credit rating, are identified through a regression model. The conclusion of the study is that saving through crowdfunding allows optimisation of a portfolio comprising both institutional and retail investors. Crowdfunding can contribute to solving the problem of the scarcity of investment vehicles, especially for the retail segment.
Keywords: Financial Markets, Collaborative Economy, Crowdfunding, Alternative Investment, Retail Investors, Retirement Plans, Small and Medium Enterprises (SMEs).
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