Friday 30 November 2018 11:18 am

Digital bank Monzo 'to allow customers to go overdrawn' to buy shares in £20m crowdfunding round

Challenger bank Monzo will reportedly allow customers to borrow money to buy shares in its most recent fundraising round.

The prospectus for the digital bank’s anticipated £20m crowdfunding lets account holders use their £1,000 overdraft to buy shares, but as shares are not openly traded they cannot then be sold to pay off overdrafts, according to the Times.

The prospectus says: “Applicants must have enough money in their Monzo account at the time of Application to pay for any E Ordinary Shares that they seek to buy.

“Applicants are able to use their overdraft for this payment – any such overdraft will be subject to the usual overdraft charges.”

Roger Gewolb from the Campaign for Fair Finance told The Times: “It is never a good idea to borrow money to buy shares, unless one is a professional share trader.

“To do so in order to buy illiquid, unlisted shares in a relatively new company through a crowdfunding platform seems to us somewhat beyond the pale.”

Monzo, which launched its overdraft feature earlier this year, charges 50p a day for every day the account is overdrawn by more than £20 up to a maximum charge of £15.50 per month.

In a statement Monzo founder and chief executive Tom Blomfield said: "​​We don’t encourage anyone to borrow money to make a long-term equity investment.

"And we aren’t encouraging anyone to use their overdraft to invest in Monzo as part of this crowdfunding round. But we also don’t believe it’s our place to judge or restrict how people spend their money (within the limits of the law).

"​​Suggesting that we disable overdrafts during crowdfunding seems deeply unfair to customers who expect or need to access their overdraft in that time."

The £20m raise, which was reported exclusively by City A.M in August, will be the largest fintech crowdfunding round in the UK to date.

Existing Monzo investors will get early access to the round from 3 December before it opens to other customers who can invest up to £2000.

The bank has already raised more than £4m through two crowdfunding round since it launched in 2015.