Securitisation has arrived in the peer-to-peer market, with lending platform Funding Circle announcing a "landmark transaction".
The European Investment Fund, part of the European Investment Bank Group, and KfW, a German government-backed bank, are investing in the securitisation of loans originated on the crowdfunding platform.
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Securitisation is used to transform illiquid financial assets into marketable securities. The process sees similar loans packaged together into a fund, with securities then issued and market liquidity created.
The deal is a boost for small and medium businesses, which Funding Circle specialises in lending to.
Sachin Patel, global co-head of capital markets at Funding Circle, said: “This landmark transaction is the first of its kind. The investment by KfW, with the support of the EIF, marks the next step in our journey to open up a traditional fixed income asset class to new types of investors for the first time.
"We’re committed to building the infrastructure where any investor, big or small, can lend to small businesses across the world.”
Since founding in 2010, Funding Circle has facilitated around $2.2bn (£1.5bn) of loans across Europe, the UK and US.
George Passaris, head of securitisation at the European Investment Fund, said: “Small businesses across the UK will benefit from the European Investment Fund’s significant new support for Funding Circle, one of the UK’s largest peer-to-peer platforms.
Rita Geyermann, head of asset management at KfW, said: “Investing in securitisation transactions backed by SME exposures in Europe has become one of our promotional objectives in order to support the availability of finance to SMEs.
"By investing in this innovative transaction in cooperation with the EIF, we are convinced we can stimulate SME lending via capital markets in the UK.”