- Innovative finance Isas invest in P2P loans which can pay attractive rates of interest
- This type of debt has a number of risks including default, insolvency and lack of liquidity
- There are fewer P2P options for private investors than previously
Innovative finance individual savings accounts (Ifisas) have their roots in the fallout from the 2008 financial crisis and credit crunch. At that time, it became much harder for individuals and businesses to borrow from banks and other traditional lenders, at the same time as savers were frustrated by rock-bottom interest rates on their conventional bank accounts. Peer-to-peer (P2P) lenders such as Zopa, Assetz Capital and Funding Circle emerged as attractive alternatives to fill that void. These websites cut out the banking middlemen, acting directly as financial matchmakers between people with cash to lend and personal or corporate borrowers.
The industry has undergone meteoric growth: research by UK innovation agency Nesta and the University of Cambridge found that transaction volumes – the amount of money flowing through P2P lending platforms – grew from less than £100mn in 2011 to £2.9bn in 2015.