P2P lending and investing, a form of crowdfunding, constitute vast new markets in which companies can obtain needed capital from individual investors. It’s just starting to become available in Cyprus, but has a long way to go here.
The principle is simple: Businesses or individual borrowers make pitches for investment or loans online (amounts should not exceed €5 million, but most investment is smaller). Investors choose promising companies or prospects and provide all or part of the funds sought.
The advantage is to offer individual investors a large variety of choice in which they can follow whatever criteria they prefer.
“I feel having the opportunity to invest with smaller amounts over a wide range of projects is something that would suit me best. I don’t want to be in a position where I am either leveraged in to one project, or have invested fully in to one project and have to wait for returns. I would rather place my eggs in smaller amounts across a variety of baskets and P2P lending allows that,” comments Christos Zapitis, CFO of Parklane Resort and Spa Cyprus, in an interview with the Cyprus Mail.
Although a recent trend, there are big numbers in P2P: Global crowdfunding is at $304.53 billion, according to P2P Market Data. China accounts for much of this at $215.3 billion, the US is at $61.1 billion and the UK at $10.3. billion.
Obviously one of the big advantages of P2P lending is that borrowers deal directly with investors. There isn’t a lot of red tape involved. The idea is to allow money flow between investors and businesses easily and freely. There should always be a mix of investment opportunities as this will bring in different types of investors. Some will look for long-term gains investing in low risk businesses such as safety and efficiency solutions, whilst others may look for short term gains.
P2P offers a just such a mix.
This makes P2P investing nearly ideal for raising funds for startups, and enables the small investor to profit from a young company without investing millions.
“With the rise in tech comes the rise in opportunity, and this means there are more people under 40 with the ability to invest in other startups and grow their networth. Not all Investors have the risk tolerance or the financial ability to invest €500K in a project, so allowing these Investors with cash to invest in multiple projects for lower amounts not only increases their chances of earning, but allows the borrowing party the opportunity to build their business and also become investors,” points out the Cyprus fintech entrepreneur Andrew Anastasiou.
While there are several websites that include P2P investing for Cyprus, the market is still quite small. But fintech experts say also that the market is ripe for it. Banks in Cyprus are heavily regulated, and, especially since the financial crisis, must take great care in making loans. This kind of alternative lending is expected to grow here, especially for relatively small amounts that banks cannot offer.
In July 2020, the European Commission adopted new rules for crowdfunding platforms (amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937) – the new regulation awaits adoption by the EU Parliament). It obliges Crowdfunding Service Providers to apply for authorisation to operate at the national financial authority. The new regulation also mandates that operators be transparent, and that those who pitch for investment comply with basic background and money-laundering legislation.
As this regulation provides clear rules for P2P operations across the EU, there is perhaps a chance that the industry will begin taking hold here in Cyprus.