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Reaching new heights

The alternative finance market in North, Central and South America grew 26 per cent to $44.3 billion in 2017, mostly in the US, says 3rd Americas Alternative Finance Industry Report from the Cambridge Centre for Alternative Finance at Cambridge Judge Business School.

Reaching New Heights: 3rd Americas Alternative Finance Report

Throughout North, Central and South America, online alternative finance markets continued to develop at a steady pace, growing by 26 per cent from $35.2 billion in 2016 to reach $44.3 billion in 2017. The United States drove 97 per cent of the Americas region’s alternative finance market ($42.8 billion in 2017), while Canada ($868 million) and Latin America and the Caribbean ($663 million) accounted for the remaining three per cent, according to the 3rd Americas Alternative Finance Industry Report: Reaching New Heights, issued today (20 December).

Canada saw considerable growth, up by 159 per cent from $335 million in 2016 to $868 million in 2017. The Canadian alternative finance market was driven primarily by alternative business funding, which accounted for 61 per cent of the total.

Alternative finance markets across Latin America and the Caribbean (LAC) continued to grow rapidly, up by 94 per cent from $342 million in 2016 to $663 million in 2017. Brazil, Mexico and Chile drove 78 per cent of the region’s growth, with Brazil leapfrogging Mexico and Chile to become the region’s market leader, the report said.

This report is produced by the Cambridge Centre for Alternative Finance at University of Cambridge Judge Business School, in partnership with Ivey Business School, Western University. This report is generously supported by the Inter-American Development Bank, IDB Invest and the CME Group Foundation.

The report is based on data collected from 376 alternative finance platforms entries across 35 countries and territories across the region.

Consumer lending was the key driver of US market volume, with balance sheet consumer lending accounting for $15.2 billion (35.5 per cent of US market share) and marketplace/peer-to-peer (P2P) consumer lending accounting for $14.7 billion (34.3 per cent of US market share).

Outside of the United States, business-focused alternative finance activities drove market growth. Eighty-five per cent (or $566 million) of all alternative finance volumes across Latin America and the Caribbean were channelled to support micro, small and medium enterprises across the region. This is particularly pronounced in Chile, where alternative business funding accounted for 27 per cent of the overall LAC business funding market.

Across the Americas, institutionalisation of funding is on the rise both in terms of investment realised and partnerships forged. The provision of funding for the US alternative finance market continues to be dominated by institutionalised capital, particularly in the marketplace/P2P lending arenas. Across the LAC, institutionalisation of funding has also increased (albeit unevenly across models), alongside a greater degree of collaboration with traditional financial institutions in key markets.

Regulation remains a vibrant issue across the region, and especially in LAC. Industry perception towards regulation is highly varied and depends in large part on the status of fintech regulation in each country.

Dr Robert Wardrop
Dr Robert Wardrop

“This report marks our third year of tracking the growth and development of the online alternative finance industry in the Americas region,” said Dr Robert Wardrop, Director of the Cambridge Centre for Alternative Finance. “This year’s report illustrates the uneven yet considerable growth of online alternative finance in many countries across North, Central and South America.”

Juan Ketterer, Institutions for Development Manager, Inter-American Development Bank, said:

“This year’s report sheds light on one of the most dynamic fintech verticals in Latin America and the Caribbean: alternative finance. The steady 94 per cent growth is opening the way to the first yearly US$1 billion. The region is using alternative finance to finance businesses with a total of US$566 million out of US$663 million. Alternative finance is part of the solution to close the gap of financial inclusion to more than 45 million micro, small and medium enterprises. The inclusion of numbers on gender, showing how, on average, 31 per cent of the fundraisers and 32 per cent of the funders are female, is a new key result. We will follow through this critical data to determine the effect of women in the alternative finance vertical.”

Diego Herrera, Financial Markets Lead Specialist, Inter-American Development Bank, said:

“Many of the regulators across the LAC region use the series of studies that University of Cambridge has published with the IDB support to design their policies and regulations. In fact, many of the jurisdictions have understood the size of their alternative finance ecosystem with this reliable source of data.

“Regulation has become one of the most important drivers for the success of fintech ecosystems in the region through the mitigation of legal uncertainty and the creation of secure conditions for entrants. As the regional ecosystem evolves, so too does the fintech policymaking and regulatory proposals.”