The Cambridge Centre for Alternative Finance (CCAF) at Cambridge Judge Business School, University of Cambridge, has published its 2nd Global Alternative Finance Market Benchmarking Report which found growth in total alternative finance volume of 27% (excluding China) from 2018 to 2020 to US$113 billion.
Most of this growth (24%) occurred in 2020 during the COVID-19 (Coronavirus) pandemic.
The report includes both 2019 and 2020 data, with 821 firms providing 2019 submissions and 703 firms providing 2020 submissions. These survey responses provide 1,801 firm-level observations (some firms operate in multiple jurisdictions) for 2019 and 1,660 for 2020, representing the largest such dataset analysed by the CCAF. By presenting market data for both years, the study aims to provide a clearer picture of the impact of COVID-19 on digital lending and digital capital raising activities around the world.
The study was supported by The Foreign, Commonwealth and Development Office, Invesco, The Inter-American Development Bank, IDB Invest (the private sector institution of the IDB Group) and The Asian Development Bank Institute. The key findings of the report show that global transactions of online alternative finance (excluding China) rose by 3% from $89 billion in 2018 to $91 billion in 2019. Against a backdrop of the global COVID-19 pandemic, volume in 2020 actually rose a further 24% to reach $113 billion. Local market developments and regulatory changes in China have seen its share of global market volume fall from 70.7% in 2018, to 48% in 2019 and to less than 1% in 2020.
This development now makes the United States and Canada the largest regional alternative finance market in 2020, with $73.93 billion in volume, with the United States being the largest national market with $73.62 billion or 65% of global volume and the UK ($12.64 billion) being the second largest with 11% of global volume. This is followed by Asia Pacific excluding China ($8.9 billion), Latin America & The Caribbean ($5.27 billion), Sub-Saharan Africa ($1.22 billion), China ($1.16 billion) and the Middle East & North Africa ($0.59 billion).
“This study, and the resultant report, illustrates just how resilient the online alternative finance market has been when you consider the impact of a global pandemic throughout the majority of 2020,” says Dr Robert Wardrop, Director and Co-founder, CCAF. “Taking aside events in China, a global volume growth of 24% against a backdrop of COVID-19 shows how alternative finance instruments have been able to respond to the rapidly evolving needs of micro, small and medium-sized enterprises (MSMEs) and consumers alike.”
A further key observation is that the volume of online alternative finance (excluding China) that went to MSMEs rose substantially from $35 billion in 2019 to $53 billion in 2020 – a 51% increase year-on-year. By way of comparison, business funding represented 38% of 2019 total volumes, rising to 47% of total volume in 2020. Online alternative funding for business overwhelmingly stemmed from debt-based models, with $32.8 billion of debt finance raised in 2019 (96% of all business funding) and $49.6 billion raised in 2020 (94%).
The report also highlights the exponential growth of donation-based crowdfunding during the period 2019-2020, when a 160% annual growth rate to $7 billion in total volume was realised in 2020. This can largely be attributed to the flurry of COVID-19-related charitable, community and health related online fundraising activities around the world.
“This is the second Global Alternative Finance Report Invesco has had the opportunity to be involved with, and the insights that are presented provide key indicators of spaces that we continue to monitor as our industry experiences fundamental business and operational disruptions imposed by technological advancements,” says Dave Dowsett, Global Head, Tech Strategy & Innovation, Invesco.
“This report is a testimony to the resilience of the alternative finance industry in light of the significant challenges it has faced since its birth,” says Tania Ziegler, Global Benchmarking Lead at the CCAF. “The industry has delivered healthy growth during both 2019 and 2020, indicating that it has played a supporting role in helping stakeholders through the challenges that unfolded with the COVID-19 outbreak. We have seen ample evidence of flexible and creative responses by industry players to both the challenges and opportunities that have emerged in the past two years.”
The CCAF thanks IDB, IDB Invest and FintechLAC for their efforts in supporting this research for the Fintech ecosystem in Latin America and the Caribbean as a continuation of six years of collaboration. This report is related to the Inter-American Development Bank (IDB) Group’s ‘Vision 2025, Reinvest in the Americas’ as it deals with the MSME financing gap, promotion of a digital economy, and the prioritization of gender.
“This report represents a unique and insightful research into the development of alternative finance during the past two years,” says Dr Kristin Wallevik, Dean of the School of Business & Law at Agder University. “It shows ways in which the industry’s development has been influenced by COVID-19, as well as aspects in which it has been resilient in the face of COVID-19.”