Innovative financial ISAs (IF ISAs) were introduced to provide investors with tax breaks for investments in peer-to-peer loans (P2P) (lending to companies) and crowdfunding bonds (investment by buying a company’s debt).
However, the product continues to be followed by concerns about the risks of the underlying investments. Could greener and more sustainable business opportunities for key players in the market help to resist investment that is considered too risky and harmful to the ISA brand?
IF ISAs often announce high target returns compared to what you could get from a bank deposit account. If it is not entirely “if it looks too good to be true …”, it is still comparable in another worn sentence to the comparison of apples and oranges.
According to Jason Hollands, Managing director, business development and communication at Tilney Investment Management: “It is my concern that IF ISAs are generally promoted in this way. Unlike a bank account, these systems are not covered by the Financial Services Compensation Scheme (FSCS).
“P2P loans, including those to property developers, should only be considered by those who understand their true nature, not by those who believe that this is just an alternative to a bank account, but offers excellent returns.”
Hollands added: “The IF ISA market is tiny overall and P2P may have peaked. I am therefore doubtful that we will experience a wave of product innovations. If anything, there are signs of consolidation. “
Sustainable offers Investors who want to pursue a more sustainable investment agenda with their IF ISA and / or through the P2P sector have to chase around. Ethical investment platform Ethex offers an IF ISA that has the same tax-free benefits as a traditional cash or stocks & shares ISA, but allows investments in crowdfunded bonds issued by projects to combat climate change Promoting social equality and building resilience Communities.
It says: “Gives investors the freedom to use their money to help ethical companies and organizations grow, while at the same time reconciling the risk of this type of investment with the tax-free returns of all interest earned on your IF ISA.
The Ethex IF ISA offers investments in Energize Africa Bonds issued by solar companies that give families in sub-Saharan Africa access to solar energy. The return ranges from 5-7% gross / VRE variable.
Another option wealthis an investment platform designed to give people the opportunity to invest in green and social infrastructures such as green energy and social housing. It offers the Abundance Innovative Finance ISA.
Crowd Property pretends to help SME real estate professionals that traditional sources of finance have failed; and offers investors the opportunity to do so through IF ISA.
“A concrete example of where innovations in the housing industry can make a significant contribution to the environmentally friendly and sustainable agenda are modular apartments or modern construction methods,” said Bristow.
“There are tremendous benefits in terms of reducing time, waste and emissions, but traditional lenders have not accepted funding for this type of construction, especially for smaller developers, because the structuring is complex.
“We have worked hard to bring financing products for modular products into this market segment, which has led to financing projects that may not otherwise have come about – ie financing more environmentally friendly and sustainable construction work.”
Do your homework
Some research is critical to any investment, especially the IF ISA path and the search for sustainable investment options.
Caroline Gill, Marketing Manager at Crowd2Fundsaid, “P2P loans rarely allow you to invest in large infrastructure projects like renewable energy, but it’s a great way to invest in companies with an environmentally-friendly mission.
“It is important that with the platform you use, you can actively evaluate and select the companies in which you invest. Some platforms use a pooled fund system. This means that investors do not know where their money is invested, how it is used by a company and you cannot decide for yourself how sustainable a company is.
“The sustainability standard of one person is different for that of another person. That’s why Crowd2Fund offers so much information about each investment that our investors can make their own decisions.”
Critical point of view IF ISAs and the P2P market have to take their own sustainable measures to pacify critics.
Dr. Roger Gewolb, founder and CEO of the credit comparison platform FairMoney.com has real concerns about the P2P market and has argued that the sector should be regulated by the Bank of England.
“The FCA has been able to maintain and practice the” myth “that began a decade ago that people who put money in P2P lending platforms rather than banks are investors and not depositors,” he said.
“P2P lending platforms are simply unlicensed depositors, and it is an absolute fiction to consider that they are making investments or that the people who put their money in them see them as investments.
“The Bank of England must now take over and regulate this area and subject these companies to a proper inspection, regulation and monitoring of deposits. Otherwise, other disasters will surely occur, including major ones, and one day investors could run into the mountains and the industry will shrink or disappear and we will only have the traditional banks that will not be a good thing. “
While leading players such as Funding Circle, RateSetter, Zopa, Lending Works and CrowdProperty founded the 36H Group, which is now part of Innovate Finance, an independent industry association that represents and develops the British FinTech community, according to Gewolb, the problems of self-regulation remain However, he expressed hope: “Under Innovate Finance’s financial technology, the industry can start cleaning up and regaining its reputation.
“Consumers need P2P credit to be a real, reputable challenger to traditional banks, and I hope that for the good of the sector, Innovate Finance will achieve the goal of bringing P2P up to date with other appropriate lenders and credit practices Methods exercises. “
The ability to invest in smaller companies that typically have difficulty attracting funds and the ability to generate higher returns due to higher risk may have a very real place in the market – provided investors understand exactly what they are getting into.
However, Hollands continued to demand health warnings for IF ISA investments, for example: “This should include a massive health warning. In terms of risk, lending money to property developers is not comparable to a money saving account covered by the FSCS.
“In my opinion, [former chancellor] George Osborne made a big mistake when he added P2P loans to the ISA family, a market that hasn’t really been tested under stressful conditions. “
Offering more ethical and sustainable options could help IF ISA regenerate their reputation. However, investors should be advised that environmentally friendly and sustainable does not mean that the returns they make or the money invested are always sustainable.
Crowdfunding ethical companies
Green and sustainable companies that collect donations on Crowd2Fund.
• • Planks clothes, which has made great efforts to reduce environmental pollution, for example by using materials from recycled plastic bottles;
• • Goldfinger factory, a social enterprise and a design, construction and teaching platform that focuses on upcycling to create bespoke furniture and interiors; and
• Marine protection and raising awareness among the population barefoot protection,
Crowd Cube recently raised donations for the following, although it only offers EIS and SEIS tax packaging options:
• • Antaco The company has developed a renewable energy solution that converts organic waste into climate-neutral biofuel.
• • Little Robert Company This makes light, intelligent machines to replace tractors that protect the soil and the environment so that farmers can work more efficiently, precisely and productively. and
• • Symmetrical force The company is developing a solution to the problem of energy wastage and is in the process of creating the “Intelligent Distribution Board” that will meet the challenges of peak demand while saving energy costs.
Read on: Innovative Finance ISAs – the basis for investors
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