CAN THE PEER TO PEER LENDING MARKET IN PORTUGAL ACHIEVE THE SUCCESS SIMILAR TO THAT OF THE US AND UK? A STUDY OF ALTERNATIVE FINANCE Master’s of Finance thesis within Faculty of Economics (FEP) Author: Soban Ahmed Supervisor: Ricardo MiguelValente 2016 1 Table of Contents List of Figures .......................................................................................................................5 Biographic Note ...................................................................................................................6 Acknowledgements..............................................................................................................7 Abstract ...............................................................................................................................8 Abstract (Portuguese Version) ..............................................................................................9 GLOSSARY.......................................................................................................................... 10 1.0 INTRODUCTION ............................................................................................................ 12 1.1 Born out of the crisis .................................................................................................. 12 1.2 Purpose of the research .............................................................................................. 15 1.3 Research Questions .................................................................................................... 15 1.4 Problem discussion and data collection ...................................................................... 16 1.5 Perspectives and Delimitations .................................................................................. 16 1.6 Research Design ......................................................................................................... 17 1.7 Literature Review ....................................................................................................... 18 1.7.1 Theoretic Study ................................................................................................................. 18 1.7.2 Empirical Study ................................................................................................................. 19 1.8 Critical Analysis of the Literature Review ................................................................. 23 2.0 ALTERNATIVE FINANCE AND PEER TO PEER LENDING MARKET ....................................... 24 2.1 What is “Alternative Finance”? ........................................................................................ 24 2.1.1 Alternative Finance in Europe .................................................................................................. 25 2.1.2 Alternative Finance in the US ................................................................................................... 26 2.1.3 Tools of Alternative Finance ..................................................................................................... 27 2.2 What is peer-to-peer lending? ....................................................................................... 27 2.2.1 How does it work? ................................................................................................................... 27 2.2.2 So, who are the P2P Platforms? ............................................................................................... 28 2.2.3 How are the loan listings being assessed by potential investors? ............................................ 29 2.2.4 Who are the borrowers in peer-to-peer lending? .................................................................... 30 2.2.5 Who are the investors/lenders – What drives the growth of these platforms? ....................... 30 2.2.6 Lending Process........................................................................................................................ 31 2.2.7 So, where are the banks? ......................................................................................................... 32 2.3 Regulation ....................................................................................................................... 32 2.3.1 Global Regulation ..................................................................................................................... 33 2 2.3.2 Portugal .................................................................................................................................... 34 2.4 Secondary Market .......................................................................................................... 35 3.0 METHODOLOGY ........................................................................................................... 36 3.1 Qualitative Research: Pre- interview ................................................................................ 36 3.1.2 Interview & Survey ................................................................................................................... 36 4.0 RESEARCH, FINDINGS & ANALYSIS ................................................................................ 42 4.1 The Origination of the Market In Portugal ................................................................. 42 4.1.1 Demographic Analysis .............................................................................................................. 42 4.1.2 MOSAIC – Getting a broader perspective from the key players in Portugal ............................. 44 4.1.4 Further Analysis ....................................................................................................................... 50 4.2 Market Development of P2P within Portugal: ............................................................. 52 4.2.1 Investors in Portugal are traditional investors and are moderate risk takers .......................... 55 4.2.2 Borrowers seeking growth or working capital and value speed of service............................... 57 4.2.3 P2P business lending will be funding borrowers in Portugal who would otherwise struggle .. 59 4.2.2 Investors................................................................................................................................... 60 4.3 Current Awareness of This Market In Portugal and Future Growth Prospective ... 62 4.3.1 Secondary Market and its possibilities. .................................................................................... 62 4.3.2 Borrower’s Awareness ............................................................................................................. 64 4.3.3 Investors and Borrowers perspective in opting other form of alternative financing methods 65 4.3.4 Factors influencing the decision of investors before lending to businesses in the P2P platform in Portugal ......................................................................................................................................... 66 4.3.5 Success in 5 years? ................................................................................................................... 67 5.0 CONCLUSION .......................................................................................................... 69 5.1 The Origination and Development of the Market ............................................................. 69 5.2 Success in Portuguese economy – Is it a possibility? ....................................................... 71 5.3 Discussion, Limitations and Scope for further research ................................................... 72 6.0 REFERENCES ................................................................................................................. 75 6.1 Articles............................................................................................................................. 75 6.2 Websites:.......................................................................................................................... 78 6.3 Survey Links .................................................................................................................... 78 6.3.1 Borrowers ................................................................................................................................ 78 6.3.2Investor ..................................................................................................................................... 79 7.0 Appendices .................................................................................................................. 80 7.1 Questionnaires ................................................................................................................. 80 3 7.2 Similarity Table ............................................................................................................... 82 7.3 Survey Questionnaires ..................................................................................................... 82 4 List of Figures Figure 1: Global Marketplace Loan Issuance ................................................................. 13 Figure 2: Interest Over Time........................................................................................... 15 Figure 3: Research Design and Structure........................................................................ 17 Figure 4: Alternative Finance Market Size and Growth in Europe” .............................. 25 Figure 5: Growth of Alternative Finance in the US .......................................................