Italian job - any takers?

The knock-on effect of Matteo Renzi, Italy’s Prime Minister, making good his threat to resign if voters rejected his plans for constitutional reform, which they did by a ratio of 60:40, was predicted to be the overwhelming of the Italian banks – including the world’s oldest, the wonderfully-named Banca Monte dei Paschi di Siena.

Next would be the sparking of a Europe-wide financial crisis, which would, in turn, threaten the euro and possibly even the whole EU project itself. Italian bank share prices duly plummeted last Monday (December 5) at the prospect of political and financial mayhem.

Fast forward a few days and the same Italian bank's share prices have recovered on speculation that the authorities will, despite denials, eventually organise a bail-out plan for its wobbly banking sector, which reportedly holds 40% of all Europe’s bad debts (£300bn). Crisis, what crisis?

Without wishing to make light of the challenges that lie ahead, the point is that, when UK banks hit the skids in the wake of the 2008 financial meltdown, UK entrepreneurs stepped up to the plate to create the Alternative Finance industry virtually from nothing. The wisdom of Benjamin Franklin’s timeless observation that “Out of adversity comes opportunity” was proved yet again.

Sadly, the Italian alternative finance industry is not strong. According to a University of Cambridge report (‘Sustaining Momentum’) only £32m was raised in 2015-16, but that still represented year-on-year growth of 287% over 2014-15. Despite regulatory barriers, there is enormous scope for other lenders to step in, particularly since Italy’s business sector is said to be under-serviced by traditional lenders to the tune of € 50bn. Will anybody dare to venture from the UK?

Back home, there is some evidence that, while there doesn’t appear to be any shortage of lenders, borrower demand has slackened – as evidenced by Zopa’s announcement that it will not be accepting new money until it has sufficient borrowers to mop up the cash.

The SME sector, too, is not rushing to borrow, as acknowledged in a recent statement by Mike Conroy, the British Bankers Association’s MD for Business Finance. He said: “This subdued demand reflects reduced or postponed investment plans and confirmed deposit holding, particularly by smaller firms, as they operate within an uncertain trading environment.”

Enterprising SMEs with an appetite to borrow for growth will surely find what they are looking for in an altfi sector awash with money from interest-starved lenders.