Jacob Rothschild, scion of the famous banking dynasty, has
bought a stake in a peer-to-peer lending company at a time when conventional
bank lending has been squeezed, the Financial
Times reported.

RIT Capital Partners,
Lord Rothschild’s London-listed investment trust, bought into UK-based Zopa in
the expectation that it will eat into a business traditionally dominated by
banks, the newspaper said.

“We are witnessing the growth of the non-banking lending
market,” Lord Rothschild told the publication. “Following the 2008 crisis many
of the banks remain under capitalised,” he said. “In these circumstances
alternative forms of credit will be developed on a significant scale. This is
happening.”

Among other similar moves, John Mack, the former chairman
and chief executive of Morgan Stanley, joined the board of Lending Club, a US peer-to-peer
lending company, in April.

Zopa, meanwhile, has lent £250 million (around $400 million) since it was founded in
2005. Lord Rothschild declined to reveal the size of his stake in Zopa, which
he acquired through Augmentum Capital, a technology fund whose sole investor is
RIT Capital, the FT said.

As reported by WealthBriefing
in August, a peer-to-peer lending organisation called Squirrl is promoting its
services to hundreds of UK-based independent financial advisors, highlighting
how this non-bank funding channel is being driven by the search for
alternatives to traditional bank finance.

The peer-to-peer funding model, which removes banks as the
middleman, enables savers to invest in secure loans to well-established firms.
According to one definition, this form of funding is a “method of debt
financing that enables individuals to borrow and lend money - without the use
of an official financial institution as an intermediary”.  This funding model
typically involves more time, effort and risk than more conventional sources of
lending.

The development of such financing comes at a time when
traditional bank lending to firms has been squeezed by the tougher economic
climate; to fill this gap, groups such as angel investors and managers of
investment funds of various types have stepped in with a variety of financing
structures.