Alternative and complementary instruments to traditional banking, which include equity crowdfunding, club deal lending, debt issuance through minibonds but also cryptocurrencies, represent a significant innovation in the world of investment and financing for companies at all stages of their life cycle. However, despite its potential, alternative finance is often hampered by a number of prejudices that limit its growth. Here are some of the most frequent.
1. The Perception of High Risk
One of the most widespread misconceptions concerns the perception of risk associated with alternative finance. Many investors and financial institutions view alternative instruments as extremely volatile and uncertain. For example, cryptocurrencies are often seen as speculative investments with extreme price fluctuations. However, it is important to note that all financial investments, even those considered safer, carry risks that prudent portfolio management can mitigate. Moreover, the adoption of stricter and more transparent regulations can help reduce uncertainty. In Italy, platforms offering alternative finance services to traditional banks are regulated by Consob and Banca d'Italia according to the new European crowdfunding regulation, thus ensuring greater protection for investors.
2. The Perception of Lack of Regulation
The new European crowdfunding regulation, which came into force last year, lays down precise rules for operators offering alternative finance services in Italy. This regulation, implemented by Consob and Banca d'Italia, imposes strict requirements in terms of transparency, investor disclosure and consumer protection. Operators must provide clear details on the risks associated with investments and comply with stringent authorisation and supervision criteria. Furthermore, blockchain technology is playing a crucial role in improving transparency in the industry. Due to its immutable and decentralised nature, blockchain allows all transactions to be recorded in a secure and verifiable manner, reducing the risk of fraud and increasing investor confidence. Alternative finance platforms can use blockchain to track investment flows, guarantee the origin of funds and ensure that all transactions are transparent and compliant with applicable regulations.
3. Lack of Understanding and Knowledge of Alternative Finance Instruments
Another significant obstacle is the lack of knowledge and understanding of alternative finance among the general public and traditional investors. Often, the complexity of some alternative financial instruments can intimidate and discourage potential investors. It is essential to promote financial education and raise awareness of the opportunities and risks associated with these instruments. Workshops, seminars and online resources can play a crucial role in this context.
4. Conservatism of Financial Institutions
Traditional financial institutions, such as banks and investment funds, tend to be conservative and prefer established financial instruments. This conservatism may limit the availability of capital for alternative finance and slow its growth. However, some institutions are beginning to recognise the potential of these instruments and are exploring ways to integrate them into their investment portfolios. Greater openness and flexibility on the part of traditional institutions could accelerate the adoption of alternative finance.
5. Sporadic Cases of Fraud and Scandals to which the Press Tends to Give Much Emphasis
Alternative finance is not immune to fraud and scandals, which can fuel existing prejudices. For instance, some crowdfunding projects have turned out to be scams, and some peer-to-peer lending platforms have failed, leaving investors without capital. These negative events may reinforce the perception that alternative finance is inherently risky and unreliable. However, it is important not to generalise and to recognise that every sector has its risks. A strict supervisory system and the implementation of preventive measures can reduce the risk of fraud.
In conclusion, alternative finance offers unique opportunities to diversify investment portfolios and improve access to finance for innovative companies and projects. However, to realise its full potential, it is crucial to address and overcome the biases that are holding back its growth. Through a combined approach of education, regulation and open-mindedness, we can create a more favourable environment for the development of alternative finance and promote a more inclusive and dynamic financial system.