A new peer-to-peer lending company has launched in the UK called Lending Works, highlighting the growth in non-bank lending sector.

A new peer-to-peer lending company has launched in the UK called Lending Works, highlighting the growth in the non-bank lending sector as people seek alternatives to traditional bank finance.

The London-based firm claims that it is the first peer-to-peer company to guarantee customers their money is insured against borrower defaults and fraud.

Lending Works said that all lenders’ money is held within a trust that is administered by a not-for-profit company and is ring-fenced from day-to-day operations of the firm.

The firm said it had secured £3.5 million ($5.75 million) from venture capital and angel investors and was targeting a net return to lenders of approximately 5.1 per cent AER when their money is lent for five years.

In recent years, there has been a rapid growth in the number of crowd-funding and peer-to-peer websites as a result of traditional sources of loans and financing drying up since the financial crisis as banks seek to minimise risk.

Within the crowdfunding space, the most prominent platform is Kickstarter, which brings people together to help fund creative projects. Those that pledge money on the platform tend to receive benefits or free samples in return for their cash, rather than share or money.

Peer-to-peer lending is different as it focuses on linking companies or individuals that want to borrow money with those that want to lend without using an official financial institution as an intermediary. As a result, peer-to-peer lenders can often offer more competitive borrowing and saving rates as there is no bank acting as a middleman.

Pioneered by Zopa in 2005, other organisations in the space include Ratesetter and Funding Circle.

Last year, the Financial Conduct Authority, the UK regulator, tightened up controls on peer-to-peer websites to give investors clearer information about what they are investing in and prevent potential abuses.

Currently peer-to-peer lenders are capturing only 1 per cent of the UK personal loan market, which is estimated to be worth £25 billion. However, the growth rate of the industry is accelerating and the Open Data Institute forecasts the digital finance sector to reach £1 billion by 2016.