Cumulative peer-to-peer lending at the end of the first quarter in 2014 hit £1,207 billion, compared to £491 million at the end of the first quarter of 2013, a whopping rise of 146 per cent, according to a new report by the UK's Peer-to-Peer Finance Association.

Cumulative peer-to-peer lending at the end of the first quarter in 2014 hit £1.2 billion ($2 billion), up from £491 million at the end of the first quarter of 2013, a whopping rise of 146 per cent, according to a new report by the UK's Peer-to-Peer Finance Association, a trade body which represents over 95 per cent of the UK peer-to-peer lending market.

Data from the association showed strong growth in both business and consumer lending with 5,169 business borrowers and 82,208 consumer borrowers, supported by more than 94,000 lenders. 

UK businesses have benefited from over half a billion of funds and the association predicted that consumer peer-to-peer lending could well reach £1 billlion by the end of the next quarter.

“Peer-to-peer lending is becoming mainstream and a credible alternative to banks for consumer and business finance,” said Christine Farnish, chair of the Peer-to-Peer Finance Association.

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.

Peer-to-peer lending and crowdfunding became regulated by the Financial Conduct Authority on 1 April 2014 with the aim of tightening up controls on the sector and to give investors clearer information about what they are investing in to prevent potential abuses.

However, the new rules have come in for much criticism and have been viewed as draconian by many of the leading players in the industry.

Under the new rules, crowdfunding platforms must give clear information on risks of lending to projects and can only be promoted to high net worth clients. Inexperienced investors must not commit more than 10 per cent of their net investible assets, excluding homes, pensions and life insurance.

“Make no mistake, the infamous 10 per cent rule - however it's dressed up - does just that: it takes the crowd out of equity crowdfunding,” Barry James, founder of The Crowdfunding Centre, said last month.

“Over the centuries Britain has led the world with inventions and innovations - and then thrown away that lead.

“It's tragic that just as we seem to be on the brink of changing that habit the FCA seem determined to repeat that history for us by taking the crowd out of crowdfunding at just the time when France has opened it up to the crowd following New Zealand and, increasingly, the USA,” he said.