Innovative Finance ISAs

In this guide we investigate, score and rank the ethical and environmental record of 6 providers.

We also look at crowdfunding, financial risks, the projects offered by the platforms and give our recommended buys.

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What to buy

What to look for when buying Innovative Finance ISAs:

  • Is the platform ethical? Look for Innovative Finance ISAs from crowdfunding platforms that offer exclusively social and environmentally focused projects.

Subscribe to see which companies we recommend as Best Buys and why 

What not to buy

What to avoid when buying Innovative Finance ISAs:

  • Do you fully understand the products? Take time to read all the offer documents and make sure you are aware of the risks as well as the potential returns.

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Score table

Updated live from our research database

← Swipe left / right to view table contents →
Brand Score(out of 20) Ratings Categories Positive Scores

Our Analysis

Crowdfunding

Much has been made of the impact of crowdfunding especially in the light of the banking crisis of 2008. According to the European Central Bank, the availability of bank loans to SMEs declined 23% immediately following the crash.

The crowdfunding revolution that sprung up as a result of the rise of the internet may not have completely filled this funding gap, but has led to what some call the democratisation of capital, allowing people to invest with greater ease. It allows organisations to raise finance at reduced interest rates, and also breaks down some of the power once held by larger financial institutions and even governments that had something of a monopoly on finance.

We can see this most clearly in the markets for alternative energy and social housing which have had some success under the crowdfunding model despite a lack of consistent help from governments. Abundance, one of the companies in this report and a well-known innovator in this space, was instrumental in the creation of the idea of Innovative Finance ISAs, which were launched in 2016. Why, they reasoned, should the tax advantages of a stocks and shares ISA not also be available to people wanting to invest ethically into smaller community-oriented projects?

Image: Energise Africa
Energise Africa: BBOX technicians fix solar panels to a roof in the Democratic Republic of Congo

What is an Innovative Finance ISA? 

Innovative Finance ISAs are a type of tax-free savings account (like a stocks and shares ISA or a cash ISA). As mentioned above, an IFISA contains peer-to-peer loans – that is loans directly to businesses, social enterprises or co-operatives through crowdfunding platforms. With an IFISA, you make loans and get interest payments. You do not invest in companies and get shares or equity. The UK government has indicated that IFISA participation had topped £290 million during the 2017/18 tax year, or 8 times more than the 2016/17 figure of £36 million.

They are a great option for ethical investors who are looking for transparent investments. This is because you usually invest directly in a project and can see exactly where your money is going rather than into a mutual fund or a unit trust. They are also great for ordinary savers because the minimum sums you can ‘invest’ are usually really low. Abundance allows you to invest as little as £5 and Energise Africa’s minimum investment is £50. This makes small direct ethical investments accessible to most people. They tend to offer better returns for those who are willing to take some risk. 

Platforms and projects

Projects seeking crowdfunding will tend to issue a call or campaign to raise a specific sum within a fixed period. Typically a fundraising call might last for around two or three months before it closes.

If Ethical Consumer were to try to write a product guide to specific IFISA projects then it would be out-of-date soon after we were published. In this guide we are therefore focussing on organisations which help projects launch crowdfunding campaigns. For simplicity we will call these organisations ‘platforms’ since websites are usually at the centre of how they work.

There are quite a few Innovative Finance ISA platforms currently operating on the market. Many of them lend to property developments like pubs and hotels or to small and medium-sized enterprises looking to expand and do not claim to have an ethical angle. 

Lending to care homes was another common area for IFISA loans. It is well known that government austerity measures are putting financial pressure on this sector particularly. Some of these could arguably be ethical loans, but we didn’t include such platforms in this report if this was the only ‘ethical’ loan they had.

There are therefore six platforms clearly offering ethical crowdfunding projects which can be linked to ISAs. They arrange crowdfunding projects for a range of social and environmental goals like affordable rent, making public transport greener, or producing more renewable energy. 

Four of them – Abundance, Ethex, Triodos and Energise Africa – only work with ethical projects, so they all got an extra plus point in the Company Ethos category. 

The score table above rates the platforms and not the projects. We have also included a written section for each platform below which has an example of a previously funded project so you can get an idea of the kind of projects they support. Confusingly, and finally, not all the projects on all the platforms are eligible for ISA investment.

How much can I put into an IFISA?

UK Investors have an annual tax-free savings allowance of £20,000 in 2018/19. They can split this however they like between the three current types of ISA: 

a cash ISA, a stocks and shares ISA, and the new IFISA.

For example you could save: 

  • £10,000 in a cash ISA, 
  • £5000 in a stocks and shares ISA and 
  • £5000 in an IFISA. 

 You can only open one new Innovative Finance ISA each tax year. However you can open a new one every year and there is no limit to the number that you can have. You can also transfer money that’s in an existing ISA to an IFISA.

What are the financial risks and returns?

IFISAs have a generally higher risk profile than cash ISAs or stocks and shares ISAs. The ISA providers in this guide tend to offer returns of between 6-8% – a much higher rate than many traditional bank or building society cash ISA accounts are currently able to offer. However some commentators have described IFISAs as the ‘wild west’ of ISA investing, and you should be aware that the rate quoted is an expected rate and is not necessarily the rate you receive. In addition, you could receive no interest at all or lose all your money depending on how the individual projects in your portfolio perform. 

Whilst only Financial Conduct Authority (FCA)-regulated platforms can offer an Innovative Finance ISA, they come with no other protection. IFISAs don’t qualify for the savings element of the Financial Services Compensation Scheme (FSCS) that protects up to £85,000 should a firm go bust. Neither do they get the FSCS investing element that covers up to £50,000 in case your investing platform goes bust and hasn’t done what it is meant to with your money. Some platforms have “reserve funds” that they claim can cover you in the event of defaults with loans or businesses failing. However they are under no obligation to use these funds and it is at the discretion of the platform.

It is also more difficult to access your money with an IFISA. Most of the assets (or loans) will be fixed term, making instant access impossible. You should, therefore, take into account the length of time the asset is held for when making a decision about what projects to invest in. Some of the platforms offer secondary markets to sell on your bonds but you are not guaranteed to get a buyer for anything you are trying to sell.

All the platforms we cover here do their own due diligence work on each project seeking funding both in terms of ethics and financial risks. After all it is in the platform’s interest to have projects that perform well – poor performers could damage the platform’s reputation.

For example Triodos get to know the people behind the projects before they launch on the site, they look at the business planning, management team, the options they have considered and previous financial performance to help ensure the projects deliver for investors. For more information on how to limit risks see The Innovative Finance ISA page. 

The social returns of individual projects 

Mainstream ethical investment tools, like assessments against the UN’s Sustainable Development Goals (SDGs), are not really that useful for many of the small scale opportunities available via crowdfunding platforms. 
Bruce Davis from Abundance told us, “Our experience is that investors prefer to make up their own minds about the ‘impact’ of the investment against their personal set of values and priorities. For some this can involve quite detailed due diligence above and beyond our own offer document and for others it is a general set of principles that they want their investments to work with.”

He added that, “The conventional Environmental, Social and Governance approach, we find, is more of a marketing idea than necessarily a robust assessment of impact on the ground.”

The Energise Africa project, which has some larger institutional backers does have some formal impact figures to track project success in relation to the SDGs. As such they monitor the number of people that have access to green energy thanks to funded projects and the amount of CO2 mitigated per year. 

Triodos also have different impact metrics for different projects. For example the Mendip Renewals project has an aim of helping people back to work and tracks how well its participants have performed in the job market after their time working with the project has ended.

Image: Abundance Investments
Abundance Investments

Companies behind the brands

Ethex

Ethex promotes ethical investing as well as offering its own IFISAs. From the table you can see it offers ISAs under two brands, Ethex and Energise Africa. Ethex is a not-for-profit company (limited by guarantee). Its ISAs are offered through a third party company called ShareIn which is regulated by the Financial Conduct Authority.

Ethex is based in Oxford and is staffed by a team of 10, working on developing the website, handling customer orders, finding new businesses and investors and fulfilling regulatory requirements. It has much the best formal ethical policies of all the platforms in this Guide.

Ethex Funded Project – Solar for Schools

The Solar for Schools Community Benefit Society (CBS) was set-up in 2016 to enable schools in England and Wales to derive some financial and environmental benefit from solar panels. It was designed so that schools could share in the expected long-term financial returns without having to invest their own money.

Over 500 schools registered an interest in having solar panels installed. The project closed in January 2018 having raised £250,000 from 67 investors.

Energise Africa

Energise Africa is designed to provide working capital to projects that install and sell solar home systems in sub-Saharan Africa. The aim is to provide more than 111,000 rural families access to renewable energy over the next three years. Home systems tend to provide simple electric lighting and phone charging facilities.

Some of the projects are managed by UK companies such as BBOX which is based in London. Others have been run by companies based in Africa such as Sollack (see below for more details). Most of the investments target returns of between 4-6% and offer bonds with a term of 2 to 4 years with interest paid every 6 months. 

Ethex runs the Energise Africa project alongside Lendahand, a Dutch company that initiates renewal energy projects around the world.

Energise Africa is also supported by a number of other partners such as the UK’s Department for International Development, the Virgin Unite fund (the non-profit foundation of the Virgin Group), Good Energies Foundation and Partnering for Green Growth. These organisations help to match-fund some of the projects helping to limit the risk to individual investors. 

Energise Africa Funded Project – Sollatek Kenya

29 million individuals in Kenya are currently ‘off-grid’ and without access to clean, renewable electricity. Sollatek is 100% Kenyan owned and managed, and has been operational in East Africa for over 30 years. Over the last 7 years Sollatek has sold over 650,000 solar lanterns and solar home systems providing approximately 3.8 million people with access to solar energy. 

The most recent bond offering on Lendahand platform helped to fund the provision of clean energy to 217 families in Kenya. Kenyan families pay for these systems in affordable installments over 18 months.

Triodos Bank

In 2018 Triodos became the first UK bank to launch its own crowdfunding platform. Most of the projects available to invest in are eligible for the bank’s IFISAs.

Since its launch the Triodos crowdfunding platform has raised £20 million for eight pioneering organisations delivering positive change. The investments available on the site tend to be longer term investments (up to 18 years) so investors need to be aware that their money could be tied up for a considerable amount of time.

Most of the projects pay interest annually and some even offer inflation linked returns.

Triodos does its own due diligence on each project which includes analysing the companies’ business plans, numerous meetings with the project leaders and some investigation of the track record of the senior people involved in each project.

It is also possible to invest in many of the projects using paper forms instead of online. You can call 0330 355 0355 for more information.

Triodos Funded Project – Mendip Renewables 

A £1.8 million bond was successfully raised for Mendip Renewables in 2018, which owns and operates a 5MW community solar scheme and uses its retained profits to support charities in Somerset. The bond offered a 5% interest rate inflation linked over 17 years.

The company donated £25,000 to Key4Life to help support its South West ‘At Risk’ programme which supported disenfranchised young men who were at risk from offending. The charity’s programme includes mentoring, employability skills and specially-designed workshops to manage emotions and overcome negative behaviours. Six months into the programme 62% of participants are in employment or meaningful activity. 

Abundance

Abundance has been a pioneer of raising green finance ever since it launched in 2012. Its first investment was to fund the construction of a community-sized wind turbine in the Forest of Dean. The project was by far the biggest investment of its kind at the time, but more importantly it broke the mould of what investment was all about. It was the first crowdfunded energy investment, allowing anyone to invest from just £5 at a time when green energy investments could usually only be accessed by those with far deeper pockets. 

It only funds what it calls ‘socially useful’ projects. These have largely been green energy in the form of wind turbines and solar farms, but have also included a project to recycle used cooking oil into bio-diesel and, most recently of all, affordable housing.

Abundance recently achieved a B Corp status – a certification scheme looking at social and environmental performance, public transparency, and legal accountability to balance profit and purpose. The company carries out due diligence on prospective projects which can last between 6 weeks to six months. This involves a series of stages from face to face meetings, to financial model testing, to helping them produce the offer document. They then have ongoing, usually monthly contact with each project. 

Abundance has also helped when projects get into difficultly. For example, when a decision by the energy regular OFGEM cut subsidy payments to the Monnow Valley CHP, Abundance helped the organisation to find their way through the problem. 

Abundance Funded Project – Merseyside Assured Homes plc 

Merseyside Assured Homes plc raised £4,250,000 in the summer of 2018 to fund the construction of 30 social housing properties at three locations in and around Liverpool. 

The homes will be offered to people and households on local waiting lists who are eligible to receive Local Housing Allowance, and nine flats specifically cater to people in need of supported living.

The money is being spent on three specific developments. The first consisting of 8 semi-detached and detached 3 bedroom houses and one 4 bedroom house. The second of 9 flats in a single 3-storey building and will provide supported living accommodation for its tenants. The third site will have 12 semi-detached and detached 3 bedroom houses. 

The Downing Crowd

The Downing Crowd platform is owned by Downing LLP, an investment manager which also operates funds investing in not exclusively ethical areas.

Downing Crowd was launched in 2016 and has raised almost £50m since launch. Similar to the Abundance site, the investor chooses the company bonds they want to invest in from those available on the platform at the time. The interest offered typically ranges from 4% to 7% p.a., with terms usually from one year to three years.

It offers renewable energy investments and also other, not-marketed-as-ethical, opportunities like hotel renovation, care homes and pubs. Downing Crowd Bonds are often secured against a business’ tangible assets (such as wind farms, hydro plants and care homes) to help reduce the risk for investors.

Downing’s other products offered investments in companies, such as Drax and Shoe Zone, which have been criticised in categories used for our ratings such as Climate Change and Workers’ Rights. It was marked down in these categories because it did not score best in our Financial Transparency ranking.

Downing Funded Project – Alternate Energies

The first bond offer to be included in the Downing IFISA featured a £1.39m funding opportunity for Alternate Energies, which owns an established portfolio of solar panel systems on residential buildings owned by Colchester Borough Council. 

Goji Investments

Goji Investments specialises in direct lending and offers ‘renewables’ IFISAs that invest in UK renewable energy . It also offers not-marketed-as-ethical, ‘diversified UK lending’ – to property, education, and SMEs. Its Renewables Lending Bond finances renewables projects, which are originated and managed by the Prestige Group. We have therefore combined the rankings for Goji and Prestige on our table for this product.
Unlike the other IFISAs in this guide, it does not appear that the investor can choose which companies to invest in – the portfolio is chosen for you.

As of Goji’s Annual Return February 2018, AXA held 3% of its shares whilst a company called Anthemis held around 21%. Anthemis’ parent company was registered in Luxembourg, a tax haven, and Anthemis had investments in Atom Bank.

Prestige Group’s funds did not disclose which companies they invest in. As a likely holder of shares in companies receiving criticism across all our ratings categories, and scoring worst for transparency, it lost half a mark in all of our categories.

Prestige also owned companies based in tax havens such as the Cayman Islands and the British Virgin Islands.

Goji Funded Project – Renewables lending bond

The Renewables lending bond is spread over 33 individual renewable energy loans, totalling £1.6 million. The minimum investment is £5,000. The bond funds UK wind, solar and anaerobic digestion (agricultural, food and water treatment waste is diverted from landfill and broken down to produce biogas). The Portfolio aims to provide a yield of between 6% pa for 3 year investments and 8.3% pa for 5 year investments. The first 20% of any loss will be underwritten by Prestige. There is no details on the individual loans that are funded.

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