22 Finance Monthly. Bus i ne s s & Economy espite the growing importance of ESG, the three strands haven’t alwaysheldequal weight. Whilst the movement generated around the climate crisis means lenders’ strategies today heavily account for environmental and sustainability considerations, for example, the social aspect of ESG has at times been overlooked. This is the “forgotten S” – and “S” in the private debt world can mean a number of different things. Firstly, on the investment side, it means backing those who are supporting people who don’t have easy access to capital. Secondly, it means private debt companies supporting the community they operate in. Following the 2008 financial crisis, banks and other traditional lenders withdrew from markets. New regulation saw a tightening of credit conditions, as banks needed to hold more provisions against certain types of loans. Furthermore, there was a reduced appetite to lend in areas that were seen as high risk and low reward. By late 2009 banks had considerably tightened their belts – LTV ratios had fallen, credit card availability was cut (by early 2009, offers to households for new credit cards had dropped to around one-fifth of their count in 2006) and in the UK consumer repayments were outstripping new borrowing. Overnight, a whole section of ‘subprime’ society had essentially lost access to finance. When traditional lenders withdrew from the market, FinТech lending emerged. They had a low-cost base and used the latest technology such as open banking to better assess creditworthiness, ensuring they were lending responsibly. Many FinTech-focussed companies saw these exciting new technologies as an opportunity to establish an alternative to traditional bank lending and ultimately democratise access to finance. One area in which private debt companies are working to increase their social impact is by providing capital to those underserved segments in society. We have worked with a number of organisations, including auxmoney in Germany and Upgrade in the USA, to fund consumer loans to those who would otherwise be unable to access capital. Lenders are also increasingly able to apply sophisticated pricing models supported by AI to help lend to this segment. Small business lending is another area in which private debt companies can make a real social impact. Small businesses are the lifeblood of the British economy, with SMEs accounting for 99.9% of the business population (5.5. million businesses); following the 2008 financial crisis, however, the big banks considerably reduced their lending risk appetite, meaning small businesses have had to look elsewhere to access vital finance. As part of the FinTech revolution, new SME lenders have stepped up, helping to plug this gap and
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