Is it time to stop flogging this nearly dead horse?

We’ve had the latest data on the Bank Referral Scheme from HM Treasury and as noted by several parts of the media, it’s pretty lack lustre stuff. 1700 businesses funded since inception to the tune of £32m is better than nothing, but it’s hardly transforming the UK economy, nor even the alternative finance market.

The figures are even more alarming when we look at the detail.

There has been zero growth over the past 18 months. In Q1 2018, 224 loans were written with a total value of £4.6m For Q2 2019, these figures have fallen to 196 loans and £4.1m of volume.

The referral numbers are also flat. In Q1 2017, there were 3390 referrals. By Q2 2019, there were only 2647. The number of businesses making contact with one of the platforms is also in decline. There were 1549 in Q1 2017 and only 1190 in Q2 2019.

In a brave attempt to put a positive spin on it, a Treasury spokesperson said: "The data generally shows an upward trajectory on a number of metrics". Which ones, precisely, is harder to spot.

There are, in fairness, some positives. Make that one positive. The cumulative conversion rate has clawed its way up to 10.74% from under 6% and was 16% last quarter. Let’s hope this reflects an improvement in quality and not an increasing need by platforms to write loans.

So, do we celebrate the 0.03% of the business population that has secured funding that otherwise wouldn't or send the scheme back to the drawing board?

Before answering that, we need to think about what the figures really tell us.

The first is that alternative finance providers aren’t a soft touch and nor should they be. The reality is that they often have tougher credit criteria than the banks. Their fear of losses in small, immature portfolios coupled with the fact that they often don't have the full credit picture, makes them naturally cautious. Swift decision making, lack of paperwork and high approval rates are more marketing spin than reality in many cases. This is unlikely to change in the foreseeable future.

The second is that the banks have been masters of small business lending for many years and many altfi platforms are only now realising how hard it is over a sustained period of time. If a bank declines an application, it is normally for good reason. I’ve, personally, never found it to be true that the banks aren't lending to small businesses. They just haven’t been lending to marginal cases and it seems the new providers aren’t willing to either.

In being critical, I still tip my hat to the founders of the Scheme, many of whom I’ve had the pleasure of working with. To get their idea from concept all the way through to legislation took remarkable vision and tenacity.

But not every idea works. That is the nature of innovation, and with the benefit of hindsight, maybe the Bank Referral Scheme was seen too much as an easy source of origination and not enough thought was given to the reasons why it was never likely to work in practice.

Now it’s on the statute books, we perhaps shouldn’t kill it, but platforms shouldn’t expect much more from it either. If they want quality business, they need to go out and find it for themselves. This means presenting a credible alternative to the banks, not something that is the next layer down in the credit food chain.