Private credit is emerging as a fast-growing source of financing in developing economies, offering new funding channels for companies underserved by banks, but its rapid expansion could pose risks to financial stability if left unchecked, the International Monetary Fund (IMF) said.
In its latest Global Financial Stability Report, the IMF said private credit funds are increasingly stepping in to provide tailored financing solutions, helping deepen financial intermediation and support economic growth across emerging markets.
Assets under management in the segment have risen sharply over the past decade, reaching an estimated $50 billion to $100 billion in emerging markets, roughly five times higher than a decade ago.
While still accounting for less than 5% of the global private credit market, activity is accelerating. Deal volumes climbed from about $14 billion in 2024 to more than $22 billion in 2025, reflecting growing demand for alternative financing.
Filling Gaps Left by Banks
The IMF said private credit is helping bridge funding gaps where traditional lenders have pulled back, particularly following tighter banking regulations. The sector spans a range of activities, including direct lending, distressed debt, mezzanine financing and infrastructure funding.
Global asset managers typically deploy capital through offshore, hard-currency funds targeting larger borrowers, often shifting foreign-exchange risk onto companies in emerging markets. Domestic managers, by contrast, rely on local funding pools and tend to lend in local currency to smaller firms, supported by pension funds, insurers and wealthy individuals.
Private credit has so far played a complementary role to banks, including through risk transfer structures that help free up balance sheet capacity in regulated financial institutions.
Expanding Into Infrastructure and Development
Beyond corporate lending, private credit is increasingly involved in infrastructure finance, public-private partnerships and impact investing, often alongside development finance institutions.
These activities are helping mobilize long-term capital for sectors such as energy, transport and digital infrastructure, particularly in frontier markets where financing needs are acute.
Risks Build With Growth
Despite the benefits, the IMF warned that the sector’s rapid expansion could amplify vulnerabilities, particularly in markets with weaker regulatory and supervisory frameworks.
Private credit funds often operate with limited transparency, making it difficult to assess risks related to leverage, valuation practices and interconnections with the broader financial system.
The growing links between private credit, banks and public sector balance sheets could also increase the risk of spillovers during periods of stress, especially where borrowers have weaker credit profiles.
Policy Challenges
The IMF said building a resilient private credit ecosystem will require stronger legal and institutional frameworks, including more effective insolvency regimes, clearer collateral enforcement and improved oversight of institutional investors.
Enhanced data collection and disclosure will also be critical to help regulators monitor risks as the sector expands.
“Limited transparency and underdeveloped supervisory frameworks can complicate timely risk assessment,” the Fund said, particularly in jurisdictions where financial systems are still evolving.
The findings underscore a broader shift in global finance, as nonbank lenders play a larger role in funding emerging markets, bringing both new opportunities and new sources of risk.
