The Rise of Private Credit in Emerging Economies

Emerging market nations are increasingly turning to private credit as a flexible choice to traditional borrowing methods. This trend mirrors the growing popularity of private credit in developed economies, offering a less conspicuous avenue for securing capital. Unlike publicly issued bonds, private credit arrangements provide both flexibility and discretion, appealing to nations seeking to manage their debt profiles with greater agility.

PIMCO’s Strategic Approach to Emerging Market Lending

PIMCO, a major player in the bond market, has significantly increased its private lending activities in emerging markets. According to Pramol Dhawan, head of emerging markets portfolio management at PIMCO, the firm has already lent nearly $6 billion to emerging market borrowers in the current year. This figure is rapidly approaching the $8.5 billion deployed across 27 deals in the previous year, part of a broader $25 billion commitment in recent years. This strategic move allows PIMCO to capitalize on opportunities for higher returns and more favorable lending terms.

“We’ve got both inflows as an asset manager, and we have a large private credit team. We can leverage those two together, find bespoke solutions,”

Pramol dhawan, PIMCO

Countries and Lending Mechanisms

PIMCO’s lending activities span a diverse range of countries, including Panama, the Dominican Republic, Saudi Arabia, and Qatar. The firm employs various lending mechanisms, such as direct loans, private bond placements, and discounted purchases of existing public bonds. This multifaceted approach enables PIMCO to tailor its financing solutions to the specific needs and circumstances of each borrower.

Enhanced Returns and lender Protections

One of the key drivers behind PIMCO’s foray into private lending is the potential for enhanced returns. Dhawan noted that PIMCO can secure a notable premium compared to public investment-grade bonds from similar borrowers.

He said PIMCO could secure a 150 basis-point pick up relative to public investment-grade bonds from the same borrowers, while for the high-quality end of the high-yield market, that can reach as high as 300 bps.

Beyond higher yields, private deals offer PIMCO the advantage of crafting its own lender protection terms, known as covenants. These covenants provide greater security compared to those typically found in public deals, mitigating risks and safeguarding PIMCO’s investments.

The Appeal of Optionality and avoiding Markdowns

Emerging market governments are willing to pay a premium for private debt to gain greater optionality,particularly after the COVID-19 pandemic exposed vulnerabilities in capital markets.During the pandemic, many smaller, riskier frontier markets found themselves locked out of traditional funding sources. Private credit offers a more reliable and accessible alternative in times of market volatility. Moreover, some issuers prefer private debt to avoid marking down their Eurobonds through public debt sales, preserving their financial reputation.

Examples of Private credit Usage

Dhawan cited Panama and Egypt as examples where higher-cost private credit represents a small fraction of their overall debt, approximately 3%. This illustrates how private credit can be strategically used to supplement existing debt structures without significantly impacting overall financial stability.

Demand from Insurance Companies

Demand for lending to investment-grade governments through private channels is primarily driven by insurance companies. These institutions are increasingly seeking alternative investment opportunities amid concerns about U.S.equity market volatility. As Dhawan stated,

“Pretty much every U.S. insurance company that we pitch this to is like: sure. why not?,”

Pramol Dhawan, PIMCO

This growing interest from insurers underscores the attractiveness of private credit as a stable and potentially lucrative asset class.

Growth and Mainstream Adoption of Private Credit

Private credit has evolved from a niche financing option to a mainstream asset class, with global assets under management exceeding $2 trillion as of early 2025.([disruptionbanking.com](https://www.disruptionbanking.com/2024/12/30/the-rise-of-private-credit-in-2024-opportunities-and-hidden-risks/?utm_source=openai)) This surge is driven by institutional investors seeking higher yields and diversification beyond customary markets. Emerging economies are increasingly tapping into this trend, leveraging private credit to meet their financing needs.

Enhanced Flexibility and Tailored financing Solutions

one of the key advantages of private credit is its flexibility. Unlike traditional bank loans,private credit offers customized lending structures,including tailored repayment schedules and interest rate negotiations.This adaptability is especially beneficial for businesses in emerging markets, allowing them to secure financing that aligns with their specific cash flow and growth strategies. ([capcompasspartners.com](https://capcompasspartners.com/the-future-of-private-credit-trends-to-watch-in-2025/?utm_source=openai))

Focus on Environmental, Social, and Governance (ESG) Criteria

Investors are increasingly prioritizing ESG factors in their investment decisions. In the realm of private credit, this translates to a growing emphasis on funding businesses that adhere to sustainable and ethical practices. Emerging market companies that integrate ESG principles into their operations are likely to attract more private credit investments, aligning financial growth with social responsibility. ([capcompasspartners.com](https://capcompasspartners.com/the-future-of-private-credit-trends-to-watch-in-2025/?utm_source=openai))

Technological Advancements in Credit Assessment

The integration of technology in credit assessment is revolutionizing the private credit landscape. Advanced data analytics, machine learning, and artificial intelligence are enabling lenders to evaluate borrowers more accurately and efficiently. This technological shift is particularly advantageous in emerging markets, where access to traditional credit data may be limited. ([capcompasspartners.com](https://capcompasspartners.com/the-future-of-private-credit-trends-to-watch-in-2025/?utm_source=openai))

Growth of Niche Lending Markets

As private credit markets mature, there is a noticeable shift towards niche sectors such as healthcare, technology, renewable energy, and real estate.specialized funds are emerging to cater to the unique capital needs of these industries, offering customized financing solutions.For instance, India’s renewable energy sector is projected to witness an 83% increase in investments, reaching $16.5 billion in 2024, highlighting the growing role of private credit in financing sustainable initiatives. ([disruptionbanking.com](https://www.disruptionbanking.com/2024/12/30/the-rise-of-private-credit-in-2024-opportunities-and-hidden-risks/?utm_source=openai))

Global Expansion and Cross-Border Lending Opportunities

Private credit is increasingly becoming a global phenomenon, with cross-border lending opportunities expanding in 2025.As emerging markets continue to grow, international private credit funds are looking to invest in businesses operating outside traditional economic hubs. This global expansion presents an opportunity for businesses seeking capital from foreign investors eager to diversify their portfolios. ([capcompasspartners.com](https://capcompasspartners.com/the-future-of-private-credit-trends-to-watch-in-2025/?utm_source=openai))

Regulatory Developments and Market Consolidation

The rapid growth of private credit has attracted the attention of regulators worldwide.In the United States, the Securities and Exchange Commission (SEC) and other regulatory bodies have expressed concerns about the lack of transparency in private credit valuations and potential systemic risks. In Europe, the European Central Bank (ECB) has been proactive in seeking more details on private credit exposures from banks. These regulatory developments underscore the need for private credit providers to enhance their compliance and reporting frameworks to mitigate potential risks.([practiceguides.chambers.com](https://practiceguides.chambers.com/practice-guides/private-credit-2025?utm_source=openai))

Interactive Insights: Did You Know?

Did you know? The global private credit market is projected to more than double in the coming decade, reaching approximately $4 trillion by 2034. ([practiceguides.chambers.com](https://practiceguides.chambers.com/practice-guides/private-credit-2025?utm_source=openai))

Pro Tips for Navigating the Private Credit Landscape

Frequently Asked Questions (FAQ)

What is private credit?

Private credit refers to non-bank lending to public and private companies, encompassing various debt instruments such as direct loans, private bonds, and mezzanine financing.

Why is private credit growing in emerging markets?

Emerging markets are turning to private credit for its flexibility, higher yields, and ability to meet financing needs that traditional banks may not address.

What are the risks associated with private credit?

Risks include credit risk,liquidity risk,and potential regulatory changes. It’s essential to conduct thorough due diligence and consider these factors when investing.

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