Credit Intermediation market to grow by $649.87bn, driven by financial inclusion

By Puja Sharma

The credit intermediation market is estimated to grow by $649.87bn from 2023 to 2028, growing at a CAGR of 2.36%. The market is concentrated owing to the presence of many global and regional companies. APAC is estimated to contribute 35% to the growth during the forecast period.

The growth of the region is driven by the presence of leading companies, making North America a central hub. This growth is further propelled by the increasing popularity of lending and the significant rise in the number of small and medium enterprises (SMEs) in the region. Additionally, the growing student population in the US and Canada is driving demand for microcredit as an alternative to traditional education financing, fueling growth. Furthermore, immigrants and entrepreneurs from minority communities in the US are increasingly turning to credit, contributing to the market’s expansion.

Growing focus on effective financialization is notably driving growth. Financial institutions are enhancing financialization through improved last-mile reach and multi-channel banking services. The growth is driven by non-bank credit intermediation, aiming for greater financial inclusion and credit liberalization. Innovations like door-step banking and banking correspondents are also boosting demand.

The development of an active secondary credit sector ensuring smooth credit intermediation is an emerging trend. Growing vulnerabilities and deficiencies in banks related to credit intermediaries is a significant challenge hindering growth.

Key Credit Intermediation Market Driver

Growing focus on effective financialization is notably driving market growth and forecasting. Effective financialization is being facilitated by the growth of financial institutions’ capabilities to provide last-mile reach along with the availability of banking services over multiple channels. Moreover, the market growth and trends of non-bank credit intermediation and their efforts to increase financial inclusion and liberalize credit have also driven the growth of the credit intermediation market.

Moreover, new developments such as door-step banking and banking correspondents have further increased the demand for credit intermediation. Thus, a growing focus on effective finalization is likely to drive the growth of the credit intermediation market during the forecast period.

Key Credit Intermediation Market Trends

The development of an active secondary credit sector ensuring smooth credit intermediation is an emerging market trend. There is a growing focus on addressing the twin challenges of ensuring smooth credit flow and its intermediation. For instance, to ensure smooth credit flow, the Reserve Bank of India inaugurated a Secondary Loan Market Association in 2020. Moreover, the credit intermediaries transfer credit at a fair price based on a devised market-based auction mechanism in which quotas from all members are obtained instead of selling the credit loan through a bilateral arrangement.

As a result, the platform enables a deep and active secondary credit sector and provides fairness to transparency of credit and credit risk among participants. Such developments are expected to increase the use of credit intermediation and will positively impact the growth of the global credit intermediation market during the forecast period.

Major Credit Intermediation Market Challenge

Growing vulnerabilities and deficiencies in banks related to credit intermediaries is a significant challenge hindering market growth.The non-bank financial intermediary (NBFI) sector is growing, and it continues to gain importance in providing credit intermediation services. This results in both direct and indirect interconnections between banks and NBFIs through multiple channels. However, the risk is about the growth of exposures, given the often opaque and quickly evolving nature of the attendant risks, including the NBFI distress, such as the collapse of Archegos Capital Management and events leading to stresses in government bond markets have highlighted vulnerabilities and deficiencies in banks risk management practices.

Furthermore, complex instruments in areas of derivatives and securities financing, leveraged lending and brokerage, and liquidity risks with concentration, and illiquidity, also cause exposure to banks. There is also an increasing risk of cryptoasset-related services being provided by NBFIs. Thus, growing vulnerabilities and deficiencies in banks related to credit intermediaries are expected to restrict the growth of the global credit intermediation market during the forecast period.