Investors often assume that lending in emerging markets carries higher risk without higher returns. More than three decades of loan-level data suggest otherwise – and the distinction matters. Perceptions of risk shape whether capital reaches the businesses that drive growth, job creation, and investment in developing countries.
A new paper finds that private lending in emerging markets and developing economies (EMDEs) can deliver returns competitive with widely used public market benchmarks. Unlike previous research, which examines public corporate bonds, we analyze privately issued corporate debt, direct loans to firms, which constitute much of corporate financing in developing countries. The analysis draws on loan-level cash-flow records from the International Finance Corporation (IFC), the private-sector arm of the World Bank Group, covering 4,109 loans totaling approximately $115 billion across 127 countries from 1992 to 2024.
Post-crisis returns beat public benchmarks
To assess performance, the paper uses the public market equivalent (PME), a standard measure that compares the actual returns of IFC loans with what investors would have earned by putting the same cash flows in a public benchmark index. A PME above 1.0 means the loan portfolio outperformed the benchmark.
Performance has been stronger since the global financial crisis (GFC), and in line with public bond markets across the full 2002-2024 period:
- Post-GFC (2012 onwards): The IFC loan portfolio outperformed both the CEMBI Broad Diversified emerging-market corporate bond index (PME of 1.02) and US Treasuries (PME of 1.10). Over the last five years, these figures rise to 1.05 and 1.14, respectively.
- Full period (2002-2024): The portfolio earned a PME of 0.98 against the CEMBI and 1.07 against Treasuries. The slight underperformance against the CEMBI reflects GFC-era vintages, which absorbed elevated defaults during the crisis.
- Year-by-year variation: Returns track the global credit cycle. Loans originated just before the 2008 crisis returned $0.81 against the corporate bond benchmark — the weakest vintage — while loans originated in recovery years, such as 2021, outperformed by 13 percent.
