SDG 9: Industry, Innovation & Infrastructure | SDG 17: Partnerships for the Goals
Institutions: Reserve Bank of India (RBI)
The IMF Blog (Sep 2025) identifies five megatrends shaping the rapid expansion of nonbank finance, which now accounts for nearly half of global financial assets (up from ~43% in 2008).
Rising systemic share → Nonbanks have expanded their footprint, now controlling about 50% of global assets, making them central to financial intermediation.
New liquidity for governments → They are emerging as important buyers of sovereign bonds, lowering borrowing costs but increasing dependence on less regulated financiers.
Credit to mid-sized firms → Private credit funds fill financing gaps left by banks, lending to firms seen as too risky or small for traditional credit.
Consumer and SME borrowing → Fintech platforms and novel instruments like “buy now, pay later” expand access, but often operate outside strict regulatory frameworks, raising risks of liquidity mismatch.
Diversification and passive investing → Nonbanks broaden investor options into real estate, commodities, and passive funds, but these can amplify procyclicality and market swings.
Risks: The report highlights three systemic concerns: run and liquidity risk in open-ended funds; contagion via leverage and margin calls; and opacity from weak disclosure and data gaps, which hampers regulators’ ability to track vulnerabilities.
IMF’s view: Nonbank finance is now a pillar of global financial intermediation. Its rise brings dynamism and inclusion, but also new vulnerabilities. Regulators must improve data collection, oversight, and cross-market monitoring to balance innovation with stability.
In India, the surge of NBFCs, fintech lenders, and digital credit platforms makes these lessons critical. While they improve inclusion and credit access, they also carry risks of shadow banking, regulatory arbitrage, and financial contagion. Strengthening RBI and SEBI’s supervisory tools, stress tests, and data transparency requirements is essential. India’s regulatory design must ensure that innovation supports growth without undermining stability.
What Are Nonbanks? →
Nonbanks (short for nonbank financial institutions) are organisations that provide financial services like lending, investment, insurance, or payments without being licensed as traditional banks.
They do not take public deposits like savings or current accounts and generally don’t have direct access to central bank liquidity (like RBI’s lender-of-last-resort window).
Examples →
NBFCs (Non-Banking Financial Companies) → vehicle finance firms, housing finance companies, microfinance institutions.
Investment funds → mutual funds, hedge funds, private credit funds.
Insurance companies.
Fintech platforms → digital lenders, “buy now, pay later” services, mobile wallets.
Why They Matter →
They expand access to credit for households, SMEs, and firms that banks may avoid.
They are more innovative and flexible than banks (e.g., quick app-based loans).
But they carry higher risks: less regulation, weaker capital buffers, and vulnerability to runs, contagion, and opacity.
Relevant Question for Policy Stakeholders:
How can India foster innovation in nonbank finance while closing regulatory and data gaps that could destabilise the financial system?
Follow the full news here: IMF Blog: Five Megatrends Shaping the Rise of Nonbank Finance