The International Monetary Fund published a working paper assessing how rapid expansion of the borrower base interacts with credit booms and what that implies for financial stability risk. The paper finds that rapid “credit inclusion” does not typically signal future instability on its own, but becomes a materially stronger warning indicator when it coincides with a credit boom. Using a novel country-panel dataset covering 96 countries from 2004 to 2021, the authors construct a composite credit inclusion indicator from the IMF Financial Access Survey based on borrowers and loan accounts per 1,000 adults, and identify credit booms from the cyclical component of the private credit-to-GDP ratio. Credit inclusion growth is more common during booms and is disproportionately present in “bad” booms defined as those followed by a banking crisis within three years. In local projections regressions, concurrent credit inclusion and credit booms predict higher subsequent distress, including an estimated peak increase in non-performing loan rates of about 40 percent and declines in bank Z-scores, while credit inclusion booms outside credit booms tend to be associated with improved stability; concurrent booms are also associated with short-term reductions in real GDP growth of up to about 2 percent. Separate predictive regressions suggest credit inclusion booms can raise the probability of entering a credit boom by up to 5 percent, whereas credit booms weakly predict subsequent credit inclusion booms. The working paper is published as research in progress to elicit comments and encourage debate, and the views expressed are those of the authors rather than the IMF.
International Monetary Fund 2026-01-16
International Monetary Fund working paper links rapid credit inclusion during credit booms to higher financial instability risk
The IMF's working paper finds that while credit inclusion alone doesn't signal instability, it becomes a stronger warning when coinciding with credit booms. Using data from 96 countries, the study highlights that concurrent credit inclusion and credit booms predict higher financial distress and reduced GDP growth, whereas credit inclusion booms outside of credit booms are linked to improved stability.