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Financing the digital economy: the role of private credit

Author

Listed:
  • Puriya Abbassi
  • Iñaki Aldasoro
  • Sebastian Doerr

Abstract

Surging loan demand from software and technology (tech) firms materially contributed to the post-2020 growth of direct lending, the main type of private credit. The Covid19 pandemic accelerated the shift to the digital economy, increasing tech firms’ funding needs. Private credit, with its model centred on lending against cash flows and intangible assets, was well placed to meet this demand. Tech firms’ share of direct lending doubled to over 40% between 2020 and 2025. Growth was concentrated in US cities with a strong pre-pandemic tech presence, precisely where the shift to the digital economy raised credit demand the most. Tech firm entry and employment subsequently grew more in areas with ample private credit, highlighting how a financial sector adept at financing asset-light borrowers can support innovative firms and growth. Whether the fast growth of the tech sector and private credit are sustainable or ultimately bear risks for financial stability remains an open question.

Suggested Citation

  • Puriya Abbassi & Iñaki Aldasoro & Sebastian Doerr, 2026. "Financing the digital economy: the role of private credit," BIS Quarterly Review, Bank for International Settlements, September.
    • Handle: RePEc:bis:bisqtr:2609b
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    References listed on IDEAS

    as
    1. Giovanni Dell’Ariccia & Dalida Kadyrzhanova & Camelia Minoiu & Lev Ratnovski, 2021. "Bank Lending in the Knowledge Economy," The Review of Financial Studies, Society for Financial Studies, vol. 34(10), pages 5036-5076.
    2. Olivier De Jonghe & Tong Zhao & Hans Degryse & Luc Laeven, 2025. "Collateral and credit," Working Paper Research 482, National Bank of Belgium.
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    4. Zohair Alam & Adrian Alter & Jesse Eiseman & Gaston Gelos & Heedon Kang & Machiko Narita & Erlend Nier & Naixi Wang, 2025. "Digging Deeper—Evidence on the Effects of Macroprudential Policies from a New Database," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(5), pages 1135-1166, August.
    5. Victoria Ivashina, 2025. "The Role of Private Debt in the Financial Ecosystem," NBER Working Papers 34426, National Bureau of Economic Research, Inc.
    6. Iñaki Aldasoro & Sebastian Doerr & Karamfil Todorov, 2025. "Retail investors in private credit," BIS Bulletins 106, Bank for International Settlements.
    7. Davydiuk, Tetiana & Marchuk, Tatyana & Rosen, Samuel, 2024. "Direct lenders in the U.S. middle market," Journal of Financial Economics, Elsevier, vol. 162(C).
    8. Iñaki Aldasoro & Sebastian Doerr & Daniel Rees, 2026. "Financing the AI boom: from cash flows to debt," BIS Bulletins 120, Bank for International Settlements.
    9. Sergey Chernenko & Isil Erel & Robert Prilmeier, 2022. "Why Do Firms Borrow Directly from Nonbanks?," The Review of Financial Studies, Society for Financial Studies, vol. 35(11), pages 4902-4947.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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