Thailand private debt feasibility study

Private debt, defined as debt financed by non-banks in private markets, has been gaining popularity around the world.¹ Borrowers enjoy the bespoke nature of the asset class, as they are able to build close relationships with lenders, obtain flexible payment terms and longer time horizons, and receive faster capital deployments. Meanwhile, investors enjoy portfolio diversification (both geographically and by asset class), higher risk-adjusted returns in exchange for liquidity lockup (known as the "illiquidity premium"), and more predictability in returns compared with many public market investments. But despite the global trend, private debt is still nascent in Thailand.

The commercial lending landscape here has traditionally been dominated by banks. Despite their service, the micro and SME financing gap remains high at USD 40bn.² In our report, we show that there is potential for Thailand to build out a multi-billion dollar private debt market that could help fill the financing needs of local under-banked and/or under-served micro, small and medium enterprises, as well as larger corporates.

Growing the private debt ecosystem is not an easy task. Based on interviews with more than 20 investors, lenders, regulators, and borrowers, we've identified three key challenges that would need to be addressed - including regulatory hurdles, insufficient market and stakeholder readiness, and information asymmetry barriers. To address these challenges, we looked abroad at global and regional leaders (e.g., US, UK, Singapore, etc.) to find initiatives that helped build their respective private debt ecosystems. We then analysed these initiatives and considered how they may fit in the Thai context.

¹ https://www.preqin.com/insights/global-reports/2022-preqin-global-private-debt-report

² https://www.smefinanceforum.org/data-sites/msme-finance-gap