Unlocking Capital with Better Data
Uncovering the True Credit Risk in Emerging Markets
For too long, the debate on debt investing in emerging and frontier markets has been framed by country risk ratings and conservative loss assumptions. The Global Emerging Markets (GEMs) database is gradually shifting that narrative. By shining light on actual credit performance of the EMFM debt portfolios of development banks, GEMs demonstrates what those of us active in these markets have long known: when structured properly, and when borrowers are supported through temporary distress, credit risk is far more robust than commonly assumed.
The reports published in 2024 are therefore a critical step. They allow investors and auditors alike to recalibrate expectations and challenge outdated assumptions. In our own practice, we are already using this data in discussions with auditors, investors, and rating systems for initiatives such as AGRI3, GuarantCo and ILX. It is not a theoretical exercise, this evidence is being deployed in real investment decisions today.
Where the Debate Needs to Go Next
1. First-loss structures
One of the most urgent applications of GEMs data is to calibrate the appropriate level of first-loss protection in blended finance for debt investing. Evidence shows that the conventional assumption of the need for a 20% first loss cushion to achieve low investment grade on the remaining 80% senior tranche is unnecessarily high, 5-10% is sufficient to bring portfolios to investment grade in many cases. Overcompensating distorts the market and allows investors to benefit from artificially high margins without taking real risks. We need donor institutions to put this evidence to work and avoid creating complacency in markets meant to be competitive.
2. Usage of GEMs’ data in the calculation of risk and capital adequacy models of debt investors
The GEMs data should be widely adopted as a basis for the internal risk and capital adequacy models for debt investors, allowing for more efficient capitalisation and lower yield hurdles. More work is needed to convincingly argue for the relevance of GEMs data as a broader benchmark, also applicable for regular debt investors that do not have the Special Creditor Status that the MDBs have.
3. Transparency and access
The next major step must be to open the (de-personalised) database more widely. Investors need to be able to “look under the hood,” and academia and ratings agencies should engage directly with the data. Only then can GEMs move from being a promising tool to becoming the reference standard for risk assessment in developing markets.
4. Expanding the data set
While the credit risk data is invaluable, the absence of return data is a major gap. At present, investors are left piecing together anecdotal evidence from public accounts and bilateral conversations. This is not good enough. Even anonymised, aggregated return data would vastly improve the usefulness of the GEMs dataset. Without it, the picture remains incomplete.
The Limits We Must Acknowledge
Even with full disclosure, GEMs will not replicate the statistical depth available in developed markets. The dataset (around 8,000 borrowers) simply does not permit the same extreme risk modelling (such as 99.9% VaR analysis). We must be realistic about what GEMs can deliver. Still, it remains the best global dataset available for private credit in emerging markets.
There is also the uncomfortable truth about private equity performance by development banks. Evidence suggests weak results, but disclosure is limited. Until there is a genuine incentive to confront poor performance, this part of the market will remain opaque.
The Path Forward
The GEMs initiative has already changed the debate. But to truly unlock commercial capital at scale for emerging markets, we need:
1. Broader visibility and promotion of existing GEMs disclosures. Too few investors even know the reports exist.
2. Wider access to the database for direct engagement.
3. Inclusion of return data as soon as possible.
4. A disciplined, evidence-based approach to first-loss provisioning.
Only then will the discussion shift fully from perception to evidence, from risk aversion to risk-informed investing.
About the Author
Joost Zuidberg is the CEO of Cardano Development, an incubator and manager of innovative financial solutions that strengthen frontier and emerging markets. He has been involved since the organisation’s inception, initially as CEO of TCX Investment Management Company, founded in 2007. Since 2015, he has overseen the supervision and project management of all Cardano Development initiatives in their early phases.
Before leading TCX, Joost served as Director for Africa at FMO, the Dutch Entrepreneurial Development Bank (2000–2007), and as Senior Vice President for Project Finance at ABN AMRO (1994–2000). In addition to his role at Cardano Development, he is Chairman of the Boards of Frontclear Management, GuarantCo Management, and BIX Capital, and he holds external board and investment committee positions across several specialised funds.
Joost holds an MSc in Mining Engineering from Delft University of Technology and an MBA from Rotterdam School of Management, Erasmus University.
