Leverage by superannuation funds may create vulnerabilities for the superannuation and financial systems if it is allowed to continue, the Financial System Inquiry interim report has warned.The Inquiry said the use of borrowing by superannuation funds to finance asset purchases was "embryonic but growing." This trend is more pronounced among self-managed super funds, with the proportion of SMSFs directly borrowing funds tripling between 2008 and 2012, as did the absolute size of the average amount borrowed, up from A$122,000 to $357,000. And leverage was ramped up indirectly, as the number of SMSFs using geared products grew by more than 11 per cent to 38,000 over the year to April 2014. Loans taken out in APRA-regulated funds remained small, in contrast, with total borrowings of under $2 million reported each quarter over the past year.A number of submissions pointed to the stabilising influence of the superannuation sector during the financial crisis. The report acknowledged these concerns, adding that "some evidence" also suggested that borrowing in superannuation is often associated with poor financial advice. In response, Andrea Slattery, chief executive officer of the SMSF Professionals' Association of Australia, re-iterated that her organisation had said, in its submission to the FSI, that the use of gearing by SMSFs was being done "sensibly". She added that the report's reference to "leverage" applied to only 0.5 per cent of SMSFs. "In addition, most loans made to SMSFs are being made with responsible lending practices," Slattery said. "Banks have tighter lending policies and have experienced lower levels of default with this type of credit facility as compared with loans made for other purposes."SPAA also believes any changes to the use of borrowing by superannuation funds should be targeted at the 'fringes' of the superannuation borrowing market and concentrate on inappropriate promotion of borrowing in superannuation funds," she said.