Innovative solutions to fund and finance infrastructure

Current infrastructure needs far exceed the capacity of public funding, and private investment in infrastructure is insufficient to meet the investment gap, despite private capital’s stated eagerness to invest in infrastructure. Governments urgently need solutions to improve the quality and quantity of projects to attract investors and convert the potential of private capital into completed transactions.

Solutions for structuring bankable projects and attracting private investment

The Innovative Funding and Financing (IF&F) tool aims to help governments structure bankable projects that attract private investment, highlighting specific solutions for structuring projects to optimise private infrastructure investment. It consists of (1) a framework for understanding the factors that support private sector investment, and associated funding and financing solutions; and (2) a library of global, real project case studies exemplifying these solutions.

IF&F complements the work of the G20’s Infrastructure Working Group and contributes toward the G20 Roadmap to Infrastructure as an Asset Class – an initiative that is ultimately focused on lifting growth, creating jobs, and increasing productivity through infrastructure.

New York, USA - By leasing air rights above one of its rail yards, Metropolitan Transportation Authority raised USD1 billion for its operations and future projects. (Image credit: Inera Isovic via Unsplash)

Project characteristics that attract private infrastructure investment

As noted above, the first element of IF&F is a framework for understanding the factors that support and drive private sector investment, and associated funding and financing solutions.

As defined by the International Monetary Fund, funding of a project refers to how investment and operational costs are repaid over time; in the case of public infrastructure, this means by users, taxpayers or a combination of both. Financing refers to money raised up front – through equity or debt instruments – for the design, construction and early operating costs of an asset. New funding and financing models have emerged in recent years, with a whole range of solutions to increase and diversify revenues and financing options.

The framework takes into consideration the macro-economic climate, legal and regulatory context, and management capabilities needed to deliver a project as well as the overarching objectives of the relevant government’s infrastructure program. However, its focus is on how the following factors impact a project’s ability to attract private investment:

• The risk-weighted return profile, including the models through which the private sector participates in deals and the entities that provide the necessary capital
• The use of three levers that help governments capture the value inherent in their projects and programs. These levers are critical to creating strong projects capable of attracting the capital needed.

Full library of project case studies in advanced, developing, and emerging markets