1 June 2015

Multilateral Lending Instruments for Infrastructure Financing

Written by Stephany Griffith-Jones and Matthias Kollatz, G-24 and Global Green Growth Institute
1 June 2015

Multilateral development banks (MDBs) are especially well suited for infrastructure financing, as they can provide the long-term financing needed for infrastructure  investment to become profitable, given the large scale of the initial investment and the long amortization time. Furthermore, MDBs can offer finance at a relatively low cost as they have very high credit ratings (typically as high as and sometimes higher than their member governments). Thus, they can borrow relatively cheaper on the  international capital markets and pass on that cost advantage to their borrowers.

However, the role of a development bank goes well beyond providing finance on a large scale. The “halo effect” (implying that the bank is participating in some form in the project, through loans, equity, or guarantees), the provision of coordination functions among different stakeholders, and the support—both financial and technical—for project preparation, at an individual level, but also for a series of projects, is also extremely valuable.