Infrastructure Financing

Index
Introduction Characteristics Types of Capital required New Sources of Risk Capital Facilitating flow of funds Role of Banks Conclusion

Introduction
In Earlier times, Government was the sole financier of all the infrastructure projects in India, it includes implementation, operations & maintenance.

But now Private parties as well are made to work with government parties to finance & operate the projects.

Need for Private Firms

Cost efficiency Equity consideration Allocational Efficiency Fiscal Prudence Hence, Promotion & Development of DFIs, IDBI, IFCI, ICICI, PFC, IDFC, UIDF, TNUDF etc are done.

Characteristics
Longer Maturity Larger Amounts Higher Risk Fixed & low(but positive) Real returns

Types of Risk Capital Required

Explicit Capital
Equity that developer commits to the project Downside is unlimited Upside also do not has any limit

Implicit Capital
Lending is prime source Downside is unlimited Upside is limited Bonds depicts Implicit Capital

Problems Faced
Reducing the amount of capital required by each product Increasing the supply of this capital Facilitating the flow of funds to any sector Enhancing the role of banks as intermediaries

Reducing the amount required

Removal of the effect of controllable uncertainties National diversification benefit Global diversification benefit

New Sources of Risk Capital

First loss default guarantee funds(FLDGs) Created by Government Securitization Creation of several very large intermediaries (capital bases in excess of US $ 5.0 Billion each)

Facilitating the flow of funds

Redefine NDTL to include only cash or cash like instrument

Strongly encourage the use of derivatives

Free up the allocation of funds from insurance companies & provident funds

Enhancing the role of Banks

Directed Credit

conclusion