What is the Infrastructure financing?

As per Merriam-Webster, Infra- means “below;” so the infrastructure is the “underlying structure” of a country and its economy, the fixed installations it needs to function. These include roads, bridges, dams, water and sewer systems, railways and subways, airports, and harbours.

There is no clear definition for infrastructure financing stated anywhere. However, it is common that in most countries around the world, the government issues a list of industries that are to be given infrastructure status. The financing of projects or companies involved in these sectors is called infrastructure financing. Normally, the above definition is used to provide tax breaks or subsidies by the Governments that have been promised to the infrastructure sector. These infrastructures include transportation systems, communication networks, and school systems.

The businesses which are given infrastructure status are considered to be central to the economy. This means that these infrastructure organizations provide the impetus for the rapid growth and development of the economy. For instance, industries such as roadways and railways enable faster movements of goods and services throughout the country. This helps the manufacturers in the country become more competitive as compared to other countries. The final result is an increase in exports. Other important sectors such as telecommunications and electricity are also considered to be central to the economy and hence have been provided infrastructure finance all over the world.

Infrastructural financial institutions serve both developmental and financial objectives, facilitating credit flow and enhancing infrastructure finance accessibility.

Infrastructural  Financial Institutions offer (i) loans and advances for infrastructure projects, (ii) taking over or refinancing such existing loans, (iii) attracting investment from private sector investors and institutional investors for infrastructure projects, (iv) organising and facilitating foreign participation in infrastructure projects, (v) facilitating negotiations with various government authorities for dispute resolution in the field of infrastructure financing, and (vi) providing consultancy services in infrastructure financing. Developmental Objectives include facilitating the market development for bonds, loans, and derivatives for infrastructure financing.

Infrastructure financial institutions may raise money in the form of loans or otherwise in Indian rupees or foreign currencies or secure money by issuing and selling various financial instruments including bonds and debentures.  These institutions may borrow money from the Government, commercial banks, mutual funds, and multilateral institutions such as the World Bank and Asian Development Bank. Developmental objectives include facilitating the market development for bonds, loans, and derivatives for infrastructure financing.

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