Lack of financing is not exclusively, or even mainly, the issue.

The global financial crisis of 2008 has reduced bank debt available to finance infrastructure projects, as well as increased pricing, stricter lending covenants, and shorter tenors. In particular, several large European banks have deleveraged and retreated from markets in which they once played important roles.

Simultaneously, however, non-bank lending for infrastructure is taking on a new momentum.¹ Infrastructure, sovereign wealth, and pension funds are looking for asset classes with steady, inflation-adjusted income streams, and development banks are working to expand the number of vehicles available to access infrastructure.

A critical obstacle slowing the flow of private capital to infrastructure is the lack of properly structured, bankable projects.² Properly analyzed (with detailed demand, engineering, and costing analysis) and well-structured projects are able to find financing.³ This does not imply that these projects are immune to uncertainty and risk. However, inherent uncertainties are clearly identified for investors to make calculated assumptions on the probabilities of expected outcomes, translate uncertainty into risk, and factor this into an expected return.

In practice, many projects do not have an adequate fact base built during preliminary work and potential investors face ambiguity (rather than uncertainty), which cannot be quantified and translated into a risk–return tradeoff. Frequently, infrastructure projects do not attract funding because they lack the adequate level of study necessary to establish their bankability, and projects that are not deemed bankable fail to attract more than cursory investor attention.

In short, funding challenges are real and significant. However, funding sources and mechanisms are largely responsive to the depth and quality of the project pipeline, rather than the key determinants of it. The remainder of this paper will focus on this critical issue of the challenge.