The Financial Express

Creating alternative infrastructure financing option

| Updated: November 04, 2021 22:10:46

File photo used for representational purpose. (Collected) File photo used for representational purpose. (Collected)

Given the country's economic growth now at a faster rate than any time in the past, the demand for infrastructure financing, as expected, is also on the rise. Interestingly, the source of this finance has so far been concentrated in the public sector. But in nation building activities, the private sector's role cannot be overemphasised. However, being capital intensive and involving high cost investments, large infrastructure projects has allowed only limited entry for the private sector. But that should not necessarily be the case. The infrastructure building work should also be equally open to the private sector. However, other than the commercial banks, the country's private sector has few other sources of finance to look up to if it wants to engage in big, costly investments. Notably, large physical infrastructure projects need financing over a long period of time, say, for 15 to 20 years. In that case, long-term credit will be necessary for the willing private sector entrepreneurs to bid for such projects. Understandably, that remains a big hurdle for the private sector companies as the commercial banks are generally geared to quick returns and as such are shy of entertaining long-term credits. That is why alternative and innovative credit solutions will be necessary for enabling the private sector to participate in the types of projects in question.

Admitting the existing lacunae in this sector, business leaders and government functionaries concerned reiterated the importance of having a long-term financing option for the purpose at a recent webinar held in the city. Some suggested the creation of a vibrant bond market to meet the need. Also, others were for channelling the huge quantity of liquidity now available in the banking sector into developing the proposed bond market.

Of late, the country has witnessed investments in wide-ranging infrastructure projects. But to achieve competitiveness in the sector, more needs to be done. Especially, the work of building numerous physical infrastructures that came to a halt in the wake of the pandemic has to be pressed ahead at full steam. Now is the time to begin work as the pandemic positivity rate has recently been registering a sharp decline. At this point, to energise the engine of growth --- the private sector --- an enabling environment has to be created for it. To that end, their involvement in building physical and other types of infrastructure has to be ensured. Naturally, it would require substantial investment. So, it is high time to think of creating alternative and sustainable sources of funding to continue the work at a faster pace.

On this score, some experts have suggested increasing partnership with foreign lenders who have various types of creative solutions such as structured credit guarantees. It is further learnt that one of such foreign lending agencies operating in the country has come up with, what it says, a dual currency financing solution worth a few million dollars to support a local renewable energy firm. This is, needless to say, a very innovative credit option and is welcome. Provided the government comes up with necessary support, more such creative financing options could be made available in the credit market.

Such special approaches to credit solution apart, the capital market itself has a big role to play as a source of capital for the private sector operators. On this score, the regulator, the Bangladesh Securities and Exchange Commission (BSEC), would be required to play its due role in developing a robust securities market in the country. In sum, the government's role would be crucial in facilitating the growth of a strong market for alternative, long-term infrastructure financing.

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