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Module 12: Financing (investments)
12.3. Who is involved?
...Public sector
...Private sector
...Consultants and advisors
...Donor countries
...International Finance
Institutions (IFIs)
Groups that are involved in a project’s financial performance
can be divided on three groups:
A. Finance users;
B. Finance providers; and
C. Consultants and advisors.
A. Users of financial funds
1. Private sector;
2. Public sector
3. Joint venture of the two above
B. Potential providers (sources) of financing 
The public and private sectors can act both as users and
providers of financial funds for a joint project or by
themselves from their own sources. Alternatively, it is possible to
raise money from the market. Funds from international sources are also
available for development projects. Therefore, there are five major
sources of financing:
1. The public sector can finance the project from public
funds.
2. The private partner is often viewed as the most desirable
investor in PPP projects.
3. Financial and credit institutions:
a. Banks and other providers of debt finance lend a specified
amount of money in exchange for a promise that that the money
will be repaid on a specified scheduled with a payment of their profit.
b. Equity investors purchase ownership shares in a private
firm in the expectation of benefiting from the firm’s profit over
time.
c. Guarantors and other insurers agree to pay money to identified
parties if a specified event occurs in exchange for payment
of an up-front premium.
4. Bilateral donors (or donor countries) via aid agencies
can provide grants. They give money away with no expectation
to repayment, but with the requirement that it should be used to achieve
specified goals.
5. International finance institutions (IFIs), also known
as a multilateral development banks (MDBs), are multilateral
lending institutions that provide resources for development at a lower
then commercial rate of return. Among the most active international development
lenders are:
◊ World
Bank
◊ Asian Development Bank (ADB)
◊ African Development Bank (AFDB)
◊ Development Bank of Southern Africa (DBSA)
◊ European Bank for Reconstruction
and Development (EBRD)
◊ European Investment Bank (EIB)
◊ Inter-American Development
Bank (IADB)
◊ International Finance Corporation
(IFC)
◊ International Development
Association (IDA)
◊ Middle East Development Bank (MEDB)
◊ Islamic Development Bank
(ISDB)
◊ North American Development
Bank (NADB)
C. Consultants and advisors
Governments usually lack the full range of expertise within
their civil service institutions to carry out substantial
economic, financial, technical or legal processes, nor the capacity
to coordinate such activities and expertise. Even where earlier PPP
projects have helped build up a body of skilled staff, the staff is
unlikely to have the full range of skills needed to see through every
aspect of the process. Thus, well-qualified consultants and experts
could provide support and assist in all key processes. This is the
stage where saving on consultants may cause significant problems down
the road.
One of the best sources of advice will often be other people
who have gone through similar processes – and can provide insight
on what is easy, what is difficult and what is critical. The following
experts are frequently invited for financial consultations:
– a project development advisor;
– international technical consultants;
– legal advisors; and
– investment management experts.
With reference to investment financing, these experts could be engaged
to:
– prepare financial projections;
– determine the bankability of the project;
– prepare the information memorandum and prospectus;
– undertake sales promotion;
– draft bidding documents; and
– drafting contracts.
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