Use of subsidies by Development Finance Institutions in the infrastructure sector

Briefing papers
December 2007
Dirk Willem te Velde and Michael Warner

DFIs have a general mandate to provide finance to the private sector for investments that promote development. Infrastructure fits within this remit. The raison d’etre of DFIs is to engage where the market fails to invest sufficiently. DFIs engage particularly in countries with restricted access to domestic and foreign capital markets. They specialise in loans with longer maturities and other financial products which are appropriate for financing long term infrastructure projects. DFIs aim to be catalysts, helping companies implement investment plans. They provide risk mitigation that enables investors to proceed with plans they might otherwise abandon. Further, because of the unique characteristics of DFIs they have a comparative advantage in providing finance that is related to the design and implementation of reforms and capacitybuilding programmes adopted by governments.

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