What is infrastructure financing?
Infrastructure financing refers to the capital needed to plan, build, operate and maintain essential assets such as clean water, power, transport, housing, and digital connectivity. It typically involves a mix of public funding, private investment, and catalytic or blended finance to make projects bankable.
Why does the infrastructure financing gap persist in emerging markets?
Many projects are considered high-risk due to early-stage development uncertainty, weak creditworthiness of offtakers, currency volatility, and limited long-term local-currency financing. These constraints reduce private investor appetite, widening the financing gap. The perceived investment risk is further exacerbated by the lack of investment portfolio data available for emerging economies. PIDG is part of the UK Government's EMDE Investor Taskforce focused on equipping UK asset owners with the tools, knowledge, and resources needed to invest effectively across emerging markets and developing economies (EMDEs).
What is blended finance and why is it important?
Blended finance uses catalytic capital to crowd in commercial investment for projects that deliver strong development impact but face early-stage or country-specific risks. It adjusts risk–return profiles to mobilise private capital at scale. PIDG uses equity, debt and guarantees – supported by technical assistance – to mitigate project risk and bring in private sector investors for infrastructure. Private sector investment brings the scale of capital, innovation, and efficiency needed to close the massive funding gap that public budgets alone cannot meet.
How does catalytic capital work in infrastructure projects?
Catalytic capital – such as guarantees, technical assistance, or early-stage equity – absorbs defined risks, proving the commercial viability of projects that would otherwise struggle to reach financial close. It helps demonstrate commercial viability and mobilises institutional investors and local financial markets.
What role do guarantees play in mobilising private investment?
Guarantees mitigate specific risks (e.g., payment delay, political risk, currency risk), making transactions bankable and allowing lenders and bond investors to participate in markets or sectors they may otherwise avoid. They also help extend tenors and lower borrowing costs. PIDG’s guarantees solution, GuarantCo, has been a market maker – having guaranteed bonds and loans enabling over USD 7 billion of total investments and USD 6.8 billion of private sector investment, giving 44.8 million people improved access to infrastructure and creating over 250,000 jobs in Africa and Asia.
Why is local-currency financing important?
Local-currency financing protects both developers and end-users from foreign-exchange volatility, which is a major barrier to infrastructure affordability and financial sustainability. It also strengthens domestic capital markets. Credit enhancement facilities, such as those set up by PIDG in Kenya, Pakistan, and Nigeria provide guarantees to improve the credit profile of local borrowers or bonds, enabling domestic institutional investors to invest safely in infrastructure. This deepens local capital markets and creates sustainable financing ecosystems.
What is early-stage project development and why is it underfunded?
Early-stage project development includes feasibility studies, structuring, permitting, and stakeholder engagement. These steps are costly and high-risk, with no guarantee of success –meaning private developers rarely invest without support. Catalytic early-stage equity fills this gap.
How do infrastructure investments support climate resilience and inclusive growth?
Quality infrastructure improves access to clean water, energy, mobility, and digital services. When climate-aligned, it also reduces emissions and enhances resilience to floods, heat, and drought.
What are the biggest barriers for private investors entering frontier markets?
Key constraints include regulatory uncertainty, small ticket sizes, limited long-term data, FX exposure, and perceived political risk. Catalytic capital structures, strong governance frameworks, and credit enhancement instruments help overcome these barriers. PIDG has been de-risking investments in frontier markets since 2002.
How does PIDG help close the infrastructure financing gap?
PIDG combines technical assistance, early-stage equity, debt, guarantees, and local credit-enhancement facilities to make infrastructure projects bankable and investable. Its blended finance approach mobilises private capital while delivering climate resilience and inclusive growth.
What are PPPs and how do they work?
Public–private partnerships allocate responsibilities for financing, building and operating infrastructure between the public and private sectors. Effective PPPs balance risk allocation, performance incentives and long-term value.
What types of investors finance infrastructure?
Investors include commercial banks, DFIs, private equity funds, pension funds, sovereign wealth funds and impact investors. Each has different risk appetites, return expectations and time horizons. PIDG is an investor and early-stage developer for infrastructure in sub-Saharan Africa and South and Southeast Asia.
What risks do infrastructure investors face?
Key risks include political, regulatory, construction, demand and currency risks. Addressing these through policy reform and de-risking instruments is essential for mobilising private capital.
What is project bankability and how is it achieved?
A project is bankable when its risks, revenue model and contractual structure meet investor requirements. Strong preparation, transparent regulation and appropriate de-risking tools improve bankability.
How does infrastructure support climate and SDG outcomes?
Well-designed infrastructure improves access to basic services while enhancing climate resilience and reducing emissions. It also supports job creation, economic inclusion and long-term development.
How do countries develop local capital markets for infrastructure?
Key steps include regulatory reform, improving market transparency, expanding bond markets and creating de-risking mechanisms that support long-tenor finance. These measures reduce reliance on foreign currency borrowing. PIDG has a strong track record of achieving this through partnerships with governments, regulators, and local institutional players – typically through its guarantees solution, GuarantCo.
What does investing in nature as an asset class mean?
Investing in nature as an asset class means directing capital into projects that protect or restore ecosystems – such as forests, wetlands, and regenerative agriculture – while generating financial returns through mechanisms like carbon credits, biodiversity credits, sustainable commodities, or ecosystem services. At PIDG, we invest in countries where people have the highest vulnerabilities to climate shocks and changes, and have the fewest tools to adapt. These are also the countries that historically contributed the least to the climate crisis, with the youngest and fastest growing populations, and with some of the richest biodiversity and most important carbon sinks in the world that are fast depleting.
Thus, to drive action on climate and nature, while accelerating sustainable development, we apply a deliberate climate and nature lens to all our investments, focusing on managing climate and nature risks, and ensuring that potential opportunities are maximised. PIDG is an early adopter of the recommendations of the Taskforce for Nature Related Financial Disclosures (TNFD). Through our engagement with leading initiatives and coalitions, we continue to explore the application of suitable frameworks to track nature finance and aim to stay aligned with emerging approaches to systematically measure the alignment of our investment portfolio with nature positive goals.
