Catalytic Finance_1 Financing

The Catalytic Role of Credit Enhancement and Blended Finance for Infrastructure in Asia

Guarantees play a crucial role in infrastructure financing by facilitating local currency funding and longer tenors, providing a demonstration effect that enhances local finance parties' infrastructure financing experience and equips them to better assess and manage project risks.


Asian Development Bank estimates that, if the Asia region is to maintain its growth momentum, eradicate poverty, and respond to climate change (climate-adjusted estimate), there is a requirement to invest USD 26 trillion from 2016 to 2030, or USD 1.7 trillion per year. Of this, USD 9.5 trillion, or USD 633 billion per year pertains to the needs of South and Southeast Asia1. The public sector currently dominates infrastructure financing, accounting for between 62% and 92% of the investments. 

To close the infrastructure financing gap and attract institutional capital, Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs) could expand the use of risk mitigation tools and the strategic use of blended finance and credit enhancement products. One of the recommendations by the G20 Eminent Persons’ Group2 was:

"MDBs (and bilateral development partners) have a unique ability to manage risks in developing countries through their multilateral ownership and ability to influence governments. They are hence well placed to provide credit enhancement (e.g. taking the first loss piece in a synthetic securitisation structure) with institutional investors coming in to take a standardised senior debt exposure which can be priced lower to reflect the lower risk.”

Introduction to Guarantees

There is a significant opportunity for guarantees to be used as an enabling instrument to channel debt funding across South and Southeast Asia. Such guarantees can unlock lending from several institutional investors that include local pension funds, insurance companies, provident funds, and asset managers – this is especially beneficial as capacity within commercial banks to provide long-term funding to the market is limited. Institutional funding could come in handy, especially for environmental, social and governance-oriented projects such as renewable energy, e-mobility, digital infrastructure and financial inclusion – all of which, require significant debt capital.

An example of an organisation that provides guarantees is GuarantCo. GuarantCo mobilises private sector local currency investment for infrastructure projects and supports the development of financial markets in lower income countries across Africa and Asia. GuarantCo is part of the Private Infrastructure Development Group (PIDG) and is funded by the governments of the United Kingdom, Switzerland, Australia and Sweden, through the PIDG Trust, the Netherlands, through FMO and the PIDG Trust, France and Canada. GuarantCo is rated AA- by Fitch and A1 by Moody’s.

Demonstration Effect of Guarantees that Sets them Apart

One of the most transformational impacts of guarantors like GuarantCo, and arguably the one that sets guarantors apart from traditional DFI debt funding, is the demonstration effect that they can have on a country’s infrastructure financing ecosystem. 

Guarantee transactions enable local beneficiary finance institutions to experience new sectors and structures with the support of an experienced guarantor. The demonstration effect extends beyond credit enhancing the transaction through a guarantee, but also takes the form of guidance through the due diligence, documentation, and portfolio management stages of the project. As these local finance parties, whether they be institutional bond investors or banks, gain infrastructure finance experience and become better equipped to assess and manage project risk on their own, the need for guarantors can fall away.

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(Affordable housing project by Nam Long Investment Cooperation, Vietnam)

An example of this is Nam Long Investment Cooperation (Nam Long). In 2018, Nam Long3, a local residential real estate developer with a focus on affordable housing, set out a target to deliver an average of 5,000 units per year over the next ten years. To support Nam Long in achieving this ambitious target, GuarantCo extended a 100 percent guarantee for Nam Long’s 7-year fixed rate corporate bond of VND 660 billion (approximately USD 30 million) to build the core infrastructure for the first phase of the largest affordable housing project ever undertaken by Nam Long. This was GuarantCo’s first transaction in Vietnam and the first guaranteed bond for Nam Long. GuarantCo’s guarantee helped Nam Long raise funds from long- term international institutional investors like Manulife, AIA and Generali. As a result of GuarantCo’s support, Nam Long has built a track record and is now raising funds without guarantees.

Advantages of Guarantees

There are several key advantages in using guarantees, including (i) the ability to unlock local currency funding, and (ii) longer tenors.

(i) Local Currency Funding

One of the major benefits of guarantees is the ability to unlock local currency funding4. By providing guarantees to beneficiaries that include local banks, insurance companies, pension funds and other institutional investors, project sponsors and project companies can attain some or all their debt finance in their local currency. This may be particularly beneficial for environmental, social and governance-oriented projects such as renewable energy infrastructure. A significant source of risk is removed because the guarantees are expressed in local currency. With weakening local currencies and rising interest rates, raising debt at extremely competitive pricing in hard currency has become economically and, in some circumstances, politically unviable. Local currency guarantees can also provide other benefits compared to hard currency financing, for both borrowers and local governments.

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(Technaf Solartech power plant in Bangladesh after construction)

In 2019, GuarantCo provided a guarantee to support a 15-year USD 13.5 million dual currency financing solution on behalf of Technaf Solartech Energy Limited5, the first utility-scale solar project in Bangladesh. Technaf is a project that benefits from a local currency tranche. Although the project’s power purchase agreement (PPA) is linked to the USD/BDT exchange rate, the indexation mechanism can take time to be realised, potentially causing cash flow issues in the case of currency fluctuations. By having some of its debt service obligations denominated in BDT, the project is better protected against cash flow variances as both revenues and local currency debt tranches are denominated in BDT.

(ii) Sustainable, Long-tenor Funding for Borrowers and De-risking Financiers

Guarantees can also mitigate certain credit or liquidity issues that might otherwise inhibit financers. One of the most pervasive issues facing projects in emerging markets is that local currency funding providers, whether banks or bond investors, are unable to provide debt solutions of sufficient tenor. This can result in projects seeking hard currency debt, or in certain cases being abandoned if suitable financing cannot be attained. Guarantee products can help overcome tenor issues for infrastructure projects. On occasion, it may be enough that a simple partial credit guarantee lowers the risk of a project sufficiently, enabling banks or bond investors to fund the project for a longer tenor than otherwise attainable. Three case studies to bring to note:

(a) In May 2022, GuarantCo signed a framework guarantee agreement with Axis Bank6 to provide up to USD 200 million of guarantee in INR for the bank to lend up to USD 400 million for the e-mobility sector which would enable the borrower to raise debt funding for longer tenor for a sector where long-term debt financing is difficult to come by.

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(GuarantCo's transaction with First Finance Cambodia is expected to support around 470 new loans for low- and middle-income households)

(b) In December 2022, GuarantCo and Cargill Financial Services International provided a USD 7 million debt financing solution to First Finance7, a Cambodian micro finance institution, supporting the first internationally verified social loan offering affordable housing finance to low- and middle-income households in the country. The transaction will enable First Finance to access their first-ever longer-term financing with a 7-year tenor, on a scale and at a lower cost of funding than would otherwise have been the case without GuarantCo’s involvement.

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(Royal Railway was the first listed infrastructure bond in Cambodia)

(c) In December 2022, GuarantCo provided a guarantee to large corporate investors and two large institutional investors to help Royal Railway Cambodia8 raise up to USD 24 million financing for ten years. This is the longest tenor corporate bond in Cambodia, listed on the local stock exchange with a floating rate of interest.

Opportunities in South and Southeast Asia

To further accelerate the role of catalytic finance such as guarantees, a partnership approach is needed. Regional governments must stand ready to work with DFIs and guarantors like GuarantCo. Several enabling factors are first required before guarantees can have a demonstration effect. These include clear policy and regulations and well-structured infrastructure projects.

On policy and regulations, Infrastructure Asia (InfraAsia) has developed several capacity-building initiatives such as the Growing Infrastructure Course, where regional government officials participate in thematic courses to learn more about how to enable sustainable and resilient infrastructure development for the region’s long-term economic growth that is conducive for private sector investment.

InfraAsia also work with regional governments to structure their infrastructure projects which can then be ready for further consideration by DFIs. For examples, InfraAsia has worked with (i) the Ho Chi Minh City People’s Committee on their wastewater treatment plants, and (ii) the Cambodian Government, through the Phnom Penh Capital Administration (PPCA), on their waste management initiatives.

(i) Wastewater Treatment Plants in Vietnam

To meet the growing needs of a city of 10 million people, Ho Chi Minh City had a masterplan to build 12 waste-water treatment plants in the city to treat up to 90% of the wastewater and sewage water discharged by the city. InfraAsia worked with the local authorities in Ho Chi Minh City to support the prioritisation of the wastewater treatment plants to enable the city government to holistically consider the resources they had available to execute the projects, evaluate the unsolicited proposals they received for the wastewater treatment plant, and understand the larger implications of the connectivity to the sewage network.  InfraAsia set out a non-exhaustive list of areas as well as key social, economic, and technical aspects to be considered in developing infrastructure projects.

(ii) Waste Management Initiatives in Cambodia

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(Enterprise Singapore and InfraAsia connected 800 Super to potential business partners, leading
to the firm’s eventual partnership with GAEA Waste Management for the Phnom Penh contract)

In Cambodia, waste collection over the past eighteen years was not performing up to expectations and the Cambodian government terminated the operator’s exclusive license in December 2019. InfraAsia partnered with the regional government, PPCA, to structure a tender for waste collection and transportation that would enable international participation. InfraAsia also worked with Singapore’s National Environment Agency (NEA) to share Singapore’s waste management experience and best practices with Cambodia to help structure tangible outcomes from the tender to the benefit of the local population. The partnership resulted in an international tender where regional and international firms could participate. Since the successful award of the tender in 2021, Phnom Penh residents as well as PPCA expressed satisfaction in the improved waste collection service9.


InfraAsia and GuarantCo could collaborate with partners in the infrastructure ecosystem to unlock opportunities in the region by leveraging on InfraAsia's early project intervention and structuring support for governments, as well as GuarantCo's establishment of localised credit enhancement facilities South and Southeast Asia. Such facilities can catalyse significant pools of domestic institutional debt capital, which can be channelled towards funding critical infrastructure projects.

Guarantees play a crucial role in infrastructure financing by facilitating local currency funding and longer tenors, providing a demonstration effect that enhances local finance parties' infrastructure financing experience and equips them to better assess and manage project risks. They can also be instrumental in attracting institutional capital for environmentally, socially, and governance-oriented projects that require significant debt capital. This is further supported by InfraAsia's work with regional governments in promoting sustainable infrastructure development and bridging the infrastructure gap in Asia.

[1] Meeting Asia’s Infrastructure Needs, ADB, 2017, [Link]
[2] Report of the G20 Eminent Persons Group on Global Financial Governance, October 2018, [Link]
[3] GuarantCo guarantees VND 660 billion Nam Long Investment Corporation Bond, June 2018, [Link]
[4] Enabling local current solutions in addressing the infrastructure gap, September 2022, [Link]
[5] GuarantCo guarantees 15-year USD 13.5 million dual currency financing solutions for Technaf Solartech Energy to support first-ever utility scale, grid connected solar power plant in Bangladesh, May 2019, [Link]
[6] GuarantCo provides Axis Bank with a USD 200 million INR equivalent guarantee to accelerate the e-mobility eco-system in India, May 2022, [Link]
[7] GuarantCo provides First Finance with a loan guarantee to finance affordable housing in Cambodia, December 2022, [Link]
[8] GuarantCo provides Royal Railway Cambodia with a USD 24 million bond guarantee to invest in the national railway system, January 2023, [Link]
[9] Rubbish Services Rated Better by City Residents, The Phnom Penh Post, November 2022, [Link]

This article is co-authored by:
Nishant Kumar, Managing Director and Head of Asia at GuarantCo, part of the Private Infrastructure Development Group
Lavan Thiru, Executive Director, Infrastructure Asia and
Gayle Tan, Project Director, Infrastructure Asia


About Nishant Kumar

Nishant Kumar joined GuarantCo’s Singapore office in November 2016 as Executive Director and was Regional Director for South Asia since January 2019 where he led origination and execution of transactions in the region. In June 2020, Nishant became Managing Director of Asia. Prior to GuarantCo, Nishant worked across functions in Mergers & Acquisitions, Corporate Finance, Investment Banking and in Renewable Energy Private Equity where he led origination and execution of infrastructure, natural resources, agriculture, food & beverages, consumer transactions and investments across Asia-Pacific.

Connect with him here.


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