Innovative financing

Key issues: Complex and divergent finance model

Globally, most of the funding for infrastructure investment in LDCs are obtained from the public sector, particularly government budgets. The way in which public resources are mobilized varies across countries. For example, in resource rich LDCs, at least 50 per cent of government budgets are generated from non-tax revenue such as natural resources, while in other LDCs, a large part of public expenditure is financed by tax revenue. As most of the infrastructure funding in LDCs are from public financing, concessional financing has been the dominant financing instrument. The developing countries face a challenge in adopting new and innovative financing models due to the inherent complexities. It can be extraordinarily difficult for a country to understand how it can maximize new financing opportunities, understand new and innovative financing approaches, comply with many different application requirements, and understand how to blend and sequence various financing flows to achieve transformational change.

Potential interventions:

Financing is being used in increasingly sophisticated and creative ways to meet public policy objectives. More and more countries are adopting the financing model best suited to their requirements and prevailing conditions. Some examples of the different modes of financing available to take advantage of:

• Public financing: In the developing nations, since domestic public finance is a key source of funding, steps like improved tax administration through tax reforms would allow expansion of fiscal scope.
• Blended finance: Concessional public finance is blended with non-concessional public or private finance.
• Green and Blue bonds: Bonds are issued on domestic and international capital markets for the financing of environmentally sound infrastructure.
• Other instruments include (not exhaustive): Lending in local currencies, Islamic funding instruments, diaspora funding, crowdfunding, social impact bonds, etc.

Key issue: Project specific finance model

The financing needs of different ICT infrastructure projects will vary on factors such as geographical constraints, complexity, duration, national and international parties involved etc. It is very challenging if the financing model chosen does not adapt to the specific needs of the infrastructure.

Potential interventions:

Depending on the geographical constraint or type of infrastructure being deployed, the financing model can be adopted along with policy adoption.

• Private financing are bonds, loans, listed equity capital, and corporate social responsibility (CSR) grants. This kind of financing tends to be more independent, customizable to the type of role and risk return/interest of investors project based and associated to faster roll-outs. Successful cases of backbone deployment also may involve active and strong private sector participation in the form of multi-sector partnerships.
• Supporting start-ups through CSR: Defining and promoting the application of CSR policies to enable start-ups is another potential intervention. Some of these policies could be a way to generate funds, which can be leveraged for training purposes.
• Transit pricing: In many instances, landlocked countries might incur higher costs for accessing submarine optical fibre cables. They may opt for contracts which are long term and also covers bulk purchase. E.g., Rwanda with the fund from World Bank purchased bulk amount of international transit. The length of the contract and volume, and the price were very favourable.
• Financing and leasing to finance IT infrastructure. By transforming large one-off investments (capex) into periodic expenses (opex), it supports the weight of capex and therefore cushions the impact on the company's cash flow. Thus, the funds are available for other overriding priorities. This requires a funding partner that helps modernizing IT infrastructure in sync with business imperatives. This makes it possible to define a digitalization strategy which is therefore indexed to the financial resources available to the company.
• that helps modernizing IT infrastructure in sync with business imperatives. This makes it possible to define a digitization strategy which is therefore indexed to the financial resources available to the company.

Key issue: Emerging technologies like Blockchain and Cryptocurrency

In the span of a few years, cryptocurrencies have grown from digital novelties to trillion-dollar businesses with the potential to disrupt the global financial system. Bitcoin and hundreds of other cryptocurrencies are increasingly held as investments. Blockchain acts as the underlying technology. Cryptocurrencies are typically exchanged on decentralized computer networks and the transactions are recoded on distributed, tamper proof ledgers known as blockchains.

Potential intervention: Decentralized finance

Cryptocurrencies and blockchains have given rise to a new constellation of “decentralized finance” or DeFi businesses and projects. Essentially the cryptocurrency version of Wall Street, DeFi aims to offer people access to financial services — borrowing, lending, money transfer and trading — without the need for legacy institutions such as banks and brokerages, which often take large commissions and other fees. Instead, “smart contracts” automatically execute transactions when certain conditions are met. DeFi is surging in popularity, with investors pouring tens of billions of dollars into the sector. Most DeFi apps are built on the Ethereum blockchain. Because of its usefulness in tracking transactions, blockchain technology has a range of potential applications beyond cryptocurrency, experts say, such as facilitating real estate deals and international trade.