This study aims to further address gaps in research related to commercial financing challenges in Local Currency Financing (LCF) for sustainable infrastructure. This will include a review of broader financial market challenges with a focus on credit/banking markets. This study is part of a broader program supported by the Public-Private Infrastructure Advisory Facility (PPIAF) to address the challenges in mobilizing LFC commercial lending into infrastructure and climate projects, public-private partnerships (PPPs), and risk sharing facilities in emerging markets. The study has drawn on the work done by the World Bank Group in particular the Infrastructure Finance Practice Group (IFP)
Finance, Competitiveness & Innovation Global Practice (FCI)
and the related donor-funded Joint Capital Markets Program (J-CAP) implemented by the Finance Competitiveness and Innovation Global Practice (FCI) and IFC. Through this report we expect that policy makers, money and capital market authorities, infrastructure, climate and environment, and private sector infrastructure/climate investors and financial institutions will be better informed to pursue financing options for infrastructure projects through LCF. Specifically, the report provides global knowledge and existing literature on the topic of LCF with a focus on local credit markets, an analytical framework, and actionable insights to navigate the complexities of LCF in infrastructure and climate investments. The study explains the key drivers and enablers/binding constraints for the development of a robust ecosystem for financing infrastructure in local currency (LCY), such as: (i) the scale of private savings in a country
(ii) the ability and willingness of local credit markets to provide long-tenor debt
(iii) the potential for local capital markets to provide finance
(iv) the cost differential between LCY and foreign currency (FX) debt
and (v) capacity for structuring and credit evaluation skills for sustainable infrastructure financing.