The Pakistan financial system is characterised by low levels of financial participation and development – generally, only the largest corporate groups have access to formal finance channels. Smaller banks or other NBFCs are generally unwilling to consider non-recourse financing. Overall, there is a significant infrastructure investment deficit in Pakistan. Moreover, the government, typically the main funder of infrastructure, is fiscally constrained.
Value of PIDG investment
InfraCo Asia, together with partner Karandaaz Pakistan, is providing the core equity for the facility, InfraZamin Pakistan (“IZP”), while GuarantCo will provide the contingent capital. IZP will issue credit guarantees for infrastructure-related debt instruments based on its AAA rating from PACRA, the local credit rating agency, and thereby attract private capital that would otherwise not participate in lending to infrastructure-related sectors in Pakistan.
This will be the first-of-its-kind credit enhancement facility in Pakistan. The facility is expected to increase the capital available for financing infrastructure projects, as well as contribute to the knowledge of Pakistan’s financial market and investors – on the use of credit guarantees for complex transactions.
A further goal is to create a sustainable entity where, further private capital can be mobilised to support the future growth of IZP.