In many ways, this is a landmark achievement, as credit enhancement is the crucial missing link that will allow institutional investors to invest in these bonds. It should also pave the way for others. Guarantees on up to three more project bonds are expected under the program by the end of the year, which, in turn, should help familiarize market players with both credit guarantees and project bonds, as well as encourage others to tap the market in a similar way.

Currently, banks provide most of the funding for infrastructure projects in India, but the demands of the sector have far exceeded banks’ credit limits. Bond financing, on the other hand, has not yet taken off because infrastructure bonds are typically rated too low for institutional investors, which—because of India’s relatively high savings rate—have huge amounts of funds to invest. For instance, insurance companies have an estimated $300 billion of cash available to invest, while pension funds can invest up to $30 billion.

— blogs.adb.org/blog