IDB: Funding digital infrastructure to reach remote areas
By Enrique Iglesias, Telecom Sector Specialist,
Inter‑American Development Bank (IDB)
Despite the socio-economic benefits generated by the expansion of broadband in developing countries, the deployment of infrastructure to achieve broadband expansion faces economic limitations in reaching remote areas with low population density.
In the case of countries in Latin America and the Caribbean, the major obstacles to achieving universal access development are:
- high infrastructure deployment costs; and
- low profit on investment for operators.
Infrastructure deployment in remote areas can be up to twice as costly, with revenue up to ten times lower, than in dense population areas.
There is a clear need for financing schemes to help this market.
Corporate financing and project financing are two key methods for funding digital infrastructure projects.
In corporate financing, debt or equity is raised for an entire corporation, without designating funds for specific projects.
Sometimes, subsidiaries will obtain financing or countries provide investment incentives that necessitate the creation of special purpose vehicles (SPVs). This can result in scenarios where projects appear independently financed but in fact depend on corporate financing.
With corporate financing, the SPV is supported solely by the parent company.
Conversely, project financing involves forming an SPV that is financed independently of its promoters, incorporating contributions from other partners and creditors.
After the type of structuring is defined, the sources of project financing are determined.
Digital infrastructure finance in Latin America and the Caribbean comes from — or could come from — private markets, capital markets, banking systems, multilateral banks, and other sources of funds.
Financial instruments
- Short and long-term loans
- Concessional loans
- Syndicate loans
- Initial public offerings (IPOs)
- Digital bonds
- Equity
- Guarantees
- Financial derivatives
Intermediaries
- Commercial banks
- Multilateral development banks
- National development banks
- Pension funds
- Infrastructure funds
- Private equity
Header image credit: IDB
