Project finance vs. corporate finance. The infrastructure asset life cycle. The stages of project development. How infrastructure companies evolve. The internal team an infrastructure company needs to scale its portfolio of assets. The four pillars of bankability, and most recently, the capital stack decoded, which worked through layer-by-layer the forms of capital to complete a project.

I had to figure out what to research then write about next, and that new topic, like all others, had to pass my two tests: i) something I was curious enough about to research and ii) something related to the subject of project development.

You see, I have been quite busy this October for personal reasons, finishing a certification and preparing for my mother’s 70th birthday celebration.

I was certainly not in the headspace for focused learning these past two weeks.

In fact, the last three notes in The Capital Stack Decoded series had been written at once, three weeks ago, pasted and scheduled to be published on their dates, so I could keep the Wednesday 6 am WAT schedule and still be fully present for my family.

Meaning, I have not written anything new since the second week of October.

So for this week, I did not know what to write about next. I was stumped.

As I was thinking about what to write for this week’s note, an idea that had been sitting at the back of my mind for a while now came to the fore on Friday.

If I were to design a project development fund, how would I do it, knowing all that I now know?

It is not an abstract question for me.

In 2024, I was a consultant on the InfraCredit project team that designed what is now called the Distributed Renewable Energy Enhancement Facility (DREEF). Before that, I was part of InfraCredit’s pilots to define an institutional structure for an effective project preparation facility, so I have been immersed in this question for a while now.

I have also been indirectly layering knowledge for it since I started Notes on project development.

While the design of a project development fund may not be something I delve into quite yet, there are relevant questions for the audience that could lead to another useful series of notes. Questions like

1. Which facilities exist today?

2. What forms of funding do they actually provide?

3. How do they operate?

4. What kind of requirements do they need to support your project?

So, the next series will be Sourcing Project Development Capital, focused on unpacking the funding that specifically targets the activities that happen before financial close.

This will be the first note in that series, and it will start with the forms of project development capital, because you cannot access something you cannot name.

Sourcing Project Development Capital

Project development capital is the money that pays for the work between an idea and financial close. In the language of this Substack, it funds what is between the Concept stage and the run-up to Financial Close: demand and resource studies, technical design, environmental and social assessments, procurement and contract negotiations, the financial model, legal structuring and transaction advisory that structures the financing.

Sourcing it must keep some realities in mind.

Project Development itself is expensive. Estimates put project preparation at 5 to 10% of total project investment; for large regional projects in Africa, it can reach 10 to 12%. Gilles Vaes, CEO of InfraCo Africa, put it plainly: “It can cost $5-$10 million just to get an infrastructure project to a point where it’s de-risked.”

So who pays for it today? Still mostly the sponsors.

Either the governments or the private sector sponsors and developers pay for it in full or in part.

A Global Infrastructure Hub review found that in Africa, 70 to 80% of project preparation funding comes from government budgets, even where dedicated project development facilities exist. And even when supported by facilities, private developers must still fund the earliest work from their own pockets.

“I am happy to report that dedicated facilities are growing in number, as more players recognise that support before financial close is what gets projects to close.

• 20 years ago, in 2006, a user guide prepared for Africa listed 23 project preparation facilities.

• There are now at least 130 of them worldwide, about half run by multilateral development banks, and more than 80% of those were created after 2015, i.e a decade old or younger.

It is the riskiest stage of the project. When the Infrastructure Consortium for Africa (ICA) assessed 19 African project preparation facilities in 2015, only 6 facilities had seen roughly half or more of the projects they supported reach financial close, with closure rates from 47% to 62%. Across the remaining 13, only about 9% of supported projects reached financial close, with individual rates ranging from 0% to 31%.

• Meaning providers of this capital need to include this reality of limited success in their expectations and criteria

• Discretion and selectivity in determining which projects to back is critical to the ongoing success and continued availability of the facilities

Before The Main Menu

Before you order anything, there is the dish every developer eats first: You must use your own money.

Founder and sponsor equity pays for most concept-stage work, and for good reason. No facility will fund an idea that its owners and sponsors will not back in any way. That was true for capital for constructing the asset. That is true even for capital that supports development and preparation before construction

Many of the facilities described will require you to have completed at least a pre-feasibility study before you apply, because that is what defines the scope, scale, and direction of what they will co-fund and support in the early, mid, late stages and pre-financial close support.

The more you have put in, and the better you have documented what your money bought, the more of the project development capital menu opens to you.

That 2006 guide I referred to earlier, titled Infrastructure Project Preparation Facilities: User Guide, Africa, was commissioned by the ICA and funded by PPIAF.

It sorted facilities in two ways that still hold today:

• Non-repayable grant or cost contribution: does the facility give you the money without expecting it back, or does it expect to recover some or all of its cost?

• Linked or unlinked: are you free to choose your advisers, products and investors, or does accepting the support commit you to the facility’s own?

Keep both questions in mind as you read further. Every form described below sits somewhere on them.

The Menu Options: 5 Forms Project Development Capital Takes

1) Grants: Paid for by Impact

How it works. A grant is non-repayable funding, or in-kind advisory support, for specific preparation activities: a feasibility study, an environmental and social impact assessment, a transaction adviser. Most grant facilities run calls for proposals or accept applications on a rolling basis, and they pay consultants directly or reimburse agreed costs.

Who provides it? The NEPAD Infrastructure Project Preparation Facility, hosted by the African Development Bank, is the longest-running on the continent. Since 2005, it has approved 114 grants worth about US$125 million, linked to more than US$13 billion of downstream investment. Others include the World Bank Group’s Global Infrastructure Facility and PPIAF, the AfDB’s Sustainable Energy Fund for Africa (SEFA), the Green Climate Fund’s Project Preparation Facility and, new in 2026, COMESA’s US$25 million ASCENT facility for distributed renewable energy and clean cooking.

What it costs you. Grants are free of repayment, not free of cost:

• Competition. This type of grant money is scarce, and applications do not always lead to funding.

• Co-financing. There is often an expectation of co-funding from the sponsor. SEFA, for example, provides up to US$1 million per project and expects the applicant to fund 30 to 50% of the cost.

• Eligibility. Many grant facilities are designed for specific sectors or for specific types of sponsors. NEPAD-IPPF, for example, excludes projects promoted solely by private firms unless a recognised regional institution backs them.

• Time and reporting. Approval cycles, procurement rules, and timelines to secure advisory, then reporting obligations can all stretch your timeline.

• Scope. The funder’s priorities shape what is funded, which is not always what your project most needs.

Best suited to: public sponsors, PPPs, regional projects, and private developers in sectors that fit predefined dedicated windows, common for energy access and climate-smart projects.

2) Reimbursable Advance: A Loan Against A Loan to Come

How it works. The facility advances money for preparation and is repaid from the financing that the preparation leads to. If the project does not proceed, the beneficiary sponsor must still repay it anyway.

Who provides it. The African Development Fund’s Project Preparation Facility is the clearest example. It advances between UA 200,000 and UA 1 million (roughly US$275,000 to US$1.4 million), and up to UA 5 million (about US$6.8 million) for large operations/loans.

(The UA, or Unit of Account, is the AfDB’s accounting currency, pegged to the IMF’s Special Drawing Right.)

When the AfDB loan for the project becomes effective, the loan advance is repaid from it. If no loan is approved, the government repays the advance and a service charge within one calendar year. Afreximbank’s Project Preparation Facility also describes itself as a self-sustaining revolving fund operated on commercial terms.

What it costs you.

• It is debt from day one, even though it rarely feels like it

• It ties you to the lender whose financing will repay it.

• If the project dies before financial close, the obligation to repay that loan for project development must still be met.

Best suited to: sponsors, usually governments, whose project is already in a lender’s pipeline and who are confident it will proceed with that lender.

3) Cost Recovery and Success Fees: Pay When You Close

How it works. The facility funds preparation upfront and recovers its costs at financial close, often from the winning bidder in a competitive procurement or from the project’s financing.

Who provides it. The EBRD’s Infrastructure Project Preparation Facility runs a PPP window that recovers its costs through a transaction fee, capped at EUR 200,000, which the winning bidder reimburses if the project reaches financial close. Closer to home, the Development Bank of Southern Africa prepares projects on commercial terms: it requires sponsor co-funding, expects to recover its costs plus a return for the risk it took, and competes for the role of mandated lead arranger on the debt.

What it costs you:

• A higher project cost raised at financial close because the project development is folded into the project cost that your tariff or your investors must carry.

• More selectivity, because the facility writes off its costs when projects fail to close; it will choose projects closer to financial close. Too nascent/early-stage activities rarely qualify because of this.

Best suited to: PPPs heading into competitive procurement, and projects that have completed feasibility with a credible path to financial close.

4) Lender-Linked and Export-Linked Preparation: Money With a Direction

How it works. A financier or a government agency funds the preparation of projects that it may later finance, or that will use its own country’s firms as advisers, technology, construction.

Who provides it.

• France’s AFD manages project preparation funds, financed largely by the European Union, such as CICLIA for cities and climate in Africa and ARE Scale-up for African renewable energy. Proparco reports that €15 million of grant funds for African cities has been linked to more than €1.7 billion of catalytic investment.

• The US Development Finance Corporation (DFC) provides grants for feasibility studies and technical assistance on projects that have received, or may receive, DFC financing or insurance.

• The US Trade and Development Agency (USTDA) gives grants to project sponsors for feasibility studies, technical assistance, and pilots, delivered by US firms. It obligated about US$76 million in the 2024 fiscal year and has reportedly funded nearly 80 preparation activities in Nigeria since 1992.

• In September 2026, Afreximbank and the DBSA agreed a joint facility of up to US$20 million to prepare trade-enabling infrastructure in Southern Africa, which either bank may then consider financing. In 2021, Afreximbank also signed a memorandum of understanding with Nigeria’s NEXIM Bank to mobilise up to US$50 million for a joint project preparation fund for export-oriented projects.

What it costs you. Choices. Depending on the facility, you may narrow your future lender, the nationality of your advisers, or your technology and suppliers.

That is not necessarily a bad thing. If you already want that lender’s money or that country’s technology, alignment at the preparation stage can shorten your path to financial close considerably. The question is whether you chose the direction, or the money chose it for you.

Best suited to: projects whose sponsors already want that lender, partner, or technology at close.

5) Development Equity and Co-Development: A Partner Who Shares the Risk

How it works. An institution takes early development risk alongside you, or sometimes instead of you, in exchange for equity in the project, fees, or the right to arrange or provide its lending at close.

Who provides it?

• The Africa Finance Corporation’s Project Development team commits between US$1 million and US$20 million per project. It acts as lead developer, as co-developer with strong sponsors, or as a paid adviser on retainer and success fees. As lead developer, it recovers its costs through fees and secures equity or mandated lead arranger rights at financial close. It requires a completed pre-feasibility study. Its portfolio includes the Cabeolica wind farm in Cape Verde.

• PIDG works as a relay: its technical assistance grants support the earliest stages, InfraCo Africa co-develops projects and takes development risk, and its sister companies provide debt and guarantees further along.

• IFC InfraVentures is the World Bank Group’s US$150 million project development fund for frontier markets.

• Africa50’s Alliance for Green Infrastructure in Africa Project Development Fund reached a first close of US$118 million in August 2025, towards a US$400 million target.

What it costs you.

• Dilution. Your share of the project, and of its upside, shrinks.

• Decision Control. A co-developer will want a say in key decisions, and its priorities may not always match yours.

• Flexibility. Your financing options at close may be shaped by its rights, and your flexibility with choosing the investor is limited.

In exchange, you gain a partner with money, expertise, credibility with lenders, and a strong interest in reaching financial close.

Best suited to: larger, complex or first-of-their-kind projects whose sponsors lack the balance sheet to carry the development risk alone.

Choosing From The Menu

No single option is right for every project, and the best-prepared projects often combine several. To choose your order, ask yourself five questions:

1. Which stage am I in? At the Concept and Early stage, your own equity and grants are the realistic options. At the early-to-mid stage, grants, reimbursable advances, and co-developers come into view. At the late stage, success-fee, lender-linked, and development equity options become available.

2. Are you a public or private sponsor? Many grant and reimbursable facilities are built for governments and regional bodies. Private developers, while not excluded, may find more alternatives common among the last 3 options.

3. How much control am I willing to share? If the answer is very little, stay towards the top of the options discussed or fund yourself.

4. Whose money do I want at financial close? If you already know, a lender-linked facility may be the fastest route there.

5. Can I co-fund? Almost every option expects you to contribute. Know how much you can put in before you apply.

Bringing It All Home

Project Development capital is not a free lunch. Every option has a price.

Some you pay now, in co-financing, competition and patience. Some you pay at financial close, in fees and repayments. Some you pay for the life of the project, in shares and control.

The skill is not just in hunting down money for preparation. It is in choosing the money whose price your project can afford, at the stage it is in, and in the order that keeps your options open.

Disclaimer: The institutions named in this note are examples drawn from my research, not endorsements. While I have taken care with the details, I cannot guarantee they are accurate or current. Do your own research, engage your own advisers, and draw your own conclusions before acting on anything here.

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Reviewed to Complete This Note

• Infrastructure Project Preparation Facilities: User Guide, Africa. Infrastructure Consortium for Africa and PPIAF, prepared with Cambridge Economic Policy Associates. 2006.

• Assessment of African Infrastructure Project Preparation Facilities: Lessons Learned and Best Practice. Infrastructure Consortium for Africa (Dr Lufeyo Banda). 2015.

• Effective Project Preparation for Africa’s Infrastructure Development. T.Chaponda, M. Nikore, and M. Chennells, (Genesis Analytics). ICA, 2014.

• Global Infrastructure Hub and CRISIL. Leading Practices in Governmental Processes Facilitating Infrastructure Project Preparation. 2019.

• Scaling up high-quality project pipelines: What role for multilateral development banks? S. Schneidewind and A. Prizzon, ODI, 2024.

• Cutting Edge Practices: Project Preparation Facilities. M. Sutcliffe and S. Bannister, DBSA Working Paper WP/2022/04, 2022.

• Approach Paper: Infrastructure Project Preparation Facility. EBRD Evaluation Department. 2017.

• African Development Fund. Project Preparation Facility.

• Africa Finance Corporation. Project Development.

• Somebody has to do it first: how to tackle Africa’s infrastructure challenge with the Private Infrastructure Development Group, Invest Africa.

• Project preparation funds: an effective solution for unlocking investment in sustainable infrastructure in Africa. S. Lefèvre, Proparco, 2024.

• Congressional Research Service. U.S. Trade and Development Agency (IF10673). 2026.

• NEPAD-IPPF marks 20 years. Ecofin Agency, July 2026.

• Climate Finance Blending Facility supports local currency financing for First Electric’s off-grid energy project in Nigeria. InfraCredit, January 2026.

There is no single correct capital stack. There is a stack that works for your project at that time.

There is only one constant thing: equity must form its base. The right combination of what works for your project then depends on four things. How large the project is. How certain its cash flows are. What currency it earns in. And how much pioneering risk it carries.

Change any one of those and the stack that fits changes with it. The same solar plant that needs a thick layer of concessional money in one market can carry mostly commercial debt in another.

To show what that means in practice, I will walk through four real combinations from infrastructure projects on the continent, each a different answer to those four questions, before sharing the principles that run underneath all of them.

Examples from the continent

Combination One: Large Project, Base Equity, DFI-Anchored Project, Syndicate of Lenders

Start at the top of the scale. When a project is large, exportable to international lenders, and anchored by a solid contracted and guaranteed offtake, the stack can be mostly debt, provided the cross-border risks are wrapped.

Nigeria’s 461 MW gas-fired Azura power reached financial close in 2015. It had a contracted take-or-pay offtake agreement with the Nigerian Bulk Electricity Trading Company (NBET), which ensures that cash flows are available for investors and operations of the plant.

It cost about USD 877 million and was funded roughly four parts debt to one part equity:

• USD 687 million of senior and mezzanine debt from some fifteen lenders, covering senior and subordinated debt from international and local lenders.

• USD 190 million dollars of equity.

The lender group included the KfW, Rand Merchant Bank, Standard Chartered Bank, IFC, FMO, the US development finance institution, DFC, Proparco (France) and the Emerging Africa Infrastructure Fund among them. It was arranged by an international commercial bank, with a local-currency tranche carried by a Nigerian bank so that part of the debt matched part of the naira exposure.

Equity also came from institutional equity providers like Africa50 and ARM in addition to the project sponsor’s equity.

The World Bank’s Multilateral Investment Guarantee Agency (MIGA) insured both debt and equity against political risk and provided a partial risk guarantee and a liquidity guarantee covering the offtaker’s payment obligations.

The lesson of this stack: at scale, with a bankable offtake and strong credit enhancements, you can lever heavily and turn sovereign and offtaker risk into something an international lender can hold.

It is worth seeing why the development banks sit at the centre of a stack like this. Their presence does more than add money. A development lender’s preferred-creditor standing, its political cover and its willingness to take a mezzanine position beneath the senior banks all signal to commercial lenders that the deal has been scrubbed and that patient money is in the room. That signal is what crowds the commercial capital in. On a project this size, the equity can be thinner, close to a fifth of the total, because the enhancements make the debt safe enough to carry the rest.

Strip out the strong offtake agreement and the credit enhancements, and no commercial lender would have accepted fifteen-year Nigerian power risk with an 80:20 debt-to-equity ratio.

Combination Two: Base Equity plus Domestic-Currency Bond, Wrapped by a Guarantee

Now change the currency question. Many projects earn entirely in local currency and should fund that way, but the deep local pools, the pension funds and insurers, are not allowed to buy unrated project risk. The stack that solves this uses a credit guarantee to reach that money.

The shape is simple. Sponsor equity sits at the base. Above it, instead of a foreign loan, the project raises a local-currency bond or a local bank facility. That instrument, which might carry a standalone rating of BBB, is then wrapped by a local-currency guarantor, which lifts it to a AAA national rating. At that rating, domestic pension funds and insurers can buy it, and they do, because they need long-dated local-currency assets to match their long-dated local-currency liabilities.

This is becoming more and more popular with the increase in the number and capacity of local currency guarantors over the past decade.

In Nigeria, an early landmark was a ten-year naira bond issued for Viathan to construct a 7MW gas-to-power plant in 2018, the first of its kind corporate bond at that time.

The lesson of this simple structure is that when your revenue is local, the cheapest durable capital is local too, and a guarantee is the key that unlocks the vault, converting a project the pension funds cannot touch into one they compete to buy.

Combination Three: Grants unlocking construction finance for small, affordability-constrained projects, with base equity

Shrink the scale and add an affordability problem, and the stack changes completely. A rural mini-grid or a solar home system business serves customers who cannot pay a fully commercial tariff, and it is far too small to carry the legal cost of the first two structures.

Here grants do the heavy lifting, and the job is to structure the grants to repay the commercial debt the project can raise.

Nigeria’s off-grid grant programmes show the pattern. The Nigeria Electrification Project put a combined USD 550 million dollars of World Bank and African Development Bank money to work, and its successor, DARES, about USD 750 million.

The binding constraint is the upfront construction capital to complete energy access projects across the country. Local banks lend to these projects, if at all, for only two or three years, far shorter than a mini-grid’s payback, and require clear pathways to repayment of capital that the limited tariffs collected immediately after commercial operations cannot sustain.

Grants paid after meeting construction milestones become the clear cash flows that construction finance is sized against, making the short-term debt serviceable. For smaller energy access assets, the grant is not a top-up; it is the keystone. A developer then puts in its own equity and raises local or development debt, and the whole structure is built to graduate the project toward commercial debt as tariffs are collected and accumulated over time post-construction to expand the sites and replace key components.

Combination Four: The Public-Private Partnership with viability gap funding, base equity and commercial debt

The fourth combination appears when the public sector is a partner, not just a regulator, and the users cannot pay a tariff that covers the full cost. The gap between what the asset costs and what the public can afford is filled, deliberately and up front, with viability gap funding.

The Dakar-Diamniadio toll road in Senegal, the first toll-road public-private partnership in Sub-Saharan Africa, shows the structure cleanly. Its public-private component cost about EUR 225 million and reached financial close in 2010 on a thirty-year concession.

The public side contributed about EUR 130 million, roughly 58 percent: EUR 55 million from the government of Senegal and 75 million from the African Development Bank and the French development agency together.

The private concessionaire brought the remaining EUR 95 million, about 42 percent, as sponsor equity and debt from international financiers, with a political risk guarantee covering a currency swap so the concessionaire could manage its hard-currency obligations.

This viability gap funding was not provided as a loan or as equity. It was public money that permanently reduced the amount of the capital base the private sector had to bring in under commercial terms.

So that commercial capital’s return expectations were sized against a smaller portion, EUR 95 million, not the whole EUR 225 million.

It stayed low enough for ordinary motorists to pay while the remaining private capital still earns its return. The lesson of this type of stack: where a public-benefit asset cannot support a fully commercial tariff, the public contribution can be structured as the enabling layer, and the private capital stacks on top of it only once the gap has been closed.

The private concessionaire still takes real construction and operating risk and earns a real return, which keeps it disciplined, while the state’s up-front contribution, and the direct agreements and step-in rights that protect the lenders, make the long concession financeable.

What Decides the Shape of a Stack

In determining the shape of your stack. Hold on to one constant and four variables.

The constant is the base of the stack. There must be equity at risk at the base.

If you can secure Senior debt, that always sits at the very top; everything else- the mezzanine, the blended finance, guarantees, the currency hedges, the grants- exists to change the risk that the senior layer sees, so that it will show up at all, and on better terms.

You have seen this order in every note in the capital stack decoded series. What changes from deal to deal is which layers you can access on top of your equity.

The four variables that shape the rest of the stack.

• Scale. A USD 900 million plant can afford the legal and structuring cost of syndicating ten international lenders and a political risk insurer. A USD 3 million mini-grid cannot.

• Cash-flow certainty. The strength of the volume and certainty of your project’s cash flows is critical. Projects with a strong, contracted offtake can carry more leverage. One exposed to demand or merchant risk must hold more equity, secure more blended finance or grants, or reduce their scale.

• Currency. A project earning in naira or shillings should borrow in the same currency where it can, or hedge, because an unhedged hard-currency loan is a bet on the exchange rate, as we saw in the note on currency risk.

• Pioneering risk. Commercial capital typically avoids early-stage risk of any kind in a company, sector, or project. A first-of-its-kind structure, startup stages of an infrastructure business, and project development stage projects are not attractive to commercial capital and should target concessional or grant money to absorb the early friction that commercial capital will not touch.

With that constant and those four variables in mind, here are some principles to apply when structuring your stack together.

The Principles Underneath The One Constant and Four Variables.

These are the principles to carry into your own structuring with the constraints of the four variables

• Start from the cash flows, then choose capital that fits them. Every one of these stacks was built around the level of certainty of its revenues. Strong, contracted, hard-to-disrupt cash flows carry more debt. Thin, volatile, or affordability-constrained cash flows need more equity, more concessional money, or a guarantee. The stack serves the cash flows, never the other way round.

• Size the debt to the cash flows, not to your ambition. In every one of these stacks, the amount of debt was set by what the revenue could safely service through good years and bad, tested against a real downside, and the rest was filled with equity, concessional money, or a guarantee. A stack that only balances in the optimistic case is not a stack. It is a hope.

• Each layer’s job is to make the layer above it show up. A partial risk guarantee exists so senior lenders will lend. First-loss capital exists so commercial investors will follow. Viability gap funding exists so a toll can be affordable and still bankable. A credit guarantee exists so pension funds can buy. When you add a layer or a wrap, be clear about which investor it is meant to unlock.

• Match the currency of your commercial capital to the currency of your revenue. Where you earn in local currency, reach for commercial capital denominated in local currency, even if it means paying a guarantor to unlock it, because an unhedged hard-currency loan quietly converts a financing decision into a bet on the exchange rate. A low headline rate on unhedged dollars costs far more over the life of a project than local-currency debt priced fairly or equity that was properly sized. Count the all-in cost and the risk it leaves on your balance sheet, not the coupon/interest rate on the day you sign.

• Respect the order. Patient, loss-absorbing money goes in first, both in how you build the stack and in how it is drawn. Equity and confirmed grants are committed before senior debt moves, which is exactly what the lenders demand at financial close.

• Blend the layers, do not just bolt them on. The four stacks above are not piles of independent loans. Each layer was negotiated in view of the others: the guarantee shaped the bond, the blended finance shaped the senior tranche, the intercreditor agreement set who ranks where. When you add a layer late, without re-opening the others, you usually create a conflict that surfaces, expensively, at financial close.

Bringing It All Home

If there is one idea that ties the series together, it is this: the capital stack is not the point. The cash flows are.

Every layer we have studied exists to do one job, to match the right kind of money, at the right price, in the right order, to a stream of cash the project can realistically, contractually generate. A beautifully engineered stack cannot rescue structurally fragile cash flows. But the right stack, built around sound cash flows, can turn a project that no single investor would touch into one that a whole chain of them will fund.

That assembly is where the developer’s ambitions become a fundable structure.

Not pitching, not optimism, but orchestration: knowing which layer to bring in, to solve which problem, from which investor, in which order, and on what terms. It is unglamorous, patient work, and it is what stands between an idea on a slide and an asset that powers a clinic, moves a cargo, or lights a street.

This thirteenth note brings The Capital Stack Decoded to a conclusion.

Eleven notes to decode the stack, and one more for the green instruments gathering at its edges, one to tie it all together.

Thank you for building through it with me.

It has been a long series, and a deliberately granular one, because the detail is where projects live or die. But if you remember nothing else, remember the order of things.

Get the project real first: the offtake, the permits, the cash flows. Then build the stack around it, layer by layer, each piece chosen to solve a specific problem and to unlock a specific investor.

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Reviewed to Complete This Note

1. Clifford Chance. Boosting Power Generation in Nigeria: The Azura-Edo Independent Power Project. 2016. Project cost, debt and equity split, lender group, World Bank partial risk and liquidity guarantees, and MIGA political risk insurance.

2. Private Infrastructure Development Group (PIDG). Enabling Infrastructure Projects in Nigeria to be More Bankable: InfraCredit Case Study. Guarantor capitalisation, AAA credit enhancement, domestic pension and insurance investors, and bond tenors.

3. World Bank Group and African Development Bank. Senegal: Dakar Toll Road Extension. Public-Private Partnership brief. Concession structure, debt providers, and MIGA guarantee.

4. Public-Private Infrastructure Advisory Facility (PPIAF). Impact Stories: Senegal Dakar-Diamniadio Toll Highway. Total cost, public and private shares, viability gap contribution, and financial close.

5. Africa Energy Portal. The Nigeria Electrification Project (NEP): Scaling Up Mini-Grid Development. Programme size, minimum-subsidy tender and performance-based grants, and local debt tenor constraints.

6. World Bank and Rural Electrification Agency (Nigeria). Distributed Access through Renewable Energy Scale-up (DARES) Project. Successor off-grid programme and grant mechanics.

7. Notes on Project Development. The Capital Stack Decoded: Where Money for Infrastructure Actually Comes From. 2026.

8. Notes on Project Development. The Capital Stack Decoded: DFIs and MDBs, 2026.

9. Notes on Project Development. Decoding Commercial Institutional Debt, 2026.

10. Notes on Project Development. The Capital Stack Decoded: Bonds, The Key to the Domestic Vaults, 2026

11. Notes on Project Development. The Capital Stack Decoded: The Middle Layers of the Stack, 2026

12. Notes on Project Development. Decoding Blended Finance and First-Loss Capital. 2026.

13. Notes on Project Development. Understanding Credit Enhancements. 2026.

14. Notes on Project Development. Taming the Silent Project Killer: Currency Devaluation Risk. 2026.

15. Notes on Project Development. Skin in the Game: The Bedrock Beneath the Stack. 2026.

16. Notes on Project Development. Grants: The Capital Whose Return Is Impact. 2026.

17. Notes on Project Development. The Capital Stack Decoded: Reaching Financial Close. 2026.

18. Notes on Project Development. An Honourable Mention: Green and Climate Finance, 2026.

This twelfth note is an honourable mention, a bonus for a set of instruments that are variants of the different instruments already covered.

They all share one thing in common: They are for projects that produce specific environmental results and benefits.

They deserve an honourable mention because they are becoming more and more popular as the global focus on climate impacts, risks, mitigation and benefits increases.

Where your project delivers such measurable benefits- clean power generated, emissions avoided, forests protected- it can reach pools of capital and streams of revenue that projects without them simply cannot.

However, the core expectations of a financeable infrastructure project must still be true; it is just that, in addition to that, these projects must also prove certain strong environmental and climate impact benefits.

These instruments enhance a bankable project. They do not rescue an unbankable one.

Therefore, treat everything in this note as an edge you add to a project that already stands on its own, not the foundation you build on.

With that, let’s delve into green and climate instruments that can provide financing for your capital stack as well as instruments that can supplement your revenues.

Green and Climate Finance Instruments

Start with the capital. These are, for the most part, the instruments you already know from earlier notes, with a green wrapper and an extra set of obligations. They come in three shapes.

• Use of Proceeds linked - Green Bonds, Loans or instruments. These are ordinary bonds or loans with one defining promise: the use of proceeds is only on eligible green assets, such as renewable generation, clean transport, water, or energy efficiency, or similar projects that meet the required criteria. Social and sustainability bonds extend the same idea to social outcomes or a blend of both.

  For these instruments, the borrower reports, usually every year, on exactly where the money went and the specific environmental results it bought. In behaviour, the instrument is no different from the conventional version we covered in the notes on debt and bonds. The greenness requirements in focus and reporting are a layer of discipline and disclosure on top of everything else.

• Sustainability-linked Green Bonds, Loans or instruments. These are yet another variant of bonds and loans, with a twist. A sustainability-linked loan or bond ties the movement in interest rate to whether the borrower hits pre-agreed sustainability targets, such as a cut in emissions intensity or a share of renewable supply. Miss the target and the coupon rises by predetermined factors; hit it or exceed it and it remains the same. This forces a stricter discipline on the outcomes and the sustainability of the outcomes. Maintaining adherence to the requirements of these instruments requires even stronger compliance post-construction.

  • A caution on the sustainability-linked kind. Because the penalty for missing a target is a higher coupon, a poorly designed sustainability-linked instrument can leave you paying more at exactly the moment a missed environmental target signals the project is already under strain. Set targets ambitious enough to convince investors but genuinely within your control and model the step-up as a real downside in your base case, not a box to tick.

• Dedicated climate funds. Alongside the markets sit the large public climate funds we met in the grants and blended notes, the Green Climate Fund and the Climate Investment Funds chief among them, which deploy concessional debt, equity, guarantees and grants specifically for climate mitigation and adaptation. For a green project, these are often the cheapest and most patient money in the room, and they frequently anchor the first-loss or concessional layer that crowds commercial capital in.

The African Reality, and the “Greenium” Question

Now the honest picture for our market. The African green bond market is real but still small. Since 2013, it has raised in the order of USD 9.6 billion across roughly 76 issuances from about 40 issuers, which is less than one percent of global green bond issuance. South Africa, Nigeria, Morocco, Egypt and the African Development Bank account for around 91 percent of this figure.

The pattern across these deals is familiar from earlier in the series: a credible use-of-proceeds framework, external certification, and often a guarantee to reach investors who would not otherwise buy the risk.

• The greenium is mostly a myth here, for now. In developed markets, a green label can shave a noticeable amount off the coupon. The so-called greenium (green premium), can shave off perhaps eight basis points on a European corporate bond.

  In Africa, that pricing benefit is largely absent. The African Development Bank, with its AAA rating, managed about two basis points on a euro green bond in 2024. African issuers get little or no discount. Worse, the extra cost of certification, verification and reporting can run as high as five percent of a smaller deal, against under one percent in Europe.

  So be clear-eyed about why you would issue green. Today, in our market, it is not to save on the coupon. It is to reach a widening group of investors with green mandates, to build a disclosure track record that will matter more every year, and to access the concessional and guarantee support that increasingly attaches to climate-labelled deals. The pricing benefit may come later. The access benefit is already here.

• What gives them credibility. A green label is only worth something if it is believed, which is why standards matter. Most African issuance follows the International Capital Market Association’s Green Bond Principles, covering use of proceeds, project selection, management of proceeds, and reporting, and a subset goes further and is certified under the Climate Bonds Standard, which applies science-based criteria. An independent second-party opinion on the framework is now almost expected. Skip this, and you invite the one accusation that destroys the value of the label: greenwashing.

  The credibility of your green label expands access to various sources of -often concessional - funding, and that is the key benefit. At least, for now.

• A practical note for smaller developers. You may never issue a public bond, and that is fine. The same green discipline attaches to loans, so a green or sustainability-linked loan from a development bank or a commercial lender with a green mandate is far more accessible than a rated public issue, with lighter cost and the same access benefit. The labelled-bond headlines belong to the big issuers; the labelled loan is where most projects will actually meet this market.

Revenue Enhancing Environmental Attributes

Now we leave the capital stack entirely and cover tradeable instruments that are linked to the environmental attributes of your project. They are instruments that enhance your revenue.

Two common ones are increasing in popularity:

1) Carbon Credits: Paid For Avoiding Carbon Emissions

A carbon credit is not money you raise. It is revenue you earn by proving that your project kept a tonne of carbon dioxide out of the atmosphere or removed it. One credit represents one tonne of carbon dioxide equivalent avoided or removed, and you sell it to someone who wants to offset their own emissions.

There are two markets. The voluntary market, where companies buy credits to meet their own climate commitments, and compliance markets, where credits are used to meet a legal cap. Article 6 of the Paris Agreement is now building the rules for countries to trade credits between themselves, which will increasingly shape the voluntary market too, and introduces the idea of a corresponding adjustment, so a tonne is not counted by both the buyer’s country and the host.

The reason this market exists at all is a wave of corporate and national net-zero commitments. Thousands of companies have pledged to cut or offset their emissions, and when they cannot cut fast enough inside their own operations, they buy credits to cover the gap.

That demand is what gives an African reforestation or clean cooking project a buyer on another continent. It is also why the market swings. When scrutiny of credit quality rises, buyers pull back, prices fall, and projects that banked on carbon revenue are left exposed.

• How a project earns them. The process is demanding, and rightly so. You must prove additionality, i.e. - that the carbon benefit would not have happened without the project -, set a credible baseline of what emissions would have been without you, then Measure, Report and Verify the actual reductions- the discipline known as MRV- and have them certified by an independent standard such as Verra or the Gold Standard. Only then are credits issued to your account, and only then can you sell them. The cost and rigour of this are not trivial, and they scale badly for small projects.

2) Renewable Energy Certificates: Paid for Generating Green Energy

This instrument is becoming increasingly useful and is often confused with carbon credits, so hold the distinction clearly.

A renewable energy certificate (REC) represents the environmental attribute of one megawatt-hour of renewable electricity generated. It pays for the “greenness” of the power itself.

Carbon credits are for emissions avoided or removed.

The clever part is that this attribute can be unbundled from the electricity and sold separately. You can sell the actual power to the grid or an offtaker who pays the tariff per kWh consumed, then sell the REC - the proof that the power generated was from a renewable source - to an entirely different buyer.

That makes two revenue lines per unit of energy generated.

• How it works. You register your generating device, your solar plant or wind farm, with the REC registry through an accredited issuer, and once the generation is metered and verified, one certificate is issued automatically for every megawatt-hour produced, each with a unique serial number recording the source, technology, location, and time. You then sell those certificates to buyers who want them.

• Who buys them, and why it matters here. The buyers are corporations meeting their own clean-energy commitments, reporting on their Scope 2 emissions, or pursuing targets like sourcing 100 percent renewable power, often without owning any generation themselves. A good number of such multinationals already operate in Nigeria.

Earning from Them Requires Consideration and Effort

• Avoid Double Counting or Lose Credibility. Do not sell the same environmental benefit twice. A megawatt-hour of generation – sellable as a REC, and the emissions it avoided, sellable as a carbon credit, can overlap. But you can only sell one or either attribute, not both.

  Selling both to different buyers for the exact same project is double-counting, which destroys credibility fast. Choose the attribute instrument that fits your project, set up to follow the process that suits it, account for it clearly and consistently, and sell it.

• The African picture. Africa issues roughly 50 million tonnes of credits a year and retires about half that, around 16 percent of the global market, which itself is only worth in the region of 2 billion dollars. Supply is concentrated: about half from energy efficiency and fuel switching, mostly clean cookstoves, and nearly half from forestry and land use.

  The Africa Carbon Markets Initiative has set an ambition to reach 300 million tonnes a year by 2030, unlocking up to 6 billion dollars of revenue and millions of jobs, and major buyers have signalled hundreds of millions of dollars of advance demand.

  For an African developer, these attribute certificates can be a source of hard-currency income, since many buyers pay in foreign currency, and that is no small thing in a market where foreign exchange is scarce, as the currency note explored.

• The rules are still settling. The policy scaffolding is being built in real time. Nigeria passed a Climate Change Act and set up a national climate body, the National Council on Climate Change (NCCC), and in October 2025, launched the Nigerian Carbon Market Framework.

  Like several African governments, it is working out how it will authorise and account for carbon credits under Article 6, including the corresponding adjustments that decide whether a credit counts toward Nigeria’s own climate target or the buyer’s. For a developer, the practical point is simple: the question of who owns and may sell a credit is not fully settled, so get ownership and authorisation answered in writing before you count on the revenue.

  The market on the continent for these is still embryonic but the direction of travel is set, and while still tiny, the potential is huge, so you can learn more and position your projects accordingly.

• How a small project actually gets in. For most African projects the way into these attributes markets is not to do all of this alone. Registration, baseline-setting and verification of attributes are expensive and specialised, so developers usually partner with aggregators who carry that cost and share the proceeds or join a programmatic scheme that pools many small activities, thousands of cookstoves or solar home systems, under one methodology. If your project is small, assume you will need a partner or a programme to make attribute income worth the effort.

• Investors treat attribute revenues with caution. The markets are still just shaping up. Prices are low and volatile; sellability is still a challenge. RECs for now have fetched between 2-3 USD/MWh, and exchange-traded prices have fallen from their earlier highs. Because of that volatility, and because of recurring questions about the integrity of some credits, most lenders will not size debt against income from these attribute instruments. They treat them as a project upside, valuable if they come, but kept out of the base case that the debt and institutional equity return expectations rely on. This will be the case for the immediate and short term as the market better organises and sales start to increase and stabilise.

  For now, you must still build your project to work without the carbon credits or renewable energy credits. They are just a bonus that lifts your equity return.

How These Fit the Stack You Have Built

• Green Financing instruments: The green and climate finance instruments sit inside the capital stack. A green bond is still a bond, a sustainability-linked loan is still a loan, and a climate fund can still give debt, mezzanine, equity, guarantees, or grants. Like their more conventional cousins without the “Green” label, the nature of the instruments determines the seat in the waterfall. These green instruments will however, come with an added layer of labelling, disclosure and, sometimes, cheaper or more patient terms.

• Revenue Enhancing Environmental Attributes: Carbon credits and renewable energy certificates do not sit in the stack at all. They sit on the revenue side, improving the cash flows that the whole stack is built to serve. They do not change who gets paid in what order. They change how much there is to pay with, at the margin, if the markets hold up.

• Where to start. Begin with what your project already produces. If it generates renewable power, look first at Renewable Energy Certificates, which are the simplest to issue and can earn hard currency. If it avoids emissions at scale, through clean cooking, methane capture or reforestation, look at carbon credits. For both, find an aggregator. And if you are raising a reasonably large, clearly green capital programme, look at a labelled bond or a climate fund. Match the instrument to the result you genuinely deliver, not to the one that sounds most impressive in a pitch.

Bringing It All Home

Green and climate finance is one of the few areas where African infrastructure has a genuine structural advantage. The continent is rich in exactly the results these instruments reward: abundant renewable resources, vast carbon sink potential, and enormous unmet demand for clean power. The capital and the buyers are both growing, and the developer who understands and positions for these tools early will be ready when the markets deepen.

But they are the garnish, not the meal. The green label does not repay the loan, the carbon credit does not guarantee the tariff, and the certificate does not pour the concrete. They reward projects that were sound enough to be built anyway, and they punish, through the charge of greenwashing, anyone who reaches for the label without doing the real work beneath it.

So do the real work. Build the bankable project, assemble the stack with intention, and then let the environmental results your project genuinely delivers earn you the extra capital and the extra revenue they deserve. That is the green edge, used honestly, and it is a very good edge to have.

The order of things from the rest of the series still rules. Build a project with sound, bankable cash flows first. Then, and only then, reach for the green instruments that fit to widen your investor base, and for the revenue-enhancing instruments to bring you more upside on top.

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Reviewed to Complete This Note

1. FSD Africa. Impact of Green Bonds in Africa. 2025. African green bond issuance volumes, leading markets, Nigeria’s sovereign and corporate green bonds, certification standards, and the greenium.

2. Africa Carbon Markets Initiative (ACMI). Status and Outlook Report. 2024. African voluntary carbon market volumes, prices, supply composition, and the 2030 ambition.

3. Understanding International Renewable Energy Certificates (I-RECs) and Their Role in Nigeria’s Clean Energy Transition. 2022. How I-RECs represent and unbundle the renewable attribute, issuance, and corporate buyers in Nigeria.

4. International Capital Market Association (ICMA). Green Bond Principles. Voluntary standards for use of proceeds, project selection, management of proceeds and reporting.

5. Climate Bonds Initiative. Climate Bonds Standard and Certification Scheme. Science-based criteria for certified green bonds.

6. Verra and the Gold Standard. Voluntary carbon credit standards and verification methodologies.

7. Notes on Project Development. The Capital Stack Decoded: The Key to the Domestic Vault (bonds). Ebun Mesaiyete, 2026.

8. Notes on Project Development. Decoding Blended Finance and First-Loss Capital. Ebun Mesaiyete, 2026.

9. Notes on Project Development. Understanding Credit Enhancements. Ebun Mesaiyete, 2026.

10. Notes on Project Development. Taming the Silent Project Killer: Currency Devaluation Risk. Ebun Mesaiyete, 2026.

11. Notes on Project Development. Grants: The Capital Whose Return Is Impact. Ebun Mesaiyete, 2026.

We started with a summary, then went in depth, working through senior debt, project bonds, the middle layers of mezzanine and subordinated capital, blended finance and first-loss, credit enhancements, currency risk, equity as the residual base, and grants as the catalytic capital that sits outside the waterfall.

If you have read the previous ten notes in the series, you know how each layer behaves, what return it asks for, and where it sits in the order of risk.

But a capital stack neatly arranged on a spreadsheet doesn’t lay a kilometre of road, install a single solar panel, or pour a metre of quay.

Having a commitment on paper from every layer is not the same as having money in the bank. Between a structured deal and a funded deal lies a gap that must still be crossed.

This eleventh note is about Financial close, the successful end of the project development stage.

The moment every commitment across your stack turns capital that is sequenced and cleared to be drawn upon.

Signing the agreements gets you close to the funding, but you are not quite there yet. Reaching financial close is a disciplined, technical exercise in clearing a long checklist of conditions to first draw down, one by one, until not a single item is left.

If one condition precedent remains unmet or un-waived, the committed capital still does not flow.

In this note, I will set out what financial close actually means, how the funds are drawn, the advisers who stand guard over the process, and what most often delays close so you can prepare for and avoid these issues in advance.

Three Milestones, Often Confused

To manage your transaction timeline and budget, you have to separate three events that are routinely run together: commercial close, financial close, and first drawdown.

• Commercial close is when the project company, usually a special purpose vehicle, and its main commercial counterparties sign the core project contracts as relevant for the project. I refer to contracts such as the concession or implementation agreement with the public sector, the offtake agreement or power purchase agreement, the engineering, procurement and construction contract, the operations and maintenance agreement, and the resource supply agreement.

  At this point, the project’s scope, its risk allocation and its revenue model are locked. But no money moves, and construction cannot start, because the financing to pay the contractor is not yet in place. These commercial contracts almost always say, in black and white, that they only become effective once financial close is reached by an agreed longstop date.

• Financial close is when every financing agreement, the facility agreements, the bond trust deeds, the guarantee deeds, the intercreditor deed and the security package, has been fully executed, and every condition precedent has been satisfied or formally waived. At that moment, the lenders’ commitment becomes legally unconditional, the stack is locked, and the company earns the right to issue drawdown notices and funds can now start to flow.

• First drawdown is the operational event that follows, when cash actually moves from the lenders’ accounts into the project’s construction accounts, or straight to the contractor against an advance. It usually comes within days or weeks of close, but it is a distinct step with its own conditions, such as proof that the sponsor’s base equity has been injected and that the upfront fees are paid.

Conditions Precedent: The Lenders’ Checklist

Conditions precedent are the specific documents, actions, and legal states of affairs that must be delivered or verified before a lender is legally obliged to release funds. Once money is inside the special purpose vehicle, the lenders cannot reach back to the sponsor’s wider balance sheet if the project fails. So they use the checklist to confirm that every technical, legal, environmental, and financial assumption in their credit paper is actually true before any cash leaves their hands. A single African infrastructure deal can carry anywhere from fifty to a hundred and fifty of these items.

The checklist falls into a few broad families:

• Corporate and legal: certified constitutional documents, board and shareholder resolutions approving the borrowing, good-standing and tax filings, and verified know-your-customer and anti-money-laundering records for the ultimate owners.

• Project contracts: fully executed offtake, construction, operations, and land agreements, plus direct agreements that give lenders step-in rights to cure a default before a counterparty can terminate a critical contract.

• Equity and Financial: binding equity contribution agreements backed by letters of credit or escrow, a locked and independently audited base-case financial model and confirmed grant approvals. The ninth note in the series about skin in the game covered why this is non-negotiable

• Regulatory, environmental and social: all statutory permits and licences, an approved environmental and social impact assessment, grid or sector approvals, clean land title, and, where communities are affected, a fully implemented resettlement action plan.

• Security and legal opinions: executed and registered debentures, account charges and share pledges, and formal legal opinions confirming the company is validly incorporated, the contracts are enforceable, and the security ranks first.

The Documentation Suite

Financial Close is formalised through an interlocking set of legal agreements. In a multi-lender deal, three pieces do most of the work.

• The common terms agreement. When a project borrows from several lenders at once, say commercial banks, a development bank and a bond guarantor, negotiating separate covenants and defaults with each would be chaos. The common terms agreement solves this. It is the master contract that sits over the whole debt package, setting the shared definitions, representations, covenants, information duties, events of default and conditions precedent that apply to everyone. Each lender’s own facility agreement then sits beneath it as a short document covering only tranche-specific terms: its amount, margin, drawdown and repayment profile. Where capital is raised through a guaranteed bond, the equivalent documents are the programme and series trust deeds, which appoint a trustee for the bondholders and set the coupon and amortisation.

• The accounts structure and cash waterfall. Project lenders control the cash. Rather than let the company hold money in a single open account, they require a ring-fenced set of accounts governed by an account bank agreement. All revenue flows into a collection account and is then swept, in a fixed order, through the contractual waterfall: operating costs and taxes first, then senior debt service, then the debt service reserve account that holds several months of forward cover, then any major-maintenance reserve, then subordinated and mezzanine service, and only at the very bottom, if the covenant tests are met and no default exists, into a distribution account for sponsor dividends.

• The security package. To secure all of this, the company grants a comprehensive package to a security trustee who holds it for every creditor: fixed and floating debentures over its assets, charges and assignments over its accounts, contracts and insurances, and a pledge over one hundred percent of the sponsor’s shares, so creditors can take control of the company in an uncured default without having to break up the asset itself.

Intercreditor Arrangements

When one stack holds several classes of creditors at the same time, i.e., senior banks, development lenders, bondholders, mezzanine providers, and guarantors, providing capital into the same projects, their interests pull against each other. The intercreditor agreement is the heavily negotiated contract that sets the rules of the interplay between all the creditors.

It does a few essential things.

1. It fixes payment ranking, with senior debt ranking highest in priority of payments and junior debt and shareholder loans expressly subordinated, taking nothing until senior obligations are met.

2. It sets voting thresholds, so routine waivers need a simple or required majority, perhaps sixty to seventy-five percent of senior commitments, while fundamental changes, such as moving a repayment date, changing a margin or releasing security, need a supermajority or unanimity.

3. It imposes standstill periods, so that if the company defaults to a junior lender, that lender is barred for a set window, often ninety to a hundred and eighty days, from enforcing, giving the senior lenders time to cure or restructure.

4. It channels enforcement through the security trustee alone, acting on the required majority, so no single creditor can break ranks and disrupt the project.

Where a bond or debt portion is wrapped by a credit guarantor, the agreement usually runs on a non-acceleration basis. If the company cannot pay, the guarantor steps in and meets the scheduled principal and coupon on their original dates rather than the whole debt falling due at once, and keeps the discretion to decide whether to accelerate or let the schedule run. The guarantor is then subrogated to the lenders’ rights, i.e., replacing the lender it guaranteed in the hierarchy of payments and pursues the project company till the funds are recovered.

Drawdown Mechanics

Reaching close unlocks the capital; it does not release it in a lump sum. Lenders manage construction risk through how the money is drawn.

• The first question is the order of equity and debt. On riskier greenfield projects, lenders commonly require front-loaded equity: the sponsor must inject and spend all of its committed equity, and any grant, before a single unit of senior debt is drawn, so that early failure falls on the equity. On lower-risk or credit-enhanced deals, they may allow pro-rata drawdown, where each construction payment is split in the agreed ratio, say seventy percent debt to thirty percent equity, provided the sponsor’s future equity is secured by a letter of credit or an equity subscription guarantee. Lenders often also require standby contingent equity, perhaps five to fifteen percent of cost, callable to cover overruns.

• The second is the drawdown schedule. Once debt is available, it is released against verified progress, not on request. To draw, the company submits a drawdown request supported by a contractor’s work-completion certificate, the lenders’ engineer’s certification that the work meets specification and that the remaining funds are still enough to finish the job, and confirmation that no default has occurred and nothing has changed materially. Only then does the agent instruct the lenders to disburse.

Two further mechanics protect the lenders here.

1. The construction contract carries liquidated damages, so the contractor pays for every day of delay and for any shortfall against the performance it guaranteed, and the company withholds a retention, typically five to ten percent of each payment, releasing half at completion and the rest only after the defects period has run.

2. Separately, a sponsor who wants to defer its own cash may arrange an equity bridge loan, a short facility that funds early construction in place of equity and is repaid when the equity is finally called. It lifts the equity return, but it adds cost and one more lender to the structure.

The Advisers Who Guard the Gate

Lenders do not take the developer’s word, or the contractor’s brochure. They hire their own independent advisers to audit the project, and these advisers are the real gatekeepers of close.

• The lenders’ engineer audits the design, the construction budget, and the contractor’s capacity, issues the technical due diligence report before close, and then inspects the site and signs off every drawdown during construction.

• The lenders’ legal counsel drafts the common terms agreement, the facilities, the security, and the intercreditor deed, and issues the formal legal opinions confirming the company is validly incorporated and the whole package is enforceable.

• The model auditor runs a line-by-line audit of the financial model, checking the arithmetic, the logic, the tax and accounting treatment, and that the model matches the signed contracts, then issues a model audit certificate confirming that the debt service and loan life coverage ratios still hold under the agreed downside cases.

• The insurance adviser confirms the construction and operating policies are in force with sound insurers and that the lenders are named as loss payees.

• The environmental and social adviser confirms the project meets the applicable standards, such as the IFC Performance Standards, AfDB Operational Safeguards, the Equator Principles, and National Environmental laws.

One point catches many first-time developers by surprise: you pay for all of them, and you pay whether or not the deal closes. Negotiate scopes and fee caps in the mandate letter, and, where you can, use a grant-funded project preparation or technical assistance facility to carry these costs and fold them into the transaction at close.

What Delays Close, and How to Prepare

Even with everyone trying, the road from commercial close to financial close in Sub-Saharan Africa routinely runs from six to eighteen months, and sometimes longer. A few bottlenecks cause most of the delay.

The most common is regulatory documentation. Permits, environmental clearances, land title, and rights of way take far longer than developers expect, and lenders rarely waive them because operating without them is illegal. The fix is to map every permit at the very start of development and begin filing early, not after commercial close.

The second is weak contracts and a mismatch between the contracts and the model. Unenforceable contracts, poorly written contracts or contracts that do not match the financial model. A late tweak to a tariff formula or a cure period, agreed by the lawyers, can contradict what the model or a covenant assumes, and the model auditor will stop the process until it is reconciled. Keep your legal and modelling teams in lockstep, and re-run the model every time a commercial term moves.

The third is unresolved resettlement compensation. Where a site displaces people, lenders holding to international standards will not close until the resettlement plan is implemented and compensation is paid or escrowed. Treat the social licence as a core technical deliverable, consult early, and document every payment.

Others recur too. In public-private deals, securing a government payment undertaking, such as a state’s Irrevocable Standing Payment Order against its statutory federal allocations, must pass through a long political approval chain. Counterparties resist signing the direct agreements that give lenders step-in rights. And over-aggressive tariff or leverage assumptions collapse the moment the auditor runs a proper downside case.

The developers who close fastest prepare as if every one of these will happen. They build an indexed virtual data room early, run their own due diligence to find the title, permit, and contract gaps before the lenders do, and stress-test the model against real downside: a capital-cost overrun, a construction delay, a devaluation, rather than admiring the upside case.

Above all, they run their development in clear stages, from concept through viability, contracts, structuring and close, so that each piece is settled in its turn and nothing critical is left to assemble in the final weeks. A deal that reaches the closing room with its permits, title, contracts and model already clean has very few conditions precedent to close and can get to financial close and first drawdown much faster.

Bringing It All Home

Everything this series has discussed- the senior debt and the bonds, the middle layers and the blended first-loss, the guarantees, the hedges, the equity and the grants- stays theoretical until financial close welds it into one funded, working structure.

For the African developer, the real lesson is that financial close is won in the months before, in the discipline of the project development. It is not the enthusiasm of your pitch that gets you across the line; it is the completeness of your permits, the cleanliness of your data room, the robustness of your contracts, the rigour of your model, and the patient clearing of every condition precedent until none is left.

Master these, and you become a developer who turns a structured stack into steel, concrete, and service that will stand for decades.

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Reviewed to Complete This Note

1. E. R. Yescombe. Principles of Project Finance. 2nd edition, 2014.

2. John Dewar. International Project Finance: Law and Practice. 2nd edition, 2019.

3. Scott L. Hoffman. The Law and Business of International Project Finance. 2nd edition, 2007.

4. John D. Finnerty. Project Financing: Asset-Based Financial Engineering. 3rd edition, 2013.

5. Frank J. Fabozzi and Carmel de Nahlik. Project Financing. 8th edition, 2012.

6. Jeffrey Delmon. Innovative Funding and Financing for Infrastructure. Palgrave Macmillan and the World Bank, 2017.

7. Farid Mohamadi. Introduction to Project Finance in Renewable Energy Infrastructure. Springer, 2021.

8. OECD. Unlocking Local Currency Financing in Emerging Markets and Developing Economies. 2025.

9. British International Investment and Boston Consulting Group. Scaling Blended Finance: Practical Tools for Fund Design. 2024.

10. MOBILIST and 18 East Capital. Scaling Securitisation in Development Finance. 2024.

11. Notes on Project Development. The Capital Stack Decoded: Where Money for Infrastructure Actually Comes From. Ebun Mesaiyete, 2026.

12. Notes on Project Development. Decoding Commercial Institutional Debt. Ebun Mesaiyete, 2026.

13. Notes on Project Development. The Capital Stack Decoded: The Middle of the Stack. Ebun Mesaiyete, 2026.

14. Notes on Project Development. Skin in the Game: The Bedrock Beneath the Stack. Ebun Mesaiyete, 2026.

15. Notes on Project Development. Grants: The Capital Whose Return Is Impact. Ebun Mesaiyete, 2026.

16. Notes on Project Development. The Bankability and Readiness Checklist. Ebun Mesaiyete, 2025.

17.Notes on Project Development. From Debt Structuring to Financial Close Ebun Mesaiyete, 2025.

34 new subscribers joined over the last 90 days, including readers from new locations in the Democratic Republic of Congo, Zambia, Singapore, and Malaysia.

I welcome all of you again!

We have now grown to 165 subscribers from 20 countries!!!

My absolute pleasure to be able to reach all of you this way.

Over Q3 2026, I have been writing “The Capital Stack Decoded,” and it has been quite a learning experience for me as well, through research from the internet, books, and colleagues, so I can share more here.

As subscriber count has risen, the open rate at 38.82% has held steady close to 40%, meaning older subscribers are still reading even as new ones come on board.

I have written 10 notes so far on this series, with 3 more notes coming in the month of October to round it all up.

As we prepare to complete the last quarter of 2026, I wish you a strong finish for the year, that all you have worked for thus far comes to fruition, and that you see and enjoy the success you are aiming for.

Have a fantastic Q4, and I look forward to celebrating your wins at the end of the year!

Sincere Regards

Ebun

P.S. See notes written this quarter. Read, Reread, Share, Learn Enjoy

Every one of those layers, for all their differences, shares one feature. Each of them sits inside or alongside the project company’s waterfall and expects something back. A coupon, a margin, a dividend, a fee, or a premium, something financial.

They are commercial or semi-commercial actors, and their participation is governed by a financial return, no matter how little.

This tenth note is about the one kind of capital that expects none of that: grants, the non-repayable end of the capital spectrum.

Here is the distinction to hold onto. Unlike every other layer we have covered, a grant sits entirely outside the repayment waterfall.

But do not mistake that for free money. Grants come with conditions, public-policy mandates, and milestone obligations of their own.

They are not merely cheap capital; they are catalytic capital that changes what the rest of the stack will show up for.

In this note, I will set out what a grant actually is, the common forms they take, who provides it, how you go about accessing it, and the one rule that matters most: a grant should de-risk or catalyse a project, never disguise an unviable one.

What a Grant Actually Is

A grant is “free” capital given to a project, an operating platform or a development vehicle.

The simplest way to understand its power is to look at how it behaves inside the project company’s accounts, and to notice everything it does not do.

When a bank provides senior debt or a fund injects equity, each creates a contractual claim on the project’s cash, on the cash available to service debt, or on the residual profits. A grant creates no such claim:

• No debt claim. Grant providers receive no debt service, hold no security over the assets, and trigger no cash sweeps or default covenants.

• No ownership. Grants buy no shares in your company. They dilute nobody, take no board seat, and carry no vote over how you run the business.

• No liquidation claim. If the project fails, the grant provider recovers nothing. The money was spent with no expectation of return.

Non-Financial Returns of Grants: Impact and Additionality

If a grant provider expects no financial return, what do they want in exchange?

Impact: The total positive social, environmental, or economic outcomes generated by a project or enterprise. It looks at the absolute metrics achieved on the ground—such as the number of rural households connected to power, metric tons of CO₂ emissions avoided, or local jobs created

Additionality: is the core principle that public or concessional support must fund outcomes or mobilize private capital that would not have occurred under standard commercial conditions alone.

• Financial additionality: Providing financing or terms absent in the market to correct inefficiencies and crowd in private investors who would otherwise not participate

• Development additionality: Achieving social, environmental, or systemic impacts that go beyond business-as-usual and would not happen without intervention

Impact asks what the total scale of the positive social benefits are; additionality asks if they were only possible because the grant came in.

Meaning if a commercially viable project could create similar impact without the grant, then there is no additionality.

Reporting expectations enforced by a grant agreement require their own discipline. In place of a debt service cover ratio, a grant will still require reporting against pre-agreed impact indicators that show this additionality, for example, tonnes of carbon avoided, households connected, or other agreed social and non-financial benefits.

The Four Forms Grant Capital Takes

Grant capital shows up through four distinct instruments, each aimed at a different bottleneck in the life of a project.

• Viability gap funding and capex subsidies. An upfront capital grant that bridges the gap between what a project costs to build and what it can commercially support. It is usually disbursed during construction to cover a slice of the capital cost, often somewhere between 10 and 40 percent, and it matters most where public policy insists that end-user tariffs stay low and affordable, in rural electrification, mass transit or water. Because those tariffs cannot service a fully commercial debt, the grant permanently writes down the capital base so the remainder can be carried by an affordable tariff. Facilities such as PIDG deploy this kind of grant to offset heavy civil-works and grid-connection costs, keeping the final cost of energy or transport within the regulator’s cap.

• Project preparation and technical assistance. Grant funding aimed at the earliest, riskiest stage of all, the expensive soft costs before a project is even bankable: feasibility studies, geotechnical surveys, legal drafting of offtake agreements, model audits, environmental and social assessments. Commercial banks will not fund this work, because if the project never reaches close, the money is simply gone. Technical assistance grants do the equivalent job after investment, funding capacity building alongside an operating platform. And an efficient variant, the reimbursable preparation grant used by the likes of InfraCredit’s project development facility and FMO’s repayable development contributions, provides a zero-interest grant for advisers that the developer pays back only if the project reaches close, so the money recycles into preparing the next one.

• Results-based and output-based grants. Unlike the first two, which pay out upfront, a results-based grant pays after the fact, once delivery is independently verified. An agent audits performance, and only when a specific output is confirmed- a solar home system installed and active, a cubic metre of water treated, a tonne of carbon reduced- does the provider release a pre-agreed grant. Sitting alongside the stack as a predictable, performance-linked top-up to customer collections, it lifts the project’s cash available to service debt, which in turn lifts the coverage ratio and lets senior lenders size a larger loan against the project.

• Catalytic first-loss and returnable grants. As we saw in the note on blended finance, a donor grant can be built into a blended vehicle to do the work of a credit enhancement. As a first-loss tranche, the grant is designated as junior capital or held in a reserve, absorbing the earliest losses so that senior commercial investors are protected. A returnable grant goes a step further: a zero-interest, flexible amount that only has to be repaid if the project or venture hits a defined success, such as securing scale-up debt or turning cash-flow positive. Vehicles that use first-loss returnable layers to soak up early portfolio defaults and crowd in commercial debt are becoming a familiar feature of African off-grid and agri-finance structures.

Who Provides Grants

Grant money flows from a specialised ecosystem: multilateral climate funds, project preparation facilities, bilateral donors, and, increasingly, domestic government programmes.

• Multilateral Climate Funds. The largest pools of global concessional capital, set up by international agreement to finance climate mitigation and adaptation in emerging markets. The Green Climate Fund, the largest of them, deploys grants, concessional equity and technical assistance through accredited entities such as the African Development Bank and the IFC, funding preparation facilities, first-loss tranches and adaptation grants across the continent. The Global Environment Facility provides non-repayable grants and technical assistance for renewable energy, land restoration and nature-based infrastructure, often seeding the launch of whole blended-finance facilities.

• Project preparation facilities. These exist precisely to address the shortage of bankable, investment-ready projects. PIDG’s technical assistance and its developer InfraCo Africa use public grant capital to fund feasibility work and co-fund early soft costs alongside private sponsors. Regional facilities such as the Development Bank of Southern Africa’s preparation facility and the NEPAD Infrastructure Project Preparation Facility, hosted at the African Development Bank, deploy grant funding every year to prepare regional energy, transport and water projects.

• Bilateral donors. Development agencies channelling official assistance to build markets in partner countries. European donors including the EU’s Fund for Sustainable Development, Agence Francaise de Developpement and the Dutch development bank FMO, whose climate-and-development fund pays non-governmental organisations to develop the business case before commercial capital arrives. Programmes run by US and UK agencies have long funded technical assistance, challenge funds and design grants in the same way. The politics and budgets behind bilateral money shift, sometimes sharply, so treat these as a category whose appetite you must check afresh each time rather than assume.

• Domestic results-based schemes. African governments are increasingly building their own donor-backed grant execution agencies, and Nigeria’s Rural Electrification Agency (REA) is a leading example. Building on the earlier 550 million dollar Nigeria Electrification Project, the World Bank-backed Distributed Access through Renewable Energy Scale-up (DARES) Project is a 750 million dollar results-based financing grant scheme to scale off-grid solar, mini-grids, and productive-use equipment in unserved and underserved areas in Nigeria’s rural and peri-urban areas.

  Through the REA, the government deploys performance-based grants to private developers. That grant layer provides revenue assurances, which lets a developer raise lending from banks. It is grant capital doing exactly what it should: making the commercial layers possible.

• Philanthropic foundations. Large private foundations are significant sources of grant funding. The Bill and Melinda Gates Foundation, the Mastercard Foundation, the Rockefeller Foundation, the Shell Foundation and the IKEA Foundation deploy grants, catalytic first-loss capital and technical assistance, usually where a project carries strong social impact in energy access, agriculture, health or financial inclusion. Their money tends to be patient and risk-tolerant, willing to fund the pioneering work that commercial capital will not touch. But it is tightly bound to a mission and a theory of change, so a foundation will back your project only where its outcomes align squarely with the change it exists to create.

• Competitive grant windows and challenge funds. Increasingly, grant capital is not awarded quietly but competed for. A funder opens a window against a defined theme, publishes its eligibility and scoring criteria, invites applications for a fixed period, then closes it and selects the projects that fit best. Challenge funds such as the Africa Enterprise Challenge Fund work this way. The model rewards preparation over relationships. You must track the calendar, meet the stated criteria exactly, and have a fundable project ready before the window opens, because these rounds close on a date, not on your readiness.

How to Access Grant Capital

Winning and using grant money calls for a different strategy from pitching a bank or a fund. A grant officer is not judging your deal on a market-clearing return; they are judging it on additionality, mandate alignment, and verified impact. These things matter.

• Prove your additionality, honestly. Additionality is the supreme test in grant underwriting. Providers are barred from crowding out commercial capital or subsidising projects that could stand on their own, so you must show that without the grant the project cannot reach close, the tariff needed to service commercial debt would be unaffordable, or the early risks are simply too high for a commercial lender to bear.

  Overstate it, and you will be found out in diligence; understate it, and you will not qualify.

• Match your outcomes to the funder’s mandate. Grants are strictly earmarked. A climate fund cannot back a project with no carbon metric; a gender-focused facility cannot fund a platform with no women-owned-business indicators. Your application has to be written to the funder’s own theory of change, with a clear results chain from grant-funded inputs to measurable outputs and long-term impact, without contorting the project into something it is not.

• Structure for milestone-based disbursement. Providers rarely wire the full amount at once. A preparation grant might release, say, a fifth on signing and the inception report, half on delivery of the feasibility study and environmental assessment, and the balance on reaching commercial close or signing the offtake agreement. A results-based grant pays only after an independent agent has physically verified that the connections are live. Either way, you need the working capital or bridge financing to reach the milestone before the grant against it arrives.

• Track and report from day one, before and after. Impact and additionality are before-and-after claims, so you have to be able to evidence both ends of it. Capture a clear baseline before the grant- the situation as it stands without the money- then measure and report against the agreed indicators once it is deployed. Strong reporting is not box-ticking. It is how you prove the grant was genuinely needed, how you unlock each milestone disbursement, and how you build the credibility to win the next window. Weak or late reporting is one of the fastest ways to lose a funder's trust.

You Do Not Have A Business If It Cannot Transition Beyond Grants

Let me share two conversations I had within the past two months.

• Conversation one: A renewable energy company CEO asked me if the government gives grants to expand Mini grids when customer demand has exceeded the capacity that was provided. They had a mini grid in an area that needed an additional 500 kWp over the system that had been built, backed by grants initially.

  I asked him why the government should redirect grants from locations that are yet to benefit to one that has exceeded its capacity. I asked him why the tariffs collected already and the new tariffs projected to be collected by the new demand could not be enough to fund the expansion. I asked why the project couldn’t be modelled to be viable on its own if the demand was so great as to lead to capital expansion of the site?

• Conversation two: A founder asked me if the government can give grants to launch their charging station business for electric vehicles. I asked him where the project was located and if it was for motorcycles or tricycles, common for low-income earners. He told me it was in the capital of a state in Nigeria, with a high density of high-net-worth people, and targeted toward electric cars.

  I asked him why the government should subsidize the rich when there are communities with limited access that the government should prioritize. Shouldn’t the petrol fuel savings achieved by electric car buyers in a busy commercial city be able to pay enough to cover the cost of building the charging stations?

  • The first had demand grow far above what had been built, initially backed by grants, demonstrating strong capacity for tariff collection that could be sized to repay the funding on that expansion.

  • The second had an already viable business model that no grantor would have considered because it had no additionality and social impact present.

Was I too harsh in my feedback? Consider these realities.

1) Grants are to catalyse the rest of the stack, not replace them.

Because a grant enters without claiming any of the operating cash, it improves the numbers for every commercial investor sitting inside the waterfall. Take a simple case. A project needs 10 million dollars to build, but its revenues can only ever service 7 million dollars of commercial capital. On those terms, that project is unbankable, and no investor will touch it.

Now put a 3 million dollar capital grant in at the top. The commercial requirement drops to the 7 million the revenues can actually carry, the lenders’ coverage ratio recovers, and the institutional sponsor’s return clears its IRR hurdle.

That 3 million dollar grant did not replace the commercial capital in the stack. What it did was create the conditions in which a commercial stack could exist at all.

That is the whole point of catalytic money.

Grants are there to de-risk, to catalyse, and to build a track record.

They absorb the early friction of proving a business model and help bridge affordability gaps in lower-income locations.

2) Free grant money is shrinking fast.

Global official development assistance fell by around 23 percent in 2025, its largest annual contraction on record and the second consecutive year of decline. The single sharpest cause was the United States. Following the dismantling of USAID, which had channeled roughly 60 percent of American foreign assistance and disbursed more than 40 billion dollars a year, close to 86 percent of its awards were terminated, and US development assistance fell by about 57 percent in a single year.

Other major donors, in the United Kingdom, France, Germany and the Netherlands, are trimming their own aid budgets, with whole programs being dismantled entirely and staff being laid off.

Many of the popular donors are openly revisiting how they use what remains, shifting away from open-ended grants toward reimbursable, results-based and blended instruments that recycle scarce concessional money instead of giving it away completely.

The lesson for a developer is blunt. Grants will be scarcer, more contested and more conditional. You must design as though the grants will not be renewed.

If your basic business model needs a permanent, continuous application of grants with no clear path to standing on its own, you do not have an infrastructure business. You have a public welfare program, and you should name it and fund it honestly as one.

3) Leaning too hard on grant money creates its own failure points.

• Developers who survive entirely on preparation grants can lose the commercial edge they need to negotiate hard contracts.

• Grants poured into a sector can crowd out the legitimate, market-priced businesses trying to build something durable, creating an artificial ecosystem that collapses the moment donor or government priorities move on.

• An ecosystem that develops primarily through grants must scale the grants to grow, because commercial capital, especially equity, which is the most risk-taking, sees no real growth potential that can multiply their investments

• A project that relies on a multi-year operational grant to meet its debt service hits a cliff the day that grant expires, defaulting on its lenders unless real revenues have grown to fill the gap.

The ultimate test of well-used grants is the graduation of the project, business, and sector from grant dependence to commercial attractiveness.

The grant absorbs the pioneer risk, funds the proof of concept, extends access to the unserved, builds the local capacity, but must do it in a way that proves that viability without it is possible so that the business building these sites can raise commercial debt, or attract institutional equity at scale.

Grants are not to paper over a business model and commercial structure that does not work.

Bringing It All Home

Grants are the strangest capital in the stack, because they are the only kind that asks for no financial return. No coupon, no dividend, no principal, no shares. That does not make them free. In place of a financial return, a grant asks your project and your business to deliver impact and additionality that align with the donor’s mandate, and that you provide evidence that proves this.

Keep in view what a grant is for, and what it is not.

It is to absorb a risk or bridge a gap no commercial investor will touch: the soft costs of reaching bankability, the affordability gap between what an asset costs and what a low-income user can pay, the first losses in pioneering a business model. It buys down that risk so that repayable capital can come in behind it.

What it is not is permanent. It is not there to keep an unviable business model breathing.

That is the discipline I would leave you with. The measure of a good grant is not how much money it brought in. It is what it made possible after it was spent.

Grants have to be a bridge to standing on your own commercial legs, not a crutch you never put down.

So when you go looking for grant money, go looking with that in mind. Prove your additionality honestly. Match your outcomes to the funder’s mandate without bending the project out of shape. And carry a clear plan for how you transition to commercial capital once the grant has done its work.

Get these right, and grants do exactly what they are meant to do. They de-risk the pioneering work, build the track record, and hand the project over to the rest of the stack, where return-seeking capital can finance your pipeline at scale, on its own merits.

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Reviewed to Complete This Note

• World Bank and Rural Electrification Agency (Nigeria). Distributed Access through Renewable Energy Scale-up (DARES) Project. 2023 to 2025.

• Green Climate Fund. Grant, concessional and project-preparation instruments through accredited entities.

• Private Infrastructure Development Group and InfraCo Africa. Technical Assistance and early-stage project development.

• NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF), African Development Bank; and Development Bank of Southern Africa Project Preparation Facility.

• Overseas Development Institute. Concessional but Catalytic: Insights on DFI Blended Concessional Finance. 2021.

• OECD Development Assistance Committee. The Role of Catalytic Technical Assistance in Unlocking Private Sector Capital. 2025.

• FMO. Technical Assistance Facility and Dutch Fund for Climate and Development (DFCD). 2023.

• Shamba Centre for Transitions. Unleashing the Catalytic Power of Donor Financing. 2023.

• Convergence. Blended Finance Case Studies. 2022 to 2025.

• Investisseurs & Partenaires and Argidius Foundation. How Can African SME Funds Mobilise More Capital? 2025.

• OECD. A Historic Decline in Foreign Aid: Preliminary 2025 ODA Data. 2026.

• DevelopmentAid. One Year On: What the Collapse of USAID Has Cost the World. 2026.

• Notes on Project Development. Decoding Blended Finance and First-Loss Capital. Ebun Mesaiyete, 2026.

• Notes on Project Development. Understanding Credit Enhancements. Ebun Mesaiyete, 2026.

• Notes on Project Development. The Capital Stack Decoded: The Bedrock Beneath It All (equity). Ebun Mesaiyete, 2026.

• Notes on Project Development. The Capital Stack Decoded: Where Money for Infrastructure Actually Comes From. Ebun Mesaiyete, 2026.

That each layer sits on top of something and is protected by the layers beneath it.

But there is a foundational layer, one that all else rests on. The layer that rests on nothing else.

That bedrock layer is equity.

No senior lender disburses a kobo, no bond gets listed, no mezzanine facility bridges a gap, and no guarantor issues a credit enhancement until a solid base of equity is committed at the bottom of the structure.

Equity is the risk capital that must go in first and gets paid last. It absorbs the earliest shocks of development, construction, and operation, and it is the foundation on which every other layer is priced.

It is the irrefutable evidence of your “skin in the game”. The proof that you also have something meaningful to lose if things go wrong.

This note, the ninth in the series, focuses on equity.

It sets out what equity really is, the forms it takes, how the investors who provide it actually think, why lenders insist that equity moves first, and why a “bankable” project is not automatically one a private equity investor will want to own.

What Equity Really Is

In project finance, equity is the true ownership capital put in by sponsors, developers, and financial investors.

It sits at the very bottom of the cash flow waterfall of repayments and rewards while the project operates, and it is the first in line for liquidation to repay losses if the project fails.

• The residual claim, and the ultimate loss cushion. Equity’s defining feature is that its claim is residual. Every month, project revenues flow into the special purpose vehicle and are paid out in a strict order: operating and maintenance costs first, then senior debt service, then the reserve accounts the lenders require, then mezzanine debt. Then shareholders get paid from whatever is left at the very end of that queue, if anything is.

  Because it sits last, equity is the ultimate loss cushion for the whole project. If construction costs overrun, if a tariff comes in below the model, if a turbine fails, equity absorbs the loss before any lender above it feels a thing. In a full default or wind-up, common shareholders are paid only after every lender, contractor, tax authority, and preference shareholder has been made whole. Often that means they are not paid at all.

  This is the bargain that equity strikes: that it takes the worst of the downside in return for keeping all of the residual upside.

• Equity sets the price of everything above it. Because equity carries the ultimate risk with no contractual coupon and no collateral to fall back on, it demands the highest return in the stack. And that requirement ripples upward through every other layer.

  When an equity investor sets a target return of, say, 2x or 3x the funds allocated, that expectation becomes the anchor for the project’s whole weighted average cost of capital. Senior lenders then look at how thick the equity cushion is beneath them, the debt-to-equity ratio, to decide their own margin. A thin equity layer, much below 15 percent of project cost, reads as weak sponsor conviction and pushes lenders either to charge more or to walk away.

  A thick, credible equity commitment does the opposite: it signals conviction, deepens the buffer against shocks, and lowers the risk premium every lender above it needs, subject to policy and other credit pricing constraints.

The Spectrum of Equity

Not all equity is the same. In a real transaction, it is layered across a spectrum of seniority, control, and return, from the safest quasi-equity down to the most basic form of common shares.

Above common equity sit the hybrid instruments that bridge the gap between early developers and incoming institutions:

• Shareholder loans. Sponsors often inject a large part of their equity as subordinated shareholder loans rather than pure shares. To the senior lenders, these behave like equity, because the intercreditor agreement fully subordinates them. To the sponsor, they are more tax-efficient, letting cash come out of the SPV as interest before common dividends are permitted.

• Convertible notes and warrants. Common in early-stage energy and platform deals. They start life as debt but let the investor convert into equity when a trigger is hit, such as reaching commercial operation or a target valuation, a way to bridge what an early developer believes the project is worth and what an incoming investor will pay today.

• Preference shares. Hybrids that rank above common equity but below all debt. They usually carry a fixed, cumulative dividend, often in the 8 to 12 percent range, that must be paid before any common dividend, and on a wind-up they recover their capital, sometimes a multiple of it, before common holders see anything.

• Common, or sponsor, equity. This is the foundational ownership of the SPV, usually held by the project sponsors, the original developers and the lead financial partners. It carries full voting control and an uncapped claim on the long-term growth and residual cash flows of the asset. It is also the most exposed capital in the deal; in a restructuring, it can be wiped out entirely. Early developers sometimes earn a slice of it as sweat equity, a carried stake in exchange for the ideas, the early work, and the risk they took before anyone else would, which aligns them with the institutional investors who arrive later.

Third-Party Equity: Development Investors and Private Equity Funds

You will likely need to raise equity beyond your own balance sheet; to do this, you are looking at external sources or third-party equity, and there are two main categories of third-party investors.

• Development equity investors. The bilateral and multilateral DFIs, British International Investment, Norfund, Proparco, FMO, the IFC, InfraCo Africa and their peers, put equity directly into projects and platforms. They bring patience, environmental and social rigour, and a measure of political risk cover. They usually take minority stakes in project SPVs, roughly 10 to 30 percent, and typically deliberately stay out of operational control so they can signal credibility and crowd in other private money behind them.

• Private equity/infrastructure funds. Commercial and impact funds such as African Infrastructure Investment Managers, Metier, Aruwa Capital, ARCH Emerging Markets Partners and Adenia raise money from institutional investors and deploy it into equity stakes. They are bound by fund mandates, fixed fund lives and hurdle rates, so they need a clear route to creating value and, above all, a clear route to exit.

How Private Equity Thinks

If you want to raise equity from a fund, you have to understand the clock they work against and the numbers they are judged on.

• The fund life and the J-curve. Most infrastructure private equity funds are closed-end vehicles funded by limited partners for a finite lifespan of ten to twelve years. This lifespan is broken down into phases as follows:

  • Investment Period (Years 1 to 5): The fund manager (General Partner / GP) calls capital from institutional investors (Limited Partners / LPs) to acquire or construct assets.

  • Holding and Value Creation Period (Years 3 to 8): The GP works with management to construct the asset, optimize operations, expand capacity, and build cash flows.

  • Divestment Period (Years 6 to 12): The GP exits portfolio investments and returns capital and profits to the LPs.

  During the initial years, net fund returns are negative due to management fees, transaction expenses, and unmitigated construction risk. Equity investors are hyper-focused on accelerating capital deployment and operational ramp-up to climb out of the investment period into the value creation and divestment periods.

  That dip and eventual recovery is the J-curve. It explains a great deal of investor behaviour: they are in a hurry to deploy and to get assets operating, because every year spent in the bottom of the “J” is a year of return they cannot get back.

• The internal rate of return, the IRR, is the annual compound return, and it is time-sensitive: the faster the exit, the higher it looks. In Sub-Saharan African infrastructure, commercial funds typically target gross dollar IRRs from the high teens to the mid-twenties and beyond, to compensate for country, currency, and construction risk.

• The Multiple on Invested Capital, the MOIC, is the blunter number that funds are judged on. This is the total cash back divided by total cash in, regardless of time. An investor chasing a 20 percent IRR over five years is looking for roughly two and a half times their money; push the target to 25 percent, and it is closer to three times. The industry has a saying that captures why both numbers matter: you cannot eat IRR. A fast exit flatters the percentage, but investors ultimately live on the absolute cash that comes back.

• The African reality: longer holds, and permanent capital. The standard fund model assumes a five- to seven-year hold. African infrastructure rarely obliges. Smaller secondary markets and opportunities for sale, along with currency and macro shocks, routinely stretch holds to twelve or fifteen years; some early infrastructure and SME funds in the region needed the better part of two decades to fully exit their portfolios. The market is adapting. There is a clear shift toward permanent capital vehicles and holding-company structures, open-ended investors with no hard liquidation deadline that recycle cash from dividends and partial sales and can hold an asset for fifteen years or more without being forced into a premature sale. For patient, cash-yielding infrastructure, that structure often fits the asset far better than a rigid ten-year fund does.

• Exit routes. An equity investor only earns its return when it gets out of the deal. So before it comes in, it will want to see at least two credible ways out. In our market that usually means one of these:

  • A trade sale to a strategic operator, a regional or global player looking to expand its footprint by buying an operating asset, or a sale back to the original sponsors.

  • A secondary sale of the now de-risked, operating asset to a long-term yield investor, a secondary fund or a pension-backed vehicle that wants stable dividends rather than construction risk.

  • A refinancing into a listed yield vehicle, aggregating operating assets into a listed yield company or a real estate investment trust, as Acorn did with student housing in Kenya.

  • A public listing on a regional exchange. It happens, but thin public-market liquidity keeps such listings rare in African infrastructure, so few investors will underwrite a deal on the promise of one.

Realities When Seeking Equity For Your Project

1) The Tension of Leverage

Once you decide to fund a project with both institutional debt and institutional equity, know that equity and debt will pull in opposite directions on a single number: That number is your leverage, i.e., the ratio of how much of the total is borrowed to how much is equity.

This tension shapes the whole structure.

• Equity wants higher leverage: Because equity’s return is measured against the cash you actually commit, borrowing more of someone else’s money lifts the return on equity. If a project earns a 15 percent return overall and you have borrowed at 10 percent, everything the borrowed money earns above its cost flows to your thin slice of equity, and your return on that slice climbs well past 15 percent.

  That is the whole appeal of leverage for equity: it amplifies the return on the capital that is put at risk.

• Lenders want lower leverage: To them, high leverage reads as high risk, and for a simple reason: leverage amplifies losses exactly as it amplifies gains. A thin equity layer means there is very little of your money underneath their loan to absorb a shock before it reaches them. So they push the other way. They want you to inject meaningful equity, partly so you have real skin in the game and stay aligned when things get hard, and partly so that a thick equity cushion protects them. If the project underperforms or its value falls, your equity takes the blow first, all the way down, before a single naira of their debt is touched.

• Managing this Tension: Because of that pull, the final ratio is one of the most heavily negotiated numbers in the deal. A safe and standard range for infrastructure project finance runs roughly from 60:40 to 85:15, debt to equity. Where you land inside that band depends on how predictable the cash flows are: a project with a strong, contracted offtake and a stable tariff can carry more debt, while a merchant or demand-exposed project will be pushed toward more equity. Lenders rarely let equity fall below about 15 percent, because below that the cushion is too thin and your commitment too small for their comfort.

  In practice, the debt service coverage ratio is where this tension gets settled.

  Rather than argue leverage in the abstract, lenders size the debt at the level that keeps the debt coverage above their required floor through good years and bad, then tell you to provide the remaining project costs as equity.

  So the leverage ratio you end up with is not really chosen; it is the arithmetic result of how much debt your cash flows can safely carry, and how much equity you must put in to make the lenders comfortable with the rest.

2) Bankable For Lenders Is Not the Same as Attractive For Equity

One of the most expensive misunderstandings I see in emerging developers is the assumption that a bankable project is automatically one an equity investor wants to partake in.

A lender and an owner can read the exact same information memorandum and reach opposite conclusions, because they are looking for opposite things.

• What lenders want: no downside. A senior debt provider receives a fixed interest coupon. They do not share in any excess profits if your solar plant generates 30 percent more electricity than modelled. Consequently, lenders care exclusively about downside risk mitigation:

  • They demand robust Debt Service Coverage Ratios (DSCR ≥ 1.30x) and stable Cash Flow Available for Debt Service (CFADS).

  • They enforce strict cash flow controls, locking up excess cash in Debt Service Reserve Accounts (DSRAs) and triggering mandatory cash sweeps if performance drops.

  • They seek maximum contract ringfencing and fixed-price, turnkey EPC contracts to eliminate operational uncertainty.

  A lender is, by design, looking down and doing all it can to avoid any risks. Bankability is about becoming attractive to banks and avoiding risks.

• What equity wants: a high upside. An equity investor takes unlimited downside, so it needs a really high upside to justify that position. Where a lender wants cash locked away, an owner wants it released as dividends as soon as the covenants allow. And an owner looks for things a lender is largely indifferent to:

  • Operational and Margin Expansion: Equity investors look for projects where active asset management, capacity expansion, or technological upgrades can expand EBITDA margins over time.

  • Pricing Power and Demand Elasticity: They seek assets with strong pricing power that can pass inflation or currency devaluations directly to off-takers through indexed tariffs.

  • Dividend Yield and Free Cash Flow: While lenders want cash trapped in reserve accounts to secure debt service, equity investors want cash released as free dividends as quickly as legally permitted.

  • Platform Scalability: Equity investors prefer anchoring a scalable platform, such as a developer with a 500 MW pipeline across three West African countries, rather than investing in a single, standalone 10 MW asset with fixed, non-expandable cash flows.

  Put simply, a lender asks whether the project can survive and keep meeting its obligations. Equity investors ask whether it can grow and multiply their investment. You have to answer both.

3) No Equity, No Debt.

There is an iron rule in project finance execution: debt follows equity. A lender will not pour borrowed money into an empty SPV and hope the sponsor turns up with its share later.

• Equity is a condition precedent. Equity commitment is one of the primary conditions precedent to financial close and the first drawdown. To satisfy it, sponsors must produce legally binding, fully executed equity contribution agreements, usually backed by irrevocable letters of credit, corporate guarantees, or cash in escrow. A promise is not enough; the lender wants the commitment locked and enforceable.

• Equity is Fully Front-loaded or Pro-rata. Debt documentation regulates the timing and order of equity drawdowns during construction, and will demand that equity comes in one of two broad ways:

  • Front-loaded equity. On riskier, greenfield projects, lenders often require the sponsor to inject and spend all of its equity on construction before a single dollar of senior debt is drawn. If the project fails in its first months, the equity holders bear the whole loss, exactly as intended.

  • Pro-rata drawdown. On lower-risk or credit-enhanced deals, lenders may let debt and equity go in together, each construction payment split in the agreed ratio, say 70 percent debt and 30 percent equity, so the cushion stays proportionate throughout the build.

The reason is simple. If the sponsor runs out of cash halfway through construction, the lenders are left holding an unfinished asset that earns nothing and services no debt. By locking the equity in up front, they make sure the structure they underwrote stays fully funded all the way to commercial operation.

Bringing It All Home

Everything else in this series has been about capital that sits on top of something. Equity is the one layer that sits on top of nothing. It goes in first, it is paid last, and it holds the whole structure up.

Because lenders can see whether it is really there, a thick, committed equity base is what persuades them to lend at all, and to lend on better terms. And because it is the clearest evidence of your skin in the game, lenders will insist on the committed equity.

But raising equity is not simply a matter of filling the base of the stack. It comes with realities you have to manage.

The leverage you settle on will be decided less by preference than by how much debt your cash flows can safely carry.

A project that is bankable to a lender is not automatically one an equity investor wants to own, because the two are looking for opposite things: one wants to know it will provide cash flows that meet obligations; the other wants to know it can grow and increase their returns.

You have to answer both.

Get the equity right, fully committed, properly structured, and genuinely at risk, and everything above it becomes easier to raise and comparatively cheaper to hold.

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Reviewed to Complete This Note

• A Framework for Structuring a Blended Finance Fund, Amundi Investment Institute / Thierry Roncalli (2025).

• A Practical Guide to Private Equity Transactions, Geoff Yates & Mike Hinchliffe (2010).

• Blended Finance by NAB, Netherlands Advisory Board on Impact Investing (2024).

• Blended Finance Case Studies: Emerging Africa Infrastructure Fund, Convergence / Ninety One (2024).

• Climate Investor One Case Study Update, Climate Fund Managers / Convergence (2023).

• Concessional but Catalytic: Insights on DFI Blended Concessional Finance, Overseas Development Institute (2021).

• How Can African SME Funds Mobilise More Capital?, Investisseurs & Partenaires (I&P) & Argidius Foundation (2025).

• Mastering Private Equity: Transformation via Venture Capital, Minority Investments and Buyouts, Claudia Zeisberger, Michael Prahl, & Bowen White (2017).

• Private Equity: A Transactional Analysis, Chris Hale (2014).

• Private Equity in Emerging Markets: The New Frontiers of International Finance, Darek Klonowski (2012).

• Secondary Market Vehicles in EMDEs: Lessons and Implications for Development Actors, ThirdWay Partners, BII, & MOBILIST (2024).

• WEF Risk to Reward: Unlocking Private Capital for Climate-Aligned Investments, World Economic Forum & KPMG (2025).

• Can Investors Trust Your Sponsorship and Structure With Long-Term Capital?, Notes on Project Development, Ebun Mesaiyete (2026).

• CFADS to Cash Sweeps: Decoding Debt in Project Finance, Notes on Project Development, Ebun Mesaiyete (2025).

• Decoding Blended Finance and First-Loss Capital, Notes on Project Development, Ebun Mesaiyete (2025).

• Decoding Commercial Institutional Debt, Notes on Project Development, Ebun Mesaiyete (2026).

• The Bankability and Readiness Checklist, Notes on Project Development, Ebun Mesaiyete (2025).

• The Capital Stack Decoded: DFIs and MDBs, Notes on Project Development, Ebun Mesaiyete (2026).

• The Capital Stack Decoded: The Middle Layers of the Stack, Notes on Project Development, Ebun Mesaiyete (2026).

• The Capital Stack Decoded: Where Money For Infrastructure Actually Comes From, Notes on Project Development, Ebun Mesaiyete (2026).

This eighth note is about a hazard that sits underneath all African infrastructure projects and quietly erodes the value of those that get past financial close.

I am talking about the currency devaluation risk.

Here is the heart of it:

1. The currency your debt is priced in matters more than the interest rate set on it.

2. A sharp drop in currency value fundamentally alters your project economics.

In the first case, the project can perform exactly as its model promised, every tariff collected, every cost controlled, and still collapse, purely because it borrowed in dollars, euros, or pounds while it earned in naira, cedis, or shillings. When the local currency falls, the same monthly payment costs far more of the local currency that the project earns in, and cash flows that once comfortably covered the debt at financial close can no longer cover the debt service in the operating phase.

In the second case, the structural impact erodes or dries up project cash flows altogether because the impact affects the revenues of the project and its costs.

In this note, I will share what I have experienced, observed, and read that works. Some are sophisticated tools for those who can afford them, and some are less costly but still effective methods.

All of them are for you to think, structure, and strategize around, underpinned by one core principle: Currency devaluation is a risk that must be managed and mitigated intentionally to protect long-term project value.

The Stark Numbers of the Silent Project Killer

Between 2019 and 2024, the Nigerian naira fell almost five times against the US dollar, moving from around 360 to 1,690 per dollar by November 2024. I know similar shocks swept through Ghana, Kenya, and other African economies over the same period.

Now let’s put a project inside that situation. For simplicity, suppose there was a project that needed 100 million naira a month to service its dollar debt at financial close in 2019, on a ten-year loan.

After that devaluation, the same dollar obligation would have cost 469 million naira by November 2024, with nothing else about the project changing.

Now imagine that the same devaluation that drove up the debt service also drove down revenues, because it led to the inability of end users and offtakers to keep paying for services or products.

Debt service skyrocketed, and inflows dropped. – A double whammy.

Just like that, a solvent, well-run, high-impact asset is dragged into default by a change in exchange rate it had no control over.

This is why currency devaluation risk mitigation cannot be an afterthought when putting together your capital structure. It is a reality that must be engineered around,

Three Impacts of Currency Devaluation Risk

To manage currency devaluation risk, you need to see that it arrives in three distinct forms, then tailor your strategy to the form you face. The first two are about the relationship between your debt and your revenue. The third survives even when that relationship is perfect.

• Balance sheet currency mismatch. The deep, structural version. Your long-term liabilities are in one currency; your long-term assets and revenues in another. When the local currency devalues, the real weight of your foreign currency debt swells against your local currency earnings. Your equity erodes, your debt service coverage ratio falls, and the project company can be pushed toward technical insolvency even while local operations remain profitable. The problem is not that the business is failing. It is that the currency underneath the debt has moved.

• Currency maturity mismatch. The short-term, liquidity version. Your long-term economics may be sound, and your local accounts full of local currency, but at the moment a dollar payment falls due, you cannot get the dollars. A central bank foreign exchange rationing event or a sudden convertibility squeeze blocks you from converting local earnings into hard currency in time. The project is solvent on paper and still defaults because it cannot source foreign exchange to repay its obligations on time.

• Real value erosion. Everyone is hit by this one, even if they did everything else right.

  You can borrow in local currency and earn in local currency, so there is no mismatch between your debt and your revenue. Yet a sharp devaluation can still break the project, because it attacks the cashflows itself. It erodes the real value of your income, since devaluation feeds quickly into local inflation, so the naira you collect buys less while your imported spares and fuel cost more. And more dangerously, it can destroy your off-takers’ ability to pay you or keep buying from you. The commercial off-taker whose own input costs have quadrupled, the government agency whose budget was fixed in nominal terms, can no longer pay you.

  Your revenue shrinks because the market structure that generated it has now been damaged. No amount of currency matching or hedging on the financing side can prevent this.

Understanding which risk you face matters, because they call for different tools.

• Balance sheet mismatch demands that you align debt and revenue currency or transfer that risk at a premium.

• Maturity mismatch can be handled with a standby liquidity line.

• Real-value erosion requires building resilience into your business model.

The “Cheap Dollar Loan” Illusion

If hard currency debt is so dangerous, why do developers keep taking it? Because on the day you sign, it looks cheaper, and the trap is baked into that appearance.

Set the two side by side. A dollar loan from an international development bank might carry 6 to 9 percent. A local currency loan from a domestic bank might carry 30 percent.

The dollar loan looks obviously cheaper, and many developers stop the comparison right there.

But that local currency rate is high for a reason. It carries the market’s expectation of inflation and devaluation inside it already.

The dollar rate does not. What looks like a cheaper loan is really an unpriced bet that the exchange rate will hold. Over a 10- to 15-year tenor, an unhedged devaluation will eat the entire interest rate saving, and the all-in cost of the “cheap” dollar debt ends up far higher than the local currency loan would have been from day one.

The lower nominal rate on a dollar loan is not an interest rate discount. It is currency risk deferred, which the lender quietly moved from their balance sheet onto yours.

The Onshore Solution: Domestic Capital and Local Currency Guarantors

The most durable defense against the first two impacts of currency devaluation is not to hedge, or to use complex tools to mitigate the effect.

It is complete avoidance.

Borrow in local currency from domestic institutions whose own liabilities are already in that currency.

As written in this series’ notes on bonds and credit enhancements, domestic pension funds and life insurers in African markets hold vast, growing pools of local currency savings, and they need long-dated, local currency assets to match their own long-dated, local currency obligations. Infrastructure is a natural fit. The obstacle has always been that these cautious institutions cannot buy unrated project risk.

However, that exact gap is being addressed at scale by local currency guarantors. InfraCredit in Nigeria, Dhamana in East Africa, and the African Guarantee Fund are examples of institutions that all provide this increasingly popular credit enhancement.

When you raise local currency backed by guarantors, there is no currency mismatch of any kind to manage, and when devaluation or structural shocks occur, your project’s n debt service is not changed when devaluation occurs.

That being said, if your project must still choose foreign-denominated instruments for various reasons, know that borrowing in hard currency to fund an asset that earns in local currency is the equivalent of gambling on the possibility that the exchange rate remains in your favour.

It is not a gamble you can afford to make without proper calculation and mitigation.

You must choose that strategy intentionally and adopt mitigating strategies.

Mitigating Strategies for Larger Projects and More Mature Companies

Large projects, a utility-scale plant, a major concession, a listed big-ticket infrastructure bond, can bear the legal and structuring costs of the sophisticated tools. If your project is at that scale, these are the instruments to reach for.

• Synthetic local currency loans. This is the workhorse. A synthetic local currency loan is one where an international lender disburses and administers the loan, but the interest and principal are contractually indexed to your local currency. From your seat as the borrower, it behaves exactly like a local currency loan. If the naira or shilling falls by half during the term, your debt service in local currency does not move. The foreign exchange risk has been lifted entirely off your balance sheet.

  Behind the scenes, the lender does not simply swallow that risk. It executes an offshore cross-currency derivative, a non-deliverable swap or forward, with a specialist counterparty. You pay local currency to the lender, the lender passes it to the swap counterparty, and the counterparty pays the lender the hard currency it needs to meet its own funding. You never touch the derivative. You just owe a stable local currency amount.

• The institution that makes this possible: TCX. The primary market maker for long-term currency hedges in frontier markets is The Currency Exchange Fund, established in 2007 by a consortium of development banks, bilateral institutions, and donors, precisely because commercial swap markets do not exist for most African currencies at the tenors infrastructure needs.

  The figures give a sense of its scale, and I quote them from sources current as of 2025, since these numbers move. Per the OECD’s 2025 blended finance case study, TCX operates on a capital base of about 1.8 billion dollars supporting a balance sheet of around 5 billion dollars, hedges across more than 140 frontier and emerging market currencies, and has helped clients obtain more than 10 billion dollars in local currency funding by 2024, while transferring over 3.5 billion dollars of hedging risk on to private counterparties. It works by pooling currency exposures across many countries, so a fall in one is offset by stability in others, letting it hold far more currency risk than any single lender safely could.

• When the hedge itself is too expensive: concessional subsidies. Synthetic local currency solves the risk, but in a high-inflation market the swap becomes expensive. If a ten-year swap adds, say, 12 percent a year on top of a 6 percent dollar loan, the all-in synthetic local currency rate reaches 18 percent, which many early-stage assets cannot carry. This is where blended finance steps in to subsidise the hedge itself.

  The clearest current example is the EU Market Creation Facility, Pricing Component Plus, run by TCX with the European Commission and EDFI Management Company under the European Fund for Sustainable Development. Signed in mid-2025, it is a 150 million euro guarantee expected to support up to 2 billion euro of local currency transactions by discounting the cost of currency swaps in eligible markets, including across Sub-Saharan Africa. It followed a smaller pilot that used 20 million euro to support around 120 million euro of local currency loans. Germany’s development ministry has run a comparable subsidy pool with TCX aimed at renewable energy. The effect is the same: donor money buys down the price of the hedge, so the synthetic local currency loan lands at a rate a project can actually bear.

• When you only fear the squeeze, not the slide: liquidity and convertibility facilities. The first two tools address structural mismatch on the balance sheet. If your real worry is a short, sharp crisis in forex availability rather than a structural decline, a full swap may be overkill.

  When the issue is currency maturity mismatch, a foreign exchange liquidity facility acts as a standby credit line. The project borrows in dollars and pays from local revenues at the spot rate, and only if a severe devaluation pushes the debt service coverage ratio below an agreed floor does the facility pay out the dollars needed to cover the shortfall, to be repaid once the currency stabilises. Because it covers only the tail-end shocks rather than every fluctuation, it needs far less capital while still giving commercial investors the protection they require.

  Related to this, a Transfer and Convertibility guarantee, such as the EDFI facility funded by the European Union and managed with Proparco, funds a reserve that covers a defined period of debt service if a government blocks the conversion of local currency into hard currency, keeping lenders whole while the bottleneck is resolved.

Mitigating Strategies for Smaller Projects, Where Structuring Fees Bite

If you are developing a 1, 5, 10, or 15 million dollar commercial solar installation, an agri-processing hub, or logistics center, the tools described are realistically out of reach.

Offshore swaps and listed bonds carry large legal fees, ticket-size floors, and administrative complexity that a small project cannot absorb. But you are not defenceless. You can manage the risk operationally, contractually, and through intermediaries instead.

• Hedge your revenues in your contracts. If you cannot hedge the debt, hedge the income. Rather than fixing a tariff in local currency, denominate it in dollars, or index it to a baseline exchange rate, and settle each month in local currency at the prevailing spot rate. Where local rules forbid formal foreign exchange indexing, use inflation-adjustment escalators instead, since devaluation quickly translates to local inflation, giving a partial, lagged buffer. These strategies work best with credible commercial and industrial off-takers who have the pricing power to absorb them.

• Build natural hedges into who you sell to. Align your revenue with hard currency where you can. Prioritise off-takers whose own income is in foreign currency: mining operations, agricultural exporters, multinational telecoms. Or position the project as import substitution, local processing, or clean energy replacing costly imported alternatives, so that when the currency falls, and imports become dearer, your local offering gains pricing power rather than losing it. For some developers, expanding into a neighbouring, more stable currency zone, such as the CFA franc area pegged to the euro, spreads the exposure.

• Borrow through local intermediaries, not directly. Rather than chasing a hard currency loan from an international institution directly, reach the same development capital in local currency equivalents through a domestic intermediary. DFIs extend wholesale facility lines and risk-sharing facilities to local banks; the Development Bank of Nigeria and Bank of Industry are primary among them, and portfolio first-loss facilities like Aceli Africa give local banks a loss cushion that lets them lend local currency to small clean energy and agri-SME projects. The currency risk is absorbed at the institutional level, and you simply borrow in the money you earn at foreign currency rates.

• Split your raise by currency. Do not take an all-or-nothing approach. Raise hard currency debt only for the part of your spend that is genuinely in hard currency: imported panels, machinery, specialist engineering, and fund everything local- civil works, land, labour, permits, operations- with local equity or local debt. Matching hard currency liabilities strictly to imported costs shrinks the unhedged gap to the smallest it can be. Local family offices, corporate treasuries, and high-net-worth investors are often willing to provide that local currency equity, keeping foreign obligations off the early-stage balance sheet entirely.

Mitigating Real Value Erosion When the Market Itself Is Hit

The strategies so far focus on avoiding and mitigating the first two impacts of currency devaluation: balance sheet mismatch and currency maturity mismatch.

But for those of us who live and do business on the continent, we know that severe devaluation can still weaken or damage the real value of your project and your off-takers’ capacity to pay, even when debt and revenue are both in local currency.

Therefore, sadly but necessarily, developers who build resilient projects must anticipate and plan around this shock too.

Consider these other strategies to adapt and apply to mitigate the risk of real value erosion and adapt your business model and corporate practices accordingly.

• Target essential and affordable services. In downturns, customers pay for what they cannot do without. A project delivering an essential service will keep more of its demand when discretionary spending collapses. This is why import-substituting projects are so resilient: when the imported alternative becomes unaffordable, your local offering becomes more valuable, not less.

• Choose resilient off-takers, and diversify them. Building on the similar point made for debt currency management for smaller projects. Repeated here because it is critical to emphasize your revenue is only as resilient as the people paying it. An off-taker whose income is dollar-linked or inflation-resistant will keep paying through a devaluation that bankrupts a weaker one. And breadth is its own protection: a portfolio of thousands of customers absorbs individual defaults far better than a project resting on a single fragile off-taker. Concentrated revenue is fragile revenue when the market turns. Target export-driven activities and offtakers, the only exception whose local currency revenues increase when currency is devalued.

• Stress-test your counterparties for a currency shock. In diligence, do not only ask whether an off-taker can pay today. Ask whether they can pay after a 100% devaluation. Stress-test the off-taker’s own business against a currency shock the way an investor stress-tests yours, and be wary of a counterparty whose ability to pay quietly depends on a stable exchange rate. It is the discipline guarantors apply to you, turned outward onto those who will fund your revenue.

• Negotiate Inflation escalation into your tariffs. The single most important defense is revenue that can rise when costs rise. Work really hard to increase inflation-linked or cost-pass-through escalators into your tariff, so that when devaluation drives up local inflation, your revenue adjusts rather than staying frozen at a level that no longer covers your real costs. A tariff fixed in nominal terms for twenty years is a slow trap in an inflationary economy.

• Stress Test More Aggressively when modelling: Think of the worst-case scenario and double it when testing the project’s financial model. Then work backwards and ask yourself what you can do if this situation materialises. If funds are in foreign currency, stress test the impact of devaluation on revenue flow as well as the exchange rate on the debt. Because both do damage to the business, you must model the impact of both.

• Save for the shock. Do not distribute all retained earnings as dividends. Put some in a business reserve fund. Build a larger revenue buffer and a more conservative debt service coverage ratio than a stable-currency market would require, and hold reserves sized to carry the project through an extended period of depressed collections, not merely a weaker exchange rate.

• Maintain transparent reporting updates with Investors: Do not compound a structural market issue with a communication issue. Managing investors also requires emotional intelligence as well as technical competence and sound business practices. Investors who know 6 to 8 months before default have taken time to adjust to that reality and may likely even help you work through the issues. Devaluation, even if sudden, does not immediately trigger default; maintaining clear lines of communication and signaling issues and attempted resolutions in advance helps with most lenders.

Bringing It All Home

An estimated 10% of infrastructure ideas in Africa make it to financial close.

For these projects, the single biggest threat is currency devaluation.

This risk can kill projects that did everything else right. It has little to do with how well your project was prepared.

Made worse if a project is hit by the impacts of rising debt service and eroded or dried-up revenues at the same time.

The lessons of this note are simple to state, but not easy to manage, yet they are crucial to sustained project success.

• Number 1: Treat the currency of your financing as a first-order design decision. It is not an afterthought you get to after everything else. It is a decision you make from day one, and that decision helps define which investors to bring into your capital stack. Prioritise local currency sources for long-term loans. The low nominal interest rate you sign at financial close will not keep the project afloat five years later if the local currency falls.

• Number 2: Currency devaluation impacts on cash flow cannot be avoided. They can be innovated, negotiated, structured, saved for, and communicated around. Your project will live with it, and the strategies intentionally built in determine how well.

Embracing these two realities early and applying strategies that manage them protects your project’s long-term survival against the silent killer of currency devaluation.

You give your asset something the capital stack’s structure cannot supply on its own: the ability to survive a currency shock.

This resilience keeps your project serving the people who depend on it, keeps your track record, and keeps much-needed infrastructure already built on the continent operating long after the ribbon has been cut.

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Reviewed to Complete This Note

1. Notes on Project Development. Understanding Credit Enhancements. Ebun Mesaiyete, 2026.

2. Notes on Project Development. The Capital Stack Decoded: The Key to the Domestic Vaults. Ebun Mesaiyete, 2026.

3. OECD. Blended Finance Case Studies: The Currency Exchange Fund (TCX). 2025. Source for TCX’s ~$1.8bn capital base, ~$5bn balance sheet, 140-plus currencies, $10bn-plus local currency funding by 2024, and $3.5bn-plus risk on-sold; figures current as of 2025.

4. OECD. Unlocking Local Currency Financing in Emerging Markets and Developing Economies. 2025. Balance-sheet versus maturity mismatch, synthetic local currency lending, FX liquidity facilities, and EDFI Transfer and Convertibility facilities.

5. EDFI Management Company, European Commission, and TCX. EU Market Creation Facility, Pricing Component Plus (EFSD+). 2025. EUR 150m guarantee supporting up to EUR 2bn of local currency transactions; EUR 20m pilot supporting about EUR 120m.

6. TCX Fund. TCX Impact Report and About TCX. 2024 to 2025.

7. Netherlands Advisory Board on Impact Investing (NAB). Blended Finance by NAB (EU Market Creation Facility and REGMIFA). 2024.

8. GOGLA. Blended Finance Report: Tailored Structures for Off-Grid Solar (receivables-backed local currency securitisation, d.light Brighter Life Kenya, Nithio FAIR). 2024.

9. MOBILIST and 18 East Capital. Scaling Securitisation in Development Finance. 2024.

10. Aceli Africa and Shamba Centre for Transitions. Technical Assistance and Impact Reports: portfolio first-loss reserves and origination incentives for local currency agri-SME lending. 2023 to 2025.

11. Convergence Blended Finance. State of Blended Finance in Tanzania 2025: GuarantCo, Dhamana, and local currency guarantees in East Africa. 2025.

Blended finance, green bonds, and credit enhancement arrive on paper and in conversations as clean diagrams, neat capital stacks, and well-structured transactions.

They rarely mention the past failed transactions, the difficult partnerships, the challenging environments that have been navigated to achieve them.

I met Dr. Jubril Adeojo in March 2026, when he co-facilitated a capacity-building session I attended on green bond issuance in Nigeria. In a room heavy with frameworks, his contributions were noticeably practical. I asked to speak with him afterwards, because in my current role I had been tasked with raising capital for a pipeline of renewable energy projects in public institutions, and with directing funding into the special purpose vehicle set up to manage these assets.

We have stayed in touch ever since, as it turns out, as these things do, that we already knew several of the same people.

As Notes on Project Development has been breaking down the capital stack, he was a solid profile to spotlight.

We spoke in the middle of August where he shared his upbringing, his path through banking, the failures that produced the approach he now takes for renewable energy project deals, and his advice for founders trying to attract capital at each stage of a company’s life.

Without further preamble, I share the story and insights of Dr. Jubril Adeojo, co-founder of SMEFUNDS Capital and Co-Founder at OneWatt Solar.

“We had sometimes 25 people in the house at the same time”

“I grew up in Ibadan, in a polygamous home. I am the 12th of 15 children, the second child of the junior wife. My father raised us communally. I have a half-brother who is about the same age as I am; we were basically raised like twin brothers. Our house was also a hub of people. My father loved having people around; he rose to the rank of colonel in the army, then retired, set up a factory, and later became a politician in Oyo, behind many of the people who ended up winning governorship elections. Our home was like a hub, and my father raised a lot of people, including us. Sometimes we would have up to 25 people at home at once.”

My father greatly influenced my life, career path, choices, and my approach to life. He was a deeply religious Muslim who was both disciplined and courageous. In hindsight, I see how alike we are. He pivoted across different careers too and did all successfully. My mother is another powerful influence too; my softer, caring, and giving sides are from her.”

“I did not want anyone to say that my success was because of my father’s influence”

Jubril finished a first degree in business administration and accounting with first-class honours, then a one-year master’s in strategic finance, both UK degrees taken through an affiliate institution in Budapest where his father had someone he trusted to watch them. He returned to Nigeria, served, joined Oceanic Bank in compliance and customer service, and in January 2010 moved to Sterling Bank, placed in audit by the chief auditor who had sat on his interview panel and asked for him.

“Our father reached out to the MD of Sterling Bank, got my brother and me invited for the aptitude test. We still had to pass, though, and we did. But once inside, we had to perform, and I made up my mind early on to give my best. I did not want anyone to say that my success was just because of my father’s access and influence. While talking to my bosses, peers, clients, and customers, I made sure I was respectful, and I ensured that I outworked everyone around me.”

“I wanted to be a solution provider”

“After 18 months of doing audits, despite ranking in the top 10 of my division, I wanted to leave auditing. The thing is, in auditing, you are celebrated based on finding and reporting mistakes. I did not want to be known because I found a mistake that led to someone being punished. I wanted to be a solution provider.”

His desire to move led to tensions that were eventually resolved by an intervention from the managing director, and he was moved out of audit to another branch.

That branch was known for mortgages. While taking on construction transactions, he began asking about having more tailored solutions for clients, including combining advance payment guarantees, lease financing, and infrastructure loans for the same client whose business may require it, and making it easier for that client to do more business. That idea was well received when he pitched it, and he was moved to marketing in that branch.

That move to the marketing team came at a cost. At the next promotion cycle, the regional director rejected his appraisal and recommended him for dismissal instead. The managing director investigated, found that both his former audit head and his branch manager had supported him, and reversed the dismissal.

Nevertheless, that initial antagonism didn’t lead to lasting damage in that working relationship.

“That regional director is now one of my closest mentors today. How you start is not always how you continue; do not let past friction define a relationship; focus on what is ahead; other things can still bring you together.”

“I call my PhD journey a rebirth”

When Sterling decided to build a dedicated MSME banking business, he was among the first two in the unit, designing products for schools, hospitals, micro-traders and market cooperatives, and walking the markets on Lagos Island himself to understand how those businesses actually financed themselves. That work fanned his simmering desire to restart his PhD.

“My father had always encouraged me to complete a PhD, and I did start, in a school in Nigeria, but it just wasn’t working for me. Then a colleague introduced me to an accelerated doctoral programme run through The Da Vinci Institute in South Africa.”

“The programme was theory to practice. The work you are doing must be exactly what you are researching, and you must be testing it. So, every paper I developed building MSME banking became a chapter. Working was the PhD, and the PhD was the work. That journey was like a rebirth for me.”

Though I started with some ease, finishing it was another matter. The naira had crashed, making it difficult to keep up with fees. So, I sold my two cars to cover the fees so I could continue. Every day I stayed in the office until 11 pm, then worked 12 hours each day on weekends, for a year to finish in record time.”

In July 2016, he successfully defended his PhD thesis in Integral Development: Management of Technology and Innovation and fully completed the program in September 2017.

Then came time for a promotion in Sterling Bank, and he was passed over once more. This led to his move to Heritage Bank, joining as the Manager of SME Interventions and Schemes. His work in that role includes the following notable initiatives:

• Youth and Education Banking: He built this division completely from scratch, designing numerous groundbreaking financial products, including the USD 1.4 million Youth Empowerment and student grant.

• The CBN Partnership: Heritage Bank’s partnership with the Central Bank of Nigeria (CBN) for the Youth Entrepreneurship Development Programme (YEDP), which directed grants and small loans to startups.

“The streets have different rules”

“After a while, as the Manager for SMEs, I was promoted to Head of Power, but I already knew it was time to leave. I no longer felt a sense of purpose and wanted to work towards expanding clean energy initiatives.

In 2018, Jubril knew it was time to actively start exploring other opportunities, so while still at the bank, he worked with SMEFUNDS Capital on their initiative with other firms to develop a guarantee structure to unlock concessionary capital from DFIs to lower the cost of capital for solar projects.

Around the same time, he applied for the Chief Investment Officer role in a new climate fund being launched. While the interview process was rigorous, he successfully secured the position.

The work on the guarantee structure seemingly took off and led to another partnership; therefore, he went back in person to decline the offer of the CIO role and resigned from Heritage Bank to focus his attention on scaling that product.

However, that did not survive its first quarter.

“I was working with older, more experienced people, and I gave everybody equal shares even though I brought the entire product. Yet they started trying to micromanage me, rather than collaborate. It was not that they were bad people; just that our values and approaches didn’t align. Lawyers had to get involved in untangling everything.”

“In my mind, I was a first-class graduate and newly minted doctorate holder, who had performed well everywhere I had worked; I thought I knew everything I needed. I did not know that the streets have different rules.”

“While that initiative did not survive, my relationship with SMEFUNDS Capital did, and I joined that partnership, and we have worked well together since. Though we disagree, we respect each other’s strengths, and it is never about money. It is usually about whether to launch a project, what is considered excellent, or how to manage a customer.”

“We raised an award-winning bond, then defaulted”

The work in SMEFUNDS led to building their own solar company, OneWatt Solar, designed to finance decentralised solar developers who were technically and ethically competent but lacked the balance sheets and governance to raise capital alone.

They designed a groundbreaking clean energy transaction that achieved immense acclaim and won an award because it was Africa’s first corporate Green Sukuk bond.

The structure blended multiple tiers of capital:

• The Debt Stack: The original goal was to raise 3 billion Naira. Ultimately, they raised 1 billion Naira from the capital markets with features of a green bond and a Sukuk, then raised another 1 billion Naira in total from three local commercial banks.

• Asset Allocation: The transaction was neatly structured so that the Green Sukuk bond financed the inverters and batteries, while the corporate bond proceeds financed the generators and solar panels.

• Key Partners: Dr. Adeojo’s team partnered with smaller solar developers who had ethical competence but lacked corporate governance. To de-risk this, they set up a dedicated board featuring experienced legal advisors. The transaction was also supported by a reputable issuing house and Trustees.

That bond transaction won awards. What happened after it is the part he wanted developers to hear.

Despite receiving major industry awards and widespread applause, the transaction faced severe macroeconomic and operational shocks after only three months of seamless performance and eventually defaulted.

• Macroeconomic Pressures: The project was hit by aggressive fluctuations in foreign exchange (FX) rates and soaring interest rates.

• Offtaker Failures: The commercial and industrial (C&I) offtakers who signed the Power Purchase Agreements (PPAs) suffered their own internal crises—some went bankrupt, and others declared force majeure and could not pay the cash flows that would repay the bonds.

Critical Lessons Learned

• Bargaining Power Asymmetry: Dr. Adeojo realised a fundamental structural flaw in standard C&I energy solutions. Clean energy developers have very little bargaining power over large corporate clients. Because the solar systems are off-balance-sheet for the offtakers, they suffer no direct credit rating penalties if they default on their electricity payments, leaving the developer that raised the funding to absorb 100% of the financial risk.

  In his own words:

  “The energy provider always holds the weaker bargaining position with large corporates. Who are you to ask a large manufacturing company for their financial statements? Who are you to tell them that when they pay their bills, you are the priority? Because it sits on their balance sheet as a lease or a cost, not as a debt, they carry no financing risk. If they do not pay you, there is no consequence on their credit score. You are the one in trouble.”

• Financing structure and transaction sustainability are two different levels. “On paper, the blended structure was fantastic. That is one level. The other level is the sustained performance of the underlying project, which has nothing to do with the financing structure.”

• Tangible Assets win over intangibles. Because every Naira raised was strictly deployed into physical installations, investors and lenders could verify that the physical assets existed and were fully operational, and those could be claimed easily and sold.

• Gradual Settlement Allowed Because of Transparency: OneWatt Solar kept its lenders and guarantors continuously informed of every setback. Rather than entering messy litigation, these lenders are actively working alongside them to gradually sell off the physical assets to systematically pay down and settle the outstanding debt. “Integrity and transparency can help you survive a distressed transaction. Every naira we raised went into the assets, and everybody could see the assets. We kept our investors informed throughout. Even as we sell the assets down, they are the ones helping us sell.”

“Why can’t the banks sponsor and own the SPVs?”

Rather than retreat, he used the fallout to engineer a different allocation of risk with investors.

“I told banks, you are the primary custodians of these large manufacturing and agro-processing companies. You hold their accounts. You control their revenue. There is a real consequence if they default on an obligation to you, because you can see their accounts directly.”

“Solar developers have none of that. So why can you not sponsor and own the SPVs that buy and lease the solar asset to these companies, and hire the solar company strictly as an EPC and operations and maintenance partner?”

The balance sheet risk and the currency hedging will then sit with the institution equipped to carry them, and the developer concentrates on what it is actually good at: developing, constructing, and managing sites.

He goes on, “Climate finance is not about inventing entirely new things. It’s often about changing the behaviour of the players already in the ecosystem.”

After trying and failing to convince commercial banks, a local development finance institution has now bought into this rationale, and they are working with SMEFUNDS to turn the concept into a national programme and refine the design, including backing it with a portfolio guarantee rather than a guarantee per issuance.

He has a name for products that come out of challenges he experiences. He calls them “honey”.

According to Dr. Adeojo: “I see these experiences as leaving me with something I can now use, and it should be useful to me the next time or useful to the next person without causing harm. So, I say we produce honey when we experience challenges.”

“We thrive where there is no template”

SMEFUNDS Capital has deployed more than USD 50 million into companies across clean cooking, solar home systems, mini grids, cold storage, and battery storage, unlocking different types of capital from various investors.

In the last 4 years, the firm’s emphasis has shifted from deploying capital to preparing transactions and stepping in as fractional chief operating or finance officers where a portfolio company lacks the capability it needs.

In Jubril’s words, they also “thrive where there is no template,” providing strategic advisory on climate finance initiatives, designing innovative products, structures, frameworks, and institutions, both locally and internationally, including:

• The African Development Bank green line of credit. Designing the eligibility criteria to align the lines of credit AfDB extends to African financial institutions with the Paris Agreement.

• Nigeria’s National Climate Change Fund. Lead pen holder on the business plan developed with the National Council on Climate Change.

• Nigeria’s first Forest Fund. Setting up with the federal government and donor agencies, the first national forest fund in the country.

• A preparation and refinancing facility with a Nigerian financial institution, a facility targeting clean tech startups.

After sharing his journey’s evolution from developing financing products, raising capital, developing projects, designing funds and facilities, he shared his advice for companies trying to attract funding. He then shared advice for raising capital tailored for companies at different stages of business maturity

“At the beginning, it is about partnership, not capital”

For founders at the earliest stage of their business, he shares the following:

• Look for partners, not money. “Find the right partners who share your values and your objectives. Whatever the partnership brings, if it is money, the money will do the job. The partner might be someone who has no money but knows someone who does.”

• Be in a community of people who are building. “Entrepreneurship is too depressing and too lonely. You need a community of supporters, or people going through the same process in the same sector at the same time; look for opportunities to join these communities.”

• Show up to many events. “An event today, a conference tomorrow. Show up anyway, because new people are entering that space, and you never know when the right partner is in the room. People need to know you and recognise you.”

• Take money without conditions at the start. “Friends and family, your own money, angels who understand what angel investment actually is, grants, and accelerator programmes where the value may be in kind rather than cash. Avoid money with too many conditions.”

• Escalate the instrument as the evidence arrives. “Avoid convertibles and venture capital until there is a tested product and a client. Use larger cheques for the move to mass production. Start taking on smaller amounts of commercial debt only once revenue is steady with multi-year contracts, and bonds only when you have a debt profile that is well priced and large enough to carry the cost.”

• Know how to handle rejection. “When an investor says no, it does not mean you or your idea or product are not good. It may mean they do not have the kind of money you need, or they do not understand your business and are afraid of the risk. It is not always about you.”

“Do not put commercial and industrial projects on your own balance sheet”

For the minigrid and solar companies that have got through the start-up stage and are entering the growth stage, his advice was blunt and, he acknowledged, unpopular.

• The commercial and industrial market is being entered the wrong way round. “I would not encourage any company today to do commercial and industrial projects on its own balance sheet. Go and learn your own lesson if you must, but mine is now clear.”

• Let the offtaker’s bank carry the structure. “The bank holding the manufacturer’s accounts controls the revenue and has the leverage to enforce payment. It should sponsor the SPV or lend to the manufacturer directly, with the solar company delivering EPC and operations and maintenance. That is the model starting to work in South Africa.”

• If payment security is not in place, decline the transaction. “If payment security is not there, please do not do it. Do not do the deal.”

• Consider where you actually hold negotiating power. “Solar home systems and smaller distributed sales give the provider far more control over uptake and collection than a single large industrial offtaker does. The larger the client, the less power you have.”

“Governance, track record, and the credit of your offtaker”

Asked what makes a renewable energy company, starting to mature and looking to scale senior secured capital like bonds, he named four conditions and one habit.

• Governance. “The governance structure and the board are very important. This is assessed before anything else.”

• Competence and track record. “You now need a solid team that can match the scale you want. Your past track record also helps a lot here.”

• Credit enhancement where there is no collateral. “Most companies in this sector hold no landed property. A guarantee makes the structure possible, but only where the first two conditions are already met.”

• The creditworthiness of your offtakers. “The offtakers’ ability to pay is the entire project because that is what provides the cash flows that pay everybody. This part is critical.”

• Engage before the structure is finished. “Before you finish cooking your transaction, touch base with them. Let them give you perspective, then use it to strengthen the structure. When you take it back, they can see their own thinking in it, and that makes them want to back it”

“You must learn about peacetime and wartime”

I asked him for his closing remarks and general business advice. He shared the following:

• Learn peacetime and wartime. “All of us must have a peacetime approach and a wartime approach, and the wisdom to know when to deploy each. My mother gave me the peacetime side. My father gave me the wartime side. So, choose your battles, but when someone attacks your character, that is your life, step up and tell your own story.”

• It is the will to get things done. “You can write beautiful financial structures on paper, but what moves it is someone saying, I will get it done. When I proposed the bank-sponsored SPV, nobody in that room of commercial banks called me back, but I kept pushing and refining, then I ran with it to a development finance institution, and they have bought into it.”

• God, Respect and Excellence. “Three things have worked for me. God is there and number one for sure. Then I am respectful, and by that, I mean no one and nothing is beneath me. If it is to carry chairs at my own event, I will carry the chairs, then move to the podium to speak. Then, excellence: I know my stuff and can figure things out. Do your best everywhere; someone is always watching.”

Bringing it all home

For founders and developers, the practical instruction is narrow and repeatable.

• Know which instrument belongs to your stage and decline the rest.

• Build the partnerships and relationships before you need the money.

• Do not carry a risk that a better capitalised party in the transaction is structurally better placed to carry.

• And test your structure against your investors while it is still soft enough to change.

Most of what is worth knowing in this market has already been purchased by somebody at full, sometimes painful prices. There are personal lessons to learn and lessons to learn from other people’s stories.

Whether it becomes honey that sweetens future opportunities or scars that damage you permanently depends heavily on the resilience and willingness to sit with the failure long enough to understand what it was telling you and having the will to keep going.

I encourage you once more, as I often do; keep building with intention.

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Find and follow Dr. Jubril Adeojo

• LinkedIn: https://www.linkedin.com/in/jubril-adeojo-4b874020/

• Twitter: https://x.com/AdeojoJubril

Find and follow SMEFUNDS Capital

• LinkedIn: https://www.linkedin.com/company/smefunds-ltd/home/

• Website: https://www.smefunds.com/

• Email: info@smefunds.com

First, we looked at the middle layers, subordinated debt and mezzanine, which cushion the senior investors and charge a premium for it.

Then, in the blended finance note, we covered the forms of development finance that can provide first-loss capital, delivering the same cushion but breaking the usual rule of reward matching risk, taking the riskier seats for lower returns.

Most of these subordinated and mezzanine instruments, whether driven by commercial return-seeking or by development mandates, are direct capital that sits inside your stack, the actual cash that goes into the project.

But there are forms of protection that increase the attractiveness of a project by absorbing residual risks, without providing direct cash into the stack. I am referring to credit enhancements, a contractual promise from a highly rated third party to pay your investors if a specific, predefined risk event occurs.

This seventh note in The Capital Stack Decoded series covers them. It will define what credit enhancements are, explain the common forms available, match each to the specific risk it solves, and, most importantly, talk about how to present a project the providers will want to back.

Credit Enhancement in Plain Language

The language here is dense, so let me define it plainly.

Credit enhancements are financial instruments designed to improve the perceived creditworthiness of a project or transaction. They reduce, mitigate, or reallocate risks to make projects bankable for commercial investors.

By transferring residual or even perceived credit, country, or currency risks onto their own stronger balance sheets, they bridge the gap between projects and commercial return requirements. Ultimately, they upgrade credit ratings, stretch tenors, lower the overall cost of borrowing, and increase the volume of private capital flowing into underserved markets.

Credit enhancements do not fund the project, but they allow you to get funded, because investors can now look to someone with higher debt capacity and higher creditworthiness than the project or its sponsors if something goes wrong. Securing that promise can change how your project is priced and whether it raises funding at all.

They are not inside the stack directly, but they are “wrapped around” the stack or portions of the stack, providing an extra shield in case, despite everything done to prevent them, default still occurs or risks crystallize.

There are two main forms: guarantees and insurance.

Guarantees as Credit Enhancements

Full or partial credit guarantees. A legally binding promise by a guarantor to cover all or part of your debt service, principal and interest, if the project defaults, whatever the cause.

With a full credit guarantee, 100 percent of the senior debt is covered. So if 60 percent of your funding is senior debt, all of that 60 percent is covered. With a partial credit guarantee, only a portion of the debt is guaranteed, deliberately.

With a partial guarantee, the wrap provided might cover 50 to 80 percent of that senior debt portion, not all of it, so the commercial investors keep some exposure and stay diligent.

First-loss guarantees. Here the guarantor absorbs the initial wave of losses up to a pre-agreed ceiling. If the project defaults, the first-loss guarantee covers the early losses entirely until the pool is depleted, and the senior investors are impaired only if losses run past that ceiling. This is the guarantee form of the first-loss idea, where capital that can accept loss protects capital that cannot.

Counter-guarantees, or re-guarantees. A guarantee on a guarantee. A large, highly rated international institution guarantees the balance sheet of a primary, local guarantor, expanding how much that local guarantor can safely take on. Your guarantor has a guarantor of its own, lifting its rating and acting as a backstop, so more local projects can be guaranteed than a single balance sheet could support alone.

Insurance as Credit Enhancement

Credit insurance, or non-payment insurance. This transfers credit risk under a classic insurer-and-insured relationship. Here, the credit insurance policy indemnifies the lender in case of a credit default due to pre-defined, pre-agreed reasons. The insurance claims are paid after a waiting period, during which the lender must prove that a valid credit event occurred.

Political risk insurance. An insurance contract that indemnifies an investor or lender against losses caused by non-commercial, political events. It does not cover you if the project fails through bad management or weak demand. It protects against government action: currency inconvertibility, expropriation, breach of contract by a state off-taker, war and civil disturbance.

It cannot be issued by an insurer operating inside the country being insured against, because that insurer would carry the same jurisdictional and currency constraints it is meant to cover. The Multilateral Investment Guarantee Agency of the World Bank Group is the premier global issuer, and on our continent the African Trade and Investment Development Insurance agency, formerly the African Trade Insurance Agency, is a major regional provider.

Export credit agency cover. Export credit agencies are national institutions that provide government-backed guarantees and insurance to support their country’s exporters. If you import specialised equipment, wind turbines, solar panels, heavy rail or port cranes, from an agency’s home country, that agency will often provide long-tenor, low-cost cover to the banks financing your purchase, lowering your overall cost of borrowing. A Chinese, Dutch, or UK export credit agency can provide such cover for equipment exported from their country into Nigeria.

Credit Enhancements Bridge Perceived Risk and Actual Risk

To use credit enhancements well, you must understand the economic problem they solve.

Lowering risk premiums and the cost of capital. In African infrastructure, the cost of capital is driven to punishing levels by perceived risk. When an international bank or asset manager evaluates a project in Nigeria or Ghana, it starts with the sovereign credit rating, which is usually below investment grade. A low sovereign rating implies, in the investor’s mind, a high probability of default, so they demand a large country risk premium, pushing rates to levels that can destroy a project’s viability, applying rating mechanisms that have been shown to systematically overstate the real default risk of projects in Africa.

Securing a guarantee or insurance policy from a highly rated third party moves a specific risk off the commercial investor’s shoulders and onto the provider’s balance sheet. The investor now relies on the provider’s AAA or AA rating rather than your project’s unrated profile, so they can drop or drastically reduce the country risk premium. The benefit is largest where the country’s own rating is lowest, because there is more perceived risk to strip out. The result is lower debt costs, longer tenors that match the life of your asset, and access to deep pools of institutional capital that are legally barred from investing in unrated, high-risk paper.

Crowding in private commercial capital. Many infrastructure projects in Africa will rarely achieve investment-grade ratings capable of raising bonds on their own, which is painfully true for sponsors with limited fundraising experience. To bridge that gap and attract conservative pension funds, you secure a guarantee that raises the rating to investment grade and provides a viable alternative to bondholders in the event of default. You will often need a guarantor for at least the first few bonds, until credibility is built in the market. I discussed this in the fourth note in the series, on bonds.

Matching the Instrument to the Risk

You must match the credit enhancement to the specific risk your investors refuse to bear. Four categories cover most of the landscape.

Default risk, the risk that your project cannot service its debt because of force majeure, operational underperformance, cost overruns, or weak demand, is covered by full or partial credit guarantees, first-loss guarantees, and credit insurance. These protect the senior investors’ principal from the basic business risk of the asset.

Currency inconvertibility and transfer restrictions, the risk that you earn ample local currency but the central bank restricts access to hard currency, so you cannot convert or transfer funds to pay foreign investors, is covered by political risk insurance from MIGA or the African insurer. This risk spikes in exactly the macroeconomic crises African markets periodically face.

Government breach of contract, the risk that a government or a state-owned off-taker defaults on its core obligations, stops paying for your power, or refuses to honour a termination payment, is covered by MIGA’s breach-of-contract cover, which protects investors when the state fails to pay an arbitration award or honour its commitments.

Expropriation, nationalisation, and political violence, the risk that the government seizes your assets or shares without fair compensation, including creeping expropriation through hostile regulatory shifts, together with war, civil disturbance, and terrorism, are classic non-commercial hazards covered by political risk insurance or sometimes credit risk insurance.

The Real Value Is Maintained by Never Being Called

You reach for a credit enhancement to attract investors who would otherwise stay away.

That is true.

The deeper truth, though, is that the real value of a credit enhancement lies in it never being called.

Think about what a guarantor is. It is an institution whose entire worth rests on its own credit rating. The moment a guarantor starts paying out on failed projects, its own capital erodes, its rating comes under pressure, and its promise to every other project it backs means less and less. A guarantor that pays out often is a guarantor going out of business.

A guarantor that loses its main asset - an investment-grade credit rating that signals its creditworthiness.

An insurer prices a premium on the assumption that only a small, predictable fraction of the risks it covers will ever crystallise, and that the many premiums it collects and invests will comfortably exceed the few claims it pays. If an insurer underestimates risks and takes on projects that are likelier to fail than its premiums assume, it faces mounting claims, drains its reserves, and erodes its capacity to meet those claims.

So the insurer, too, is asking, how sure are we that we will never have to pay out on this?

So the guarantor or insurer is not looking for projects that will need them.

They are looking for projects that are well de-risked and have everything else but a good enough rating, so that the enhancement can carry the project over the line.

This flips how you should think about credit enhancements.

Securing one is not about shifting a poorly developed project, full of undefined, unallocated and unmitigated risks, onto someone else to take the fall.

It is about adding protection to wrap around and further shield an already well-developed project.

It is about de-risking the project so thoroughly- the contracts, the structure, the off-take, the sponsor commitment- that the probability of the guarantee or claim ever being called becomes tiny.

That tiny probability is what lets the provider of credit enhancements say yes. They stay creditworthy precisely because they back creditworthy sponsors and projects.

Structural Mechanics You Should Understand

First, funded versus unfunded guarantees. A funded guarantee places cash into escrow from day one, giving lenders immediate liquidity in a default but tying up the guarantor’s capital. An unfunded, or paper, guarantee is a purely contractual promise backed by the guarantor’s balance sheet and rating, holding only a fraction of the guaranteed amount in reserve. Unfunded guarantees are far more capital-efficient and mobilise many times more commercial financing per unit of capital, which is why most credit enhancement works this way.

Second, subrogation. A guarantee is not a grant, and it does not rescue you. Under the principle of subrogation, once the guarantor pays out your investors, it legally inherits all their rights, claims, and security. It steps into the shoes of the senior investors, taking the mortgage over your assets, the charge over your accounts, and the pledge over your shares, and it will pursue your project company, or the government in a political risk event, to recover every kobo it paid. Credit enhancements protect the investors. They do not bail out a failing developer. The guarantee is designed so that being called is a disaster for you as well as for the provider, which is exactly why both sides work so hard to make it unnecessary.

Popular Sources of Credit Enhancements Active in Nigeria and Africa

An important word before the examples. The firms named are here to illustrate the presence of this layer on the continent. My mentioning them is not an endorsement or a recommendation. Do your own research and consult your own retained advisers before reaching out to any investors.

InfraCredit (Nigeria). Established in 2017 with backing from the Nigerian Sovereign Investment Authority and GuarantCo, it provides local currency guarantees that lift infrastructure bonds to AAA on the national scale, unlocking pension and insurance capital and stretching tenors toward twenty years. It has guaranteed about 28 transactions and mobilised approximately 390 billion naira of private investment into infrastructure.

Dhamana (Kenya). Launched in 2024 and backed by the Private Infrastructure Development Group, the African Development Bank, and the County Pension Fund, Dhamana offers unconditional local currency guarantees across East Africa with tenors up to twenty years, doing for the region’s idle pension and insurance capital what InfraCredit does in Nigeria.

The African Guarantee Fund. A continental guarantor that shares risk with partners such as GuarantCo to reach infrastructure and businesses developed by African SMEs, extending credit enhancement to smaller sponsors who fall below the thresholds of the larger players.

GuarantCo. The guarantee arm of the Private Infrastructure Development Group, backstopping 5 to fifty million dollars per transaction for up to twenty years, and sitting behind several of the local guarantors above through counter-guarantees and seed capital.

The regional and global insurers and trade finance banks. For political and currency risk, the African Trade and Investment Development Insurance agency serves the continent regionally, while MIGA provides the deepest, longest-tenor cover globally. For trade and equipment finance, the African Export-Import Bank (Afreximbank), a multilateral trade finance bank, provides guarantees and risk cover across the continent, while the Nigerian Export-Import Bank (NEXIM) is Nigeria’s national export credit agency.

Practical Guidance: How to Attract Credit Enhancements

This follows directly from the opening idea. Since the provider’s whole concern is that it will never have to pay, your job is to present a project so well de-risked that saying yes is easy.

Do the de-risking work before you ask for a credit enhancement. Do not approach a guarantor with a concept or poorly prepared project and expect them to fix it. Approach them with a project already structured for risk containment: contracts drafted, off-take secured, permits in progress, sponsor equity committed. The underwriting team is scanning for reasons the project could fail. The fewer you leave them, the more likely and the cheaper your guarantee. Every gap you close before you ask is a gap they do not have to price into your fee.

Make your commercial contracts binding and bankable. Guarantors run a grueling audit of your project agreements. Your construction contract should be fixed-price and turnkey with a reputable, balance-sheet-backed contractor, so cost overruns are the contractor’s problem, not the project’s. Your operations and maintenance contract should carry firm performance guarantees. Above all, the guarantor’s lawyers must see that every commercial risk has been allocated to the party best able to bear it. Unallocated risk is the single most common reason a guarantee is declined or priced punitively.

Bring flawless ESG compliance. Development-focused guarantors are bound by strict public mandates and see themselves as change agents. They will not wrap a project that breaches international standards. Provide a full environmental and social impact assessment aligned to the IFC Performance Standards, and if your project involves land acquisition, make your resettlement plans transparent and documented. Weak ESG is not a soft failing to these institutions. It is a hard stop.

Underwrite your public counterparties for them. If your project relies on government payments, the guarantor will assess your public counterparts as rigorously as your project. Help them. If you are dealing with a sub-sovereign, bring clean, audited fiscal data on the state, evidence of its capital-expenditure headroom, its governance record, and a viable revenue assurance mechanism that survives changes in government. This is exactly the kind of public-finance evidence that separates a fundable sub-sovereign project from an unfundable one, and the developer who arrives with it has done the guarantor’s hardest work for them.

Show a real track record and real skin in the game. Guarantors need to trust your execution. They will scrutinise your team’s record on similar assets, and they will insist you carry meaningful equity at the bottom of the stack. A developer with nothing to lose is precisely the developer a guarantor fears, because the guarantee is the only thing standing between the project and default. Injecting real equity aligns your incentives with theirs across the life of the guarantee and signals that you believe the project will never call on it.

Approach the right provider for the risk being mitigated. Local currency default risk goes to local currency guarantors like InfraCredit, Dhamana, or the African Guarantee Fund. Political and currency risk goes to MIGA or the African insurer. Trade and equipment finance goes to a trade finance bank or an export credit agency.

Arriving at the right door with the right request signals that you understand the landscape, which itself builds the provider’s confidence in you.

Bringing It All Home

Mastering the capital stack means looking beyond the simple layering of debt and equity, and learning to borrow the balance sheets and credit ratings of highly rated, often development-backed institutions to shield your commercial investors from risks. Guarantees and insurance are the bridges that do this. They sit alongside your structure, absorbing the sovereign, currency, and default risks that banks and pension funds will not bear, and translating the hard realities of the African market into the investment-grade language global capital demands.

But the lesson to carry from this note is that a credit enhancement is not a way to make a weak project fundable. It is further protection for an already strong project and sponsor.

The paradox at the centre of credit enhancements is that you earn it precisely by proving you will not need it.

A strong case in point, InfraCredit’s first eligibility criteria is stated as follows: ”By adopting a ‘zero loss underwriting policy ‘, InfraCredit will only underwrite a portfolio that contains lower potential default frequency and loss severity characteristics”

Zero-loss underwriting is a very strict risk-management strategy where a financial institution only approves transactions that show no foreseeable risk of financial loss.

Meaning providers will back you only when you have de-risked the project so thoroughly that the enhancement is certain to never be called, because that certainty is what protects its rating and what makes its promise worth anything to your investors.

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Reviewed to Complete This Note

1. Notes on Project Development. Decoding Blended Finance and First-Loss Capital. Ebun Mesaiyete, 2026.

2. Notes on Project Development. The Capital Stack Decoded: The Key to the Domestic Vaults. Ebun Mesaiyete, 2026.

3. Open Capital. Improving the Effectiveness of Guarantees: Final Report. 2025.

4. InfraCredit. Corporate profile and guarantee track record. https://infracredit.ng/. 2026.

5. GuarantCo and the Private Infrastructure Development Group. Local currency guarantee solutions, counter-guarantee structures, and the InfraCredit and Dhamana facilities. 2024 to 2026.

6. Dhamana Guarantee Company (Kenya). Launch, PIDG, AfDB, and County Pension Fund backing, and East African local currency guarantees. 2024.

7. African Guarantee Fund and GuarantCo. Risk-sharing facility for African SME and infrastructure guarantees. 2024.

8. Multilateral Investment Guarantee Agency (MIGA), World Bank Group. Political risk insurance products: transfer and convertibility, expropriation, breach of contract, and war and civil disturbance. 2024 to 2025.

9. African Trade and Investment Development Insurance (formerly the African Trade Insurance Agency). Political and credit risk cover for African transactions. 2025.

10. African Export-Import Bank (Afreximbank) and Nigerian Export-Import Bank (NEXIM). Trade finance guarantees and export credit cover. 2025.

11. GEMs Consortium. GEMs Default and Recovery Statistics for private and sub-sovereign lending in emerging markets. 2024 to 2025.

12. Amundi Investment Institute and Convergence. Credit Enhancements and Risk Transfer Mechanisms. 2025.

Further Reading

13. Development Bank of Rwanda (BRD) and World Bank IDA. Sustainability-linked bond credit enhancement and funded escrow structure. 2024.

14. UK Export Finance and Atradius Dutch State Business. Export credit agency guarantee and insurance frameworks.

15. OECD. Unlocking Local Currency Financing in Emerging Markets and Developing Economies. 2025.

That note took apart the two main types of capital that make up the middle -, subordinated debt and mezzanine instruments - and showed how their sitting below the senior commercial capital and above equity acts as a cushion, absorbing losses before the senior money is touched.

However, it is important to know that the middle layers follow the ordinary logic of investments. They follow the oldest rule in finance: higher risk, higher return.

Therefore, because they sit lower in the waterfall and accept a higher risk of loss, they demand higher returns.

What if you could shield your senior commercial investors from early losses without paying the premium that a subordinated or mezzanine investor would demand? What if the capital sitting in the riskiest, first-loss position at the very bottom of your stack was willing to accept a below-market return, or no financial return at all?

That shield and cushion break the rule in an innovative capital structure called blended finance.

This sixth note in The Capital Stack Decoded series breaks it down and to understand it, we first need to be clear about what blended finance actually is.

What Blended Finance Actually Is

The cleanest way I have seen this explained comes from a LinkedIn post I read from Benjamin Akko, and because he sets it out so simply, I am going to borrow from it directly here.

He explains it this way.

Project finance is built on commercial logic. It funds a single asset, and it is repaid from that asset’s own cash flows. Its risk lens is bankability: the strength of the off-take, the way risk is allocated across the contracts, and whether the numbers stand on their own. Everything we covered in the bankability series lives here.

Development finance is built on mandate. Its concern is outcomes, not just returns. Its capital comes from concessional sources, grants, and blended structures. Its risk lens is impact: monitoring and evaluation, a theory of change, and the measurable good the money does.

Where these two meet is in blended finance and public-private partnerships, which use project structures to de-risk investment while staying anchored to development mandates.

If expressed as a formula, Blended Finance = Project Finance + Development Finance.

You take the rigorous, cash-flow-based discipline of project finance, and you fuse it with the impact-driven, mandate-bound capital of development finance.

There is an important consequence of that fusion, which you must internalise as a developer.

To attract the development capital that blends into your project, your project cannot be only a good social cause, nor can it be only a good commercial bet.

It has to be both.

It must carry a genuine, measurable social impact to satisfy the development mandate, and it must have real commercial potential on its own to satisfy the project-finance logic.

A project with impact but no viable cash flows will not attract the commercial layers the blend is designed to mobilise.

A project with strong cash flows but no development story gives the concessional provider no reason to step in.

To attract blended finance, your projects must sit in the intersection of both.

Common Forms of Development Finance That Blend with Project Finance

Blended finance is not a subsidy handed to the private sector.

It is a disciplined tool for building markets.

It aligns a risky project with the conservative risk profile of the commercial banks and pension funds you are trying to attract, by de-risking the project.

Development finance that blends with project finance usually takes one, or a variant, of these forms:

• Junior concessional equity. The most common and most catalytic form. A donor agency or foundation buys junior equity that sits at the very bottom of the stack, agreeing to bear the first losses and to defer its own dividends until the senior and mezzanine investors have hit their target returns.

• Concessional subordinated debt. Debt provided at below-market rates, with long tenors, grace periods, or back-end weighted repayment. It ranks below the senior lenders, so it is serviced only after they are satisfied, which improves the debt service coverage ratio the senior investors see, another form of first-loss capital.

• First-loss guarantees. An external credit enhancement, where a DFI or public donor promises to cover a defined portion of senior investors’ losses if the project defaults. Because a guarantee sits outside your project company’s balance sheet, it is a highly efficient way to upgrade the creditworthiness of your senior debt without adding cash to the stack. Guarantees deserve their own treatment, and they will get it in the next note.

• Returnable grants. A type of grant that requires repayment to the funder, behaving effectively as a zero-interest loan.

First-Loss Capital Inverts The Risk-Reward Logic : It cushions at a Lower Cost Than the Top of the Stack

First-loss capital is a specific structural mechanism, or tranche of capital, within blended finance structures.

Recall the ordinary rule. In a normal stack, capital is priced by its position. Senior debt sits at the top, takes the least risk, and accepts the lowest return. Mezzanine sits in the middle, takes more risk, and demands more. Equity sits at the bottom and expects the highest reward of all.

Risk and return march together, top to bottom.

First-loss capital inverts this completely.

The concessional first-loss provider absorbs losses before anyone else feels them; they are technically now at the bottom. By the ordinary rule, that seat should demand the highest return of all. Instead, the provider accepts a below-market return, a capped return, or no financial return whatsoever. It takes the most risk and asks for the least reward, less even than the senior capital sitting safely at the very top of the stack.

Sit with how strange that is. The safest money in a commercial deal, senior debt, is supposed to be the cheapest.

Yet in a blended deal, first-loss concessional capital, despite its high risk, can be cheaper still.

The provider does this because its objective is not financial yield. It is impact.

Its willingness to be paid last and least is not a mistake in the pricing.

It is the entire point.

That is what makes it catalytic. The mezzanine layer in the last note cushioned your senior investors and charged a premium for the service.

First-loss concessional capital delivers the same cushion, absorbs the same losses, and protects the same senior investors, but at a much lower premium, or none at all. It does for free, or nearly free, what the middle layers charge dearly to do. And because it costs the structure so little while protecting the commercial money so much, it pulls in private capital that would never have come on its own.

Because of this low cost of capital, the project is delivered at a much lower weighted average cost of capital, lessening the overall burden for the project in the long term.

Important Development Finance Terms

One of Benjamin’s posts also shared a practitioner’s glossary of the terms. I borrowed a few, then added some more, to compile a list you will hear regularly when leveraging development finance into blended finance structures.

• Concessional financing is capital offered on very low, below-market terms by DFIs or donors, a fifteen-year loan at two percent interest, say, rather than the seven-year, high-rate money a commercial bank would offer. It is the softer, more patient capital that makes hard projects work.

• Minimum concessionality means using the least concessional capital necessary. You deploy only enough first-loss capital to get commercial money across the line, no more. Oversizing the cushion distorts the market and wastes scarce concessional capital that could have de-risked another project.

• Additionality is the one to hold closest, because it is the test you will have to pass. It means a value that would not have existed otherwise, that is, funding a project no commercial bank would touch alone. If your project could have been financed commercially without the concessional help, the concessional provider has no business being there. You must be able to show that the impact, or the private capital mobilised, genuinely would not have happened on commercial terms alone, that without the first-loss cushion, the commercial investors would have walked away.

• Catalytic capital is a donor taking the first-loss tranche to catalyse commercial money. This is the engine of the entire structure, and donors providing this type of capital often measure their impact by how much commercial capital they catalyse with their funding.

• The leverage ratio, when used in development finance contexts means catalytic ratio. It is the most common metric used to evaluate the structuring success, or the catalytic nature, of a blended finance transaction.

  It measures the rate at which concessional or catalytic capital mobilises commercially priced (market-rate) capital within a transaction. It is calculated as commercially priced capital divided by concessional capital; the higher, the better and more impactful.

  For example, if a fund uses 10 million dollars of first-loss capital to unlock 50 million dollars of commercial senior debt, that is a leverage ratio of 5:1, meaning every concessional dollar has pulled in five commercial ones.

• Debt sustainability is the capacity to repay without restructuring, a borrower whose obligations stay serviceable through the life of it debt. Even impact-driven capital will not knowingly load a project or a country with debt it cannot carry.

When you sit across from a concessional provider, they are asking whether you are genuinely additional, whether their investment is truly catalytic, and whether the whole project is sustainable. Speak that language, and you are already ahead.

The Structured Fund Blueprint

Most blended finance no longer happens one project at a time. Catalytic providers increasingly prefer to invest through structured funds that target a specific mandate or pool many projects, diversify the risk, and issue tiered tranches to different classes of investor. Understanding the blueprint helps you see where your project might fit.

The simplest design is a two-tier structure: a junior tranche of concessional first-loss capital, and a senior tranche for investors seeking commercial returns. It is cheap to run and avoids heavy legal complexity. This is very popular with renewable energy and climate-focused projects.

Losses and cash are allocated by formal waterfalls. Senior investors are paid their interest and principal first, mezzanine next, and the junior first-loss investors last, recovering their capital only if the fund suffers little or no impairment.

A common safeguard is prohibiting the fund from paying anything to the junior tranches until accumulated early losses have been recovered and the senior returns paid in full.

Institutional investors often cannot invest below investment grade, and by placing, say, a 20 percent junior first-loss tranche beneath the senior debt, you insulate the senior tranche from default up to that threshold, which can lift the senior notes to an investment-grade rating even in a volatile market. It bridges the gap between perceived and actual risk, and according to the Global Emerging Markets Risk Database, the actual default rates for development-backed lending in emerging markets sit in the low single digits, far below what the pricing usually implies.

Sub-Saharan Africa and Nigeria in Focus

Once again, an important word before the examples. The firms named are here to illustrate the presence of this layer on the continent.

Mentioning them should not be considered my endorsement or recommendation. Mandates, fund sizes, and appetites change constantly; an investor active in one instrument today may not be tomorrow, so treat these as a snapshot of the landscape rather than a live directory.

The Mirova Gigaton Fund, launched in 2023, is a roughly 400 million dollar blended debt fund built primarily for Sub-Saharan Africa, lending to off-grid solar and distributed renewable energy companies. Its stack layers catalytic junior first-loss shares beneath mezzanine notes for DFIs and a super-senior tranche for private institutions, with a portfolio guarantee from the Swedish development agency Sida layered over the junior and mezzanine tranches. That combination of first-loss equity and a risk-sharing guarantee is what let it mobilise several times its concessional capital, unlocking institutional money for markets those institutions would never have entered alone.

Climate Investor One and Climate Investor Two, managed by Climate Fund Managers, show a different blueprint: capital matched to the three risk periods of a project’s life. A concessional development fund provides reimbursable loans covering up to half of early-stage soft costs like feasibility and environmental studies, repaid with a premium only at financial close. A tiered construction equity fund then funds the build, with a concessional junior first-loss tranche absorbing construction risk and cost overruns beneath the DFI and commercial equity above it. Once the asset is operating and generating stable cash flows, it is refinanced with long-term senior debt, and the concessional capital is recycled into the next project.

The Spark+ Africa Fund, investing in clean cooking across Sub-Saharan Africa, shows how binary this capital can be. Clean cooking serves fragmented, low-income markets, and the manager was blunt that a purely commercial fund in this segment is close to impossible. A first-loss concessional equity commitment from the Green Climate Fund was what made the fund viable at all. Without a provider willing to take the junior-most seat and absorb the early impairments, the commercial investors and family offices simply would not have come.

d.light’s Brighter Life Kenya facility shows the same logic in a securitisation. A roughly 110 million dollar local-currency, receivables-backed facility funded d.light’s solar home systems in Kenya through a bankruptcy-remote vehicle that bought customer receivables off d.light’s balance sheet. The Africa Finance Corporation invested subordinated capital into the junior notes, forming a first-loss cash cushion that gave senior investors, including the DFC and Norfund, the confidence to fund the senior tranches at competitive rates.

The Climate Finance Blending Facility (CFBF) brings this whole structure home to Nigeria and shows first-loss capital and guarantees working together in a single vehicle. The facility is a catalytic first-loss, multi-donor pool, seeded with 10 million pounds in concessional funding from the UK’s Foreign, Commonwealth and Development Office and later strengthened by a 10 million dollar concessional investment from British International Investment, the UK’s development finance institution. That 10 million dollars came stapled to a 20 million dollar local currency counter-guarantee, a 30 million dollar dual instrument in total, structured specifically to support decentralised renewable energy projects originated and guaranteed by InfraCredit.

The design is a textbook inversion: the concessional money sits in the junior, first-loss position, absorbing early losses so that InfraCredit’s AAA guarantee can then draw domestic pension and insurance capital into off-grid energy at a lower cost of debt. And it is deploying. By early 2026, the facility had channelled the naira equivalent of about 8.6 million dollars (12 billion naira) of concessional capital into renewable energy projects.

Practical Guidance for Developers and Sponsors

If your model cannot carry commercial interest rates, or if the banks will not enter without a cushion, blended financing can save your transaction. But reaching it takes a deliberate and specialised approach.

• Prove both impact and viability. Your project must satisfy the development mandate and the commercial logic at once. Lead your pitch to concessional providers with impact, emissions avoided, households electrified, jobs created, gender frameworks built in, but be ready to prove, with the same financial model a commercial bank would demand, that the underlying project is genuinely viable. Impact wins their attention; viability wins their capital.

• Knock on the right door. Do not ask a DFI’s commercial lending desk for first-loss capital; that desk lends from a balance sheet bound by rating constraints. Look instead for the specialised concessional windows, their dedicated climate funds, and the multi-donor facilities that exist specifically to provide concessional, risk-absorbing capital.

• Keep the structure as simple as you can. Multi-tranche blended funds carry high transaction costs, long timelines, and complex intercreditor negotiations. Every extra layer means another agreement, another mandate to reconcile, and more legal costs. Unless your senior investors genuinely will not come in without an intermediate buffer, aim for a clean junior-senior structure.

• Engage early, and see if you can use their project development grants. Do not wait for financial close to seek concessional capital or to approach a blended finance fund. Many donors and bilateral DFIs offer, alongside concessional capital, project preparation grants and technical assistance to fund the upfront development costs, feasibility, legal, and environmental costs that commercial investors refuse to fund. Engaging early lets you use those grants to build your project to the impact and ESG standards that same provider will later require before committing its first-loss capital.

Bringing It All Home

For two notes, we have stayed with the idea of a cushion. The middle layers cushion your senior investors and charge a premium, because they obey the rule that higher risk earns a higher return. Blended finance, using first-loss capital and other forms of development finance, delivers the very same cushion and quietly breaks that rule, taking the riskiest seat in the stack for far less reward than the safest.

Responding to one of the two Benjamin Akko posts referenced here, Tidiani Wangara drew the distinction beautifully. He wrote:

• Development finance is the engine of social progress, mobilising resources for education, health, and clean energy, its impact measured through social return on investment.

• Project finance is the engine of economic growth, structuring capital for power plants, toll roads, and industrial facilities, its viability judged through economic return and net present value.

• Both engines drive development forward. One maximises social impact, the other financial return, and both run on different logics of value.

Blended finance couples the two engines together into the same project.

The development engine only fires if the social return is real, the electrified households, the avoided emissions, and the lasting jobs created.

The project-finance engine only fires if the economic return is real, the cash flows that service the debt, and repay the capital.

Bring only one, and the blended finance structure stalls.

Bring both, and a project that could never have carried commercial money alone can reach financial close.

That is exactly why your project must position itself for both at once.

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Reviewed to Complete This Note

1. Benjamin Akko, LinkedIn, framing of project finance and development finance, and where they meet as blended finance (borrowed with attribution), Found here:

https://www.linkedin.com/posts/benjaminakkoaca_developmentfinance-projectfinance-infrastructurefinance-share-7492520528684068864-piLt/?utm_source=share&utm_medium=member_android&rcm=ACoAAAKve6ABHp6IHXRS0nV5vfgE1l-53WD0TG8

2. Benjamin Akko, LinkedIn, and Definitions for Development finance, and Comment by Tidiani Wangara on the same framing, distinguishing the two engines of value. Found here:

https://www.linkedin.com/posts/benjaminakkoaca_developmentfinance-projectfinance-blendedfinance-share-7490048416949989377-_2Oe/?utm_source=share&utm_medium=member_android&rcm=ACoAAAKve6ABHp6IHXRS0nV5vfgE1l-53WD0TG8

3. Notes on Project Development. The Capital Stack Decoded: The Middle Layers of the Stack. Ebun Mesaiyete, 2026.

4. Notes on Project Development. The Capital Stack Decoded: Where Money for Infrastructure Actually Comes From. Ebun Mesaiyete, 2026.

5. Convergence Blended Finance. Structuring a Blended Fund: Lessons from the Mirova Gigaton Fund in Frontier and Emerging Markets. 2025.

6. Convergence Blended Finance. Blended Finance 101, and Playbook for Blended Finance in Affordable Housing. 2025.

7. Amundi Investment Institute (Thierry Roncalli). A Framework for Structuring a Blended Finance Fund, and Blended Finance: Scaling Capital for Sustainable Impact. 2025.

8. British International Investment (BII) and Boston Consulting Group (BCG). Scaling Blended Finance: Practical Tools for Blended Finance Fund Design. 2024.

9. Climate Policy Initiative. First and Second Loss Capital Facilities (Climate Investor One, GCF first-loss tranches). 2026.

10. Mirova and EIB. Mirova Gigaton Fund structure, tranches, and Sida portfolio guarantee. 2023 to 2025.

11. Netherlands Advisory Board on Impact Investing (NAB). Blended Finance Case Studies, including the Spark+ Africa Fund and Green Climate Fund first-loss commitment. 2022 to 2024.

12. Africa Finance Corporation and d.light. Brighter Life Kenya 1 receivables securitisation, junior-note subordinated capital, DFC and Norfund senior funding. 2024.

13. GEMs Consortium. GEMs Default and Recovery Statistics for private and sub-sovereign lending in emerging markets. 2024 to 2025.

14. OECD. Unlocking Local Currency Financing in Emerging Markets and Developing Economies. 2025.

15. Open Capital. Improving the Effectiveness of Guarantees: Final Report. 2025.

16. British International Investment (BII). Climate Finance Blending Facility Limited, Investment 01: FCDO-seeded first-loss facility and $20m counter-guarantee for renewable energy in Nigeria. 2024 to 2026.

17. InfraCredit. InfraCredit Secures a US$30m Risk-Sharing and Blended Local Currency Co-financing Facility from British International Investment to Support Decentralised Renewable Energy Projects in Nigeria. 2024.

The last two notes expanded on the sources of senior debt, the safest, most protected sources of funds, which sit at the top of the stack, second only to the operations and maintenance costs in the project’s cash flow waterfall, before they claim their repayments.

Now, in the fifth note in the series, we walk down a step to the middle layers.

This is the layer of financing that sits between the senior debt at the top and the equity at the bottom. This middle layer is filled by either subordinated debt or mezzanine instruments.

This note will cover what they are, summarise how they are structured, and how to think about raising them alongside your senior debt. It will also share some examples of who provides such instruments in our markets in Nigeria and Africa.

What Subordinated Debt and Mezzanine Instruments Are

Let’s start with the plain meanings.

• Subordinated debt is exactly like any other loan, but it ranks below senior debt in the order of repayment. Also called junior debt, it sits directly below senior debt but ranks above mezzanine debt and common equity. If the project runs short of cash, the senior investors are paid first, and the subordinated debt is paid next, recovering what is left before any other class of investor. That is the whole idea contained in the word: it is subordinate to, or waiting for, the debt above it.

• Mezzanine instruments take their name from the Italian for a middle floor, because these financing instruments sit on the level between pure debt and pure equity. These instruments sit even below standard subordinated debt, and can be structured to carry features of both debt and equity, ranking right before pure equity.

Though these terms are often used interchangeably, they are structurally different, with nuances in what makes a financing instrument considered subordinated debt and what makes it mezzanine.

Nevertheless, what matters most for application purposes is this:

• Know that both are positioned below senior debt and above equity, and that this informs the terms on which those who provide these instruments offer them.

• Because these middle-layer instruments carry more risk than senior debt, they have higher return expectations and cost more than senior debt. The senior debt layer might price at a certain rate; the subordinated and mezzanine layers sitting beneath it will always demand more, to be compensated for being paid later and recovering last among the investors.

• They provide a cushion for senior debt. Subordinated debt and mezzanine instruments do two jobs at once: they provide capital, and they make your senior debt easier to raise, because they sit beneath the senior investors and absorb losses before they do.

The Wilson Center, writing on how to mobilise private money into developing-country infrastructure, describes them as a form of credit enhancement that mitigates the risks that would otherwise keep risk-averse capital out.

Common Structures for Subordinated Debt and Mezzanine Instruments

Subordinated loans

The simplest form. A loan that ranks below the senior debt, often called a junior or unsecured loan. Ranking below senior lenders and typically requiring little or no collateral of its own, its repayment can be tailored to the projected growth of the project, that is, back-end weighted, so that little is due in the fragile early years.

Back-end weighted repayment means the repayment schedule for that loan is deliberately structured so that the smaller repayments are made in the early years of construction or initial commercial operations and then ramped up until the largest payments are made in the later years.

Common mezzanine instruments

Mezzanine instruments let you raise substantial capital without selling a large stake in your project. It is, as one capital provider puts it, the last stop on the way down the stack where an owner can raise meaningful money without heavy dilution. For a developer who has put years into a project, that matters.

Mezzanine instruments increasing in popularity include:

• Payment-in-kind, or PIK. Instead of providing repayments in cash each period, the interest is added to the principal and paid later. For an infrastructure project generating little or no revenue during construction and ramp-up, this is powerful, because it removes a cash burden at exactly the moment the project can least afford it.

• Convertible instruments. A loan that can convert into equity under agreed conditions. It starts out as a loan, structured to be subordinated to senior lenders, but potentially converting to equity under agreed conditions. This suits a sponsor who is not yet willing to give up ownership but is open to the investor taking a stake later if the project performs.

• Quasi-equity. Mezzanine instruments may be structured with an equity-like return, debt instruments that also carry equity components like a profit-share, a revenue-participation feature, or warrants that give the investor a piece of the excess growth of the business, the upside. It is debt that behaves a little like equity, which is why it is sometimes called quasi-equity.

The Sequencing Question: Which Do I Try to Raise First?

Before worrying about sequencing the fundraising, ask a more basic question. Does your project need senior and middle layers of capital, or will one layer and your own equity do the job?

Small-scale projects should avoid complications and work with investors who will provide capital on the best and simplest terms.

If your senior investors are willing to lend enough, and you and your co-investors can comfortably put up the rest as equity, then adding an expensive middle layer only raises your cost of capital for no reason. And if you successfully approach a mezzanine investor who provides all you need, then there is no need for a senior investor at all, especially on small deals.

Complexity is not a badge of honour; only reach for it when necessary. A clean stack of one source of debt plus equity is cheaper and faster. Simplicity is a virtue that investors reward. Reach for additional layers when the project genuinely calls for it, not because a more complicated stack looks more impressive.

When You Actually Need Both Layers

• There is a gap between what senior debt will lend and what you can fund with equity. This is the classic case. Say your project costs 100, your project’s stress-tested cash flows mean senior investors can only comfortably lend 60, and you can realistically raise 20 in equity. That leaves a gap of 20. You can try to fill it with more equity, but that may mean giving away more ownership than you are willing to part with, or more than you even can. Mezzanine fills that gap. It sits in the space senior debt will not reach and equity cannot afford to cover alone.

• The senior investors will not come in without a cushion beneath them. In our markets, this is common, especially for large projects. Senior lenders insist they will only come in if there is a layer below them absorbing the first losses. Here, the middle layer is not filling a funding gap so much as unlocking the senior money itself. Without the mezzanine cushion, the senior tranche does not happen at all. This is the blended-finance logic we keep returning to, and it is why a DFI or an impact fund’s subordinated commitment is so often the piece that makes the whole deal viable.

• Your early cash flows cannot carry full senior debt service. Some projects are sound over their full life but fragile in the first years, during construction, ramp-up, or while demand builds. If those early payments would break the project, a middle layer structured with PIK interest or back-end weighted repayment can carry you through the fragile period, sitting patiently and taking its own return later once the asset is performing, while the senior debt is serviced first. Here you need both, because each does something the other cannot: the senior debt provides the cheap bulk of the capital, and the mezzanine provides the flexibility.

• You want the leverage but not the dilution. Sometimes you could raise more equity, but you do not want to. You have put years into the project, and you want to keep your ownership and your upside. Layering mezzanine on top of senior debt lets you push your total leverage higher and fund the project without selling a larger stake. Here, both layers together do what neither could alone: senior debt keeps the blended cost of capital down, and mezzanine extends your reach without diluting you.

If it turns out you do need both layers of capital when assembling your stack, which do you attempt to raise first, the senior debt or the subordinated layer beneath it?

First, know that the senior investor wants to see all the other types of capital committed and in place before they fully commit their own, because fully funded lower layers mean more of the project is already paid for, and their committed capital is not idling while you arrange the rest.

So in practice, if you need both senior and middle layers of capital,

Establish the senior terms first, then commit to the subordinated layer, then commit to the senior terms.

You will usually structure and negotiate the senior debt first, because its size, tenor, and covenants set the frame for everything beneath it. The senior investor’s appetite determines how much room is left for subordinated debt and equity. But you then need the subordinated capital committed, and often funded, before the senior money flows.

Let me lay out the two approaches and their trade-offs plainly.

Approach A: Senior-led, subordinated fills the gap. You anchor the senior debt first, size it, then raise subordinated capital to fill the gap between the senior amount and your equity.

• The advantage: the senior investor sets the discipline early, and you build the rest of the stack to fit the cheapest, largest tranche. You avoid over-raising expensive junior money.

• The disadvantage: you may reach the end of senior negotiations and find the gap larger than expected, then have to raise subordinated capital under time pressure.

Approach B: Subordinated-led, senior comes over the top. You secure a subordinated or mezzanine commitment first before taking the strengthened structure to senior investors.

• The advantage: arriving at the senior investor with a committed cushion already beneath you is powerful. It signals a de-risked deal, it can improve your credit profile, and it is often exactly what unlocks the senior money.

• The disadvantage: you commit to more expensive capital before you have confirmed the senior terms, and if the senior portion is smaller than hoped, your weighted cost of capital is much higher because you have a higher proportion of costly subordinated debt than you planned.

In a market where commercial senior investors are cautious, the cushion is not an afterthought. It is frequently the thing that makes the deal happen.

What Sponsors Should Consider When Using Senior and Subordinated Layers in One Stack

A few things to hold in mind when you are using both in one capital stack.

• The middle layers cost more than the senior layer. Do not be surprised by the higher rate. You are paying for flexibility, for their acceptance of higher risk, and for the cushion it creates beneath your senior debt. The right question is not whether it is cheaper than senior debt, but whether the leverage and the senior portion it unlocks are worth the cost.

• The intercreditor agreement is where the real negotiation happens. The moment you have both senior and subordinated investors, they must formally agree on how they rank and behave toward each other, in a document called the intercreditor agreement. It governs who is paid when, whether the junior investors must stand still during a default, called a payment standstill, and what rights each has if things go wrong. This is often the most complex and time-consuming part of the whole financing, and its terms materially affect your flexibility. You need quality advisers to navigate it.

• Use it to protect your ownership. The strategic reason to raise more subordinated debt or mezzanine rather than more equity is to increase your leverage without diluting your shares. If keeping control and most of the project’s upside potential matters to you, this layer is how you raise substantial capital while giving up far less of your project than an equity round would cost.

• Match the structure to your cash flow. The flexibility is the gift. If your project earns little in its earlier years, the flexibility of PIK interest or back-end weighted repayments lets you avoid being crushed by debt service in the fragile early years.

• Mind your total leverage. Middle layers let you push your debt-to-equity ratio higher, which lifts your returns, but every layer of debt is a fixed obligation. Stacking senior and subordinated debt or mezzanine instruments on a thin equity base can leave a project dangerously exposed if revenues disappoint. The cushion protects your senior investors and prevents dilution of external equity, but it does not protect you from exposure to default when you are over-leveraged.

Who Provides These Instruments in Africa and Nigeria

An important word before the examples. The firms named are here to illustrate the presence of this layer on the continent. My mentioning them should not be considered my endorsement or my recommendation of the firm. Mandates, fund sizes, and appetites change constantly; an investor active in one instrument today may not be tomorrow, so treat these as a snapshot of the landscape rather than a live directory.

Do your own research and consult your own retained advisers before reaching out to any investors.

• The Energy Entrepreneurs Growth Fund (EEGF) was created in 2019 by the Shell Foundation and FMO, managed by Triple Jump, and closed in 2023 at 125 million dollars, well above its initial 45 million dollar round. What makes it notable for this note is that it deploys predominantly mezzanine structures, alongside equity and debt, precisely because early and growth-stage energy companies need patient, risk-tolerant capital that ordinary senior lenders will not provide. Its capital is deliberately blended: the African Development Bank, through its Sustainable Energy Fund for Africa, provided concessional co-investment on below-market terms, layered in to make the fund’s own capital go further.

• All On brings this instrument right into Nigeria’s renewable energy sector. Seeded by Shell in 2016 but operating independently with its own board and investment committee, All On is an impact investment company that deploys a blend of debt and equity, more than 40 million dollars across over 50 off-grid energy companies to date, into early and growth-stage businesses closing Nigeria’s energy access gap. Its investments are frequently structured as quasi-equity and convertible notes, debt that can convert into an ownership stake later. Convertibles let the investor take the risk of an early-stage company while preserving the option to share in its upside, and let the founder defer dilution until the business is worth more.

• Vantage Capital, backed in part by the African Development Bank, has completed more than two dozen mezzanine transactions across several fund generations, deploying capital that blends debt and equity features, including facilities into technology and energy-related businesses across the continent. Its existence is a signal in itself: mezzanine, long a marginal share of African private capital, is maturing into a recognised instrument here.

• ARM Investment Managers. In early 2026, ARM Investment Managers launched a 200 billion naira private debt programme in Nigeria, deploying capital through senior secured loans and, selectively, subordinated debt to mid-sized companies, part of a broader deepening of non-bank, long-term financing in the market.

Bringing It All Home

Subordinated debt and mezzanine instruments are the quiet middle workhorses of a well-built stack.

They do two things at once that no other layer does.

They give you capital without forcing you to sell a large share of your project, and they form the cushion that makes your senior debt raisable in the first place.

When a DFI, an impact investor, or a mezzanine fund places this capital beneath your senior investors, it is taking the lower, riskier seat so that safer, cheaper money will sit above it.

The practical lessons are clear.

Reach for this layer only when the project genuinely needs it, when senior debt alone leaves you short, exposed, or fragile, and equity alone is too expensive or too dilutive.

It costs more, and it is worth it when the leverage and the senior access it unlocks justify the cost. The sequence usually runs senior-framed-first, but subordinated-committed-as-anchor, because in our markets it is so often the patient junior capital that unlocks the cautious senior capital. Treat the intercreditor agreement with respect, and structure the instrument to fit your cash flow.

Learn to use this middle layer well, and you gain a tool that raises your leverage, protects your ownership, and unlocks the senior money above it.

The next note will focus on blended financing, an innovative way of achieving the cushioning effects of subordinated debt or mezzanine instruments but at far lower costs of capital.

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Reviewed to Complete This Note

1. Notes on Project Development. The Capital Stack Decoded: Bonds, The Key to the Domestic Vaults. Ebun Mesaiyete, 2026.

2. Notes on Project Development. Decoding Commercial Institutional Debt. Ebun Mesaiyete, 2026.

3. Wilson Center. Infrastructure Lending 101: What Is Subordinated Debt and How Can It Mobilize Greater Private Investment in Developing Markets?

4. Triple Jump / Energy Entrepreneurs Growth Fund. Mezzanine Financing for Access to Energy in Sub-Saharan Africa.

5. AVCA. The Energy Entrepreneurs Growth Fund (EEGF) Exceeds Target, Successfully Closing at US$125mn. 2023.

6. Shell Foundation and Triple Jump. EEGF Announces Three New Investments Totalling $10m, and the AfDB SEFA concessional loan. 2022.

7. Shell Nigeria and Businessday NG. All On: portfolio scale, $40m+ deployed in debt and equity across Nigeria’s off-grid energy sector. 2025.

8. Africa Private Equity News. Five Notable African Energy Deals, Norfund and STOA and the EEGF mezzanine top-up. 2025.

9. EIN Presswire, Vantage Capital Provides Mezzanine Facility; and African Development Bank, Investment in Vantage Capital Fund II (Africa’s largest mezzanine fund manager).

10. This Day. ARM Launches N200 Billion Private Debt Fund, senior secured and selective subordinated debt. 2026.

11. World Bank PPP Legal Resource Center. Intercreditor Arrangements: mezzanine, subordination, and preference shares in project finance.

12. ScienceDirect / Project Finance in Theory and Practice. Mezzanine and subordinated debt structuring and the senior-versus-junior pricing illustration.

13. PGIM / Prudential Private Capital. What Is Mezzanine Financing? Quasi-equity and low-dilution characteristics.

In that note, I wrote about pension funds, insurance companies, and banks, and why they behave the way they do when taking positions in the capital stack of your project.

Then I closed that note by pointing you toward a hard reality for developers in our region.

When you build infrastructure in Africa, domestic capital sources and local currency are your best defence in the long term.

Too many good projects have been derailed simply because they borrowed in dollars or euros to build assets that earn in naira or cedis. When the local currency depreciates, the cost of servicing that hard currency debt spirals, wipes out cash flows, and drives the project into default.

Yet paradoxically, we operate in an environment where these pools of capital are still largely untapped.

Let the numbers make the point better than any argument could.

• The Africa Finance Corporation estimates the continent already holds over 4.4 trillion dollars in investable domestic capital, including more than 1 trillion dollars in pension and insurance assets.

• Africa’s pension industry alone now manages more than 600 billion dollars, ranging from around 23 billion in Nigeria to roughly 20 billion in Kenya to some 390 billion in South Africa. These are deep, expanding pools of long-term, local currency liquidity.

The capital is now more abundantly available at home; But it is mostly locked in sovereign instruments or idle.

• Across the continent, government bonds account for a large percentage of pension portfolios, close to 90 percent in Ghana, about 60 percent in Nigeria, and around 50 percent in Kenya.

• Less than 3 percent of total African pension assets are allocated to infrastructure.

In this fourth note in the Capital Stack Decoded series, I direct your focus toward these pools of domestic capital and prepare your minds for what you need to know and do to unlock access to these domestic “vaults.”

Bonds, and Why Pension Funds and Insurance Companies Buy Them

To reach the money sitting in local pension and insurance funds, you cannot simply approach them for a commercial loan. You must offer them a financial instrument designed for their needs.

That instrument is called a bond.

In plain terms, a bond is a debt issued directly and “sold” to investors buying in the capital markets.

When you issue a bond, you are borrowing money, but instead of taking a single large loan from one or a few banks, you break the total debt requirement into many more standardised, smaller units. You then sell those units to a wide pool of institutional investors as a way to raise capital to build and operate your project.

In exchange for buying many small units, the cash flows from the project or from any other source are used to repay the holders of the bond through periodic payments – called coupons.

Domestic institutional investors, specifically pension funds and life insurers, are the natural buyers of bonds, for an important structural reason. These institutions manage long-term, local currency liabilities. A pension fund collects contributions from workers today but will not pay out retirement benefits for twenty or thirty years. To stay solvent, it must invest those contributions in assets that generate steady, predictable amounts over that same horizon.

Infrastructure is the perfect asset class to match those liabilities. A bankable toll road, solar plant, or student housing scheme generates predictable, often inflation-linked cash flows over decades. That is precisely the profile a pension fund or insurance company needs.

But pension fund administrators and insurance companies are highly regulated and inherently conservative. They cannot risk your retirement savings or insurance premiums in assets that can fail. Capital preservation is equally, or even more, important than the rate of return; therefore, they are required to invest a large percentage of their portfolio of funds in strong investment-grade instruments with low risks of failing.

A bond, supported by the right credit enhancement, fits this mandate exactly. It packages your project’s complex infrastructure cash flows into a simple, highly rated, long-term asset that domestic institutions are legally permitted and genuinely eager to buy.

Bonds Under a Project-Financed Structure

When a large corporation issues a bond to fund or expand its operations, investors rely on the whole balance sheet of the company as a source of repayment.

In project finance, investors rely exclusively on the cash flows generated by the specific project you are building. To replicate project finance in a way that is acceptable to conservative bondholders, you must put a rigid, heavily monitored structure in place. The following are critical:

The ring-fenced SPV: The bond issuer offering (selling) the bond is never your parent development company. You create a Special Purpose Vehicle solely to own and operate the project, a separate legal entity that isolates the project from your corporate liabilities. All permits, land titles, and revenue contracts must sit in the name of this SPV, so that those assets can be directly controlled by representatives of bondholders.

The trustee: You cannot practically negotiate with or report to dozens of pension funds every month. The structure relies on Trustees, independent fiduciaries appointed to represent the collective interests of all bondholders. The Trustee holds the security package on behalf of investors and is responsible for enforcing covenants, monitoring the project accounts, and acting if a default occurs.

The security package: In exchange for their capital, bondholders require comprehensive security – The thing to hold if something goes wrong. Through the Trustee, you pledge the assets of the SPV: a mortgage over the physical infrastructure, a charge over the project accounts, an assignment of the commercial contracts, and a pledge of your shares in the SPV.

Covenants and reserve accounts: Bond documentation includes strict covenants governing how the SPV operates. They prevent you from taking on additional debt, changing the nature of the business, or paying yourself dividends before bond repayments are fully satisfied. To protect against short-term revenue dips, the structure mandates a Debt Service Reserve Account, which must always hold a pre-agreed amount of cash, typically enough to cover the next six months of bond payments, acting as an immediate shock absorber.

Reliance on CFADS and cash sweeps: As mention the cashflow waterfall is strictly enforced, and the ability to pay yourself and co-sponsors any dividends is entirely subordinate to the bond obligations. If your cash flow available for debt service falls below a specified ratio, the Trustee enacts a cash sweep, trapping excess cash inside the SPV and using it to ensure cash is available for bond payments, to protect investors while temporarily cutting off your returns.

Bonds Versus Direct Lending

As a developer, you must decide whether to fund your senior debt with a bank loan or a bond. Both provide commercial capital, but their mechanics, cost, and flexibility differ across several dimensions.

Tenor: This is the bond’s greatest advantage. Domestic banks rely on short-term deposits, which limits their ability to lend long-term. Local bank loans for infrastructure rarely stretch beyond five to seven years. Pension funds, by contrast, need long-duration assets, and guaranteed project bonds frequently reach 15 to 20 years. That longer tenor dramatically reduces your annual debt service burden on earlier, more unstable years of a project’s operating phase and makes capital-intensive projects viable.

Flexibility and speed to close: Bank loans win here. You negotiate directly with one or a few banks behind closed doors, explain the nuances of your project, and structure the term sheet collaboratively, and you close faster. Bonds are rigid. Securing a formal rating, drafting a public prospectus, obtaining regulatory approval, and building a book of demand is structured and time-consuming, so a bond will usually take significantly longer to reach financial close.

Disclosure and public scrutiny: Banks keep your financials confidential. Capital markets demand transparency. A listed bond subjects your SPV and its sponsors to some more scrutiny: you publish financial statements, disclose material risks in the prospectus, and maintain ongoing reporting to rating agencies and the securities exchange. You must be ready to operate with the discipline of a publicly accountable entity.

Prepayment and refinancing: Banks expect that developers often want to refinance once construction is complete and the project is de-risked, and they typically allow early prepayment for a moderate penalty. Bondholders buy bonds specifically to secure a long-term yield, so bonds carry strict make-whole provisions that require you to pay investors the present value of the future interest they would have earned, making early refinancing prohibitively expensive. Though there are ways to mitigate this by structuring options into the bond from the beginning.

Renegotiation in distress: If a bank-funded project hits a severe delay, you call a meeting with your relationship managers, and because only a few banks are involved, you could request an extension or restructure the debt payments more easily. If a bond-funded project hits distress, renegotiation is notoriously hard. Your debt is held by dozens of investors, and to change the terms, you must have the Trustee convene a formal bondholder assembly and secure a supermajority vote. The Trustee is bound by the rigid language of the trust deed and has little room for informal waivers. With a bond, you must get the structure right on day one, because fixing it later is a monumental task.

A Summary of The Bond-Raising Process

Raising a project bond is a structured, regulated process. It demands preparation and a coordinated team of specialists. Here is the high-level roadmap of the main parties and main steps.

Main Parties

Lead Arrangers: You cannot issue a bond to the public on your own. You need a lead arranger, either an investment bank, an issuing house, or a capital advisory firm that will coordinate the whole transaction, structure and price the bond, guide you through regulatory compliance for the bond, and draft the core documents, including the bond prospectus and pricing supplements. They also help with selecting and matching you to the other bond parties listed below, so pick a good arranger.

Transaction Advisers: Hired by arrangers to perform the due diligence that determines the residual risks that must be addressed, refine the project as best they can, and identify any key conditions precedent and subsequent that must be addressed to improve the project’s credit profile.

Guarantors: Most infrastructure projects in Africa will rarely achieve investment-grade ratings on their own. To bridge that gap and attract conservative pension funds, you secure the credit enhancement of a guarantee that raises the credit rating to investment grade and provides a viable alternative to bondholders in the event of default. So, you will often need a guarantor at least for the first few bonds, till credibility is built in the market. Guarantors can also provide the arranger role.

Trustees: Independent fiduciaries appointed to represent the collective interests of the bondholders. They handle the collection of principal and coupon (interest) repayments from the project and distribute them to the investors. They also hold the project’s security package and enforce debt obligations on behalf of the bondholders.

Credit Rating Agencies: Independent organisations that review the project structure and financial models to assess credit risk. They assign a formal credit rating to the issuer and the bond issue, which heavily influences investors’ demand and the bond’s interest rate.

Regulators and Exchanges: National regulatory bodies and securities exchanges that review prospectuses, issue “no objection” approvals for the allotment of the bonds, approve the book-building process, and facilitate the public or private listing of the bonds.

Registrar: A professional party responsible for the administrative settlement of the bond, such as crediting the investors’ clearing accounts and filing post-offer compliance documents with regulators.

Main Steps

Origination and structuring: Approach the arranger and/or guarantor and go through the onboarding, due diligence, and credit risk assessment process. To get through this effectively, your project must be fundamentally bankable. That means finalising technical designs, securing land rights, and executing your core commercial agreements, such as a power purchase agreement or concession contract. You must build a robust financial model that clearly demonstrates the Cash Flow Available for Debt Service (CFADS) over the life of the asset. That model determines the exact size, tenor, and repayment profile of the bond you can support.

Credit rating: Institutional investors rely on independent assessments of risk. You engage recognised rating agencies to evaluate your structure, your model, and your sponsor capacity. The agency assigns a formal rating to the proposed bond, which drives the interest rate investors will demand. This is where a guarantor’s role really shines; their guarantee gives you their own credit rating, increasing the rating and attractiveness of the bond.

Regulatory approval and listing: Capital markets are heavily regulated to protect investors. Your Issuing House files your prospectus and transaction documents with the national regulator. Once approved, the bond is typically listed on a recognised exchange, providing the transparency and secondary market liquidity institutional investors require.

Book-building and final pricing: With approvals in hand, your arrangers take the bond to market. They run roadshows, presenting your project to pension fund administrators, asset managers, and insurers. Investors submit bids indicating how much they want and at what price. This process, book-building, sets the final coupon rate based on real demand.

Issuance and settlement: Once the book closes and pricing is agreed, the transaction settles. Investors transfer their capital, the bonds are issued and allocated, and the funds flow into your project’s designated accounts for deployment.

Why the Pain and Stress of Bond Issuance Is Worth It

The mechanics of issuing bonds are longer, more rigorous, and more expensive than direct lending. So why bother with it?

1) Access to deep, unconstrained pools of capital: Domestic commercial banks face stringent single-obligor and sector exposure limits that heavily regulate how much any one bank can lend to a large project or a sector in general. Domestic pension funds sit on the opposite reality: massive, steadily growing pools of liquidity that today allocate very little to infrastructure, out of a historical preference for government securities and with an aggregated limit rather than sector-specific limits.

By structuring your debt as an investment-grade bond, you convert your funding need into the exact type of instrument these institutions are mandated to buy, bypass the exposure limits of any single bank, and tap directly into a large consolidated and deep pool of capital that is actively searching for long-term yields.

Remember also that these pools are also driven by demographic growth and mandatory contribution schemes, and will continue to rise.

Nigerian pension assets have grown to a record 31.32 trillion naira by May 2026, and Kenya’s crossed 2.8 trillion shillings, expanding 11 percent in a single half-year. The institutions managing these funds are actively searching for investments to deploy them into.

In Nigeria, for example, pension funds are authorised to invest up to 35 percent of their assets in corporate bonds. While there is still a lot of headroom to hit the 35 percent mark, the appetite is now visibly increasing:

• Between 2017 and 2020, the actual share of total assets under management invested in corporate bonds was between 4 and 6 percent.

• From 2021 to 2025, this share has risen to between 8 and 10 percent.

Nigeria’s pension assets are now equivalent to 23 billion dollars. Even adjusting for approximately 10 percent already in corporate bonds, you still have up to 6 billion dollars of funds available in local currency (8 trillion Naira) to tap into.

Local debt markets are becoming better structured and more mature, and the appetite for investment-grade bonds is rising.

If you have a large pipeline of projects to raise funding for, you want to connect to this pool of long-term capital repeatedly and at scale.

2) The elimination of foreign exchange risk: International commercial banks have the balance sheet to fund large projects, but they lend in hard currency. If your asset earns in local currency, borrowing in dollars or euros introduces severe foreign exchange risk, and a sudden devaluation can render the project insolvent when local revenues can no longer cover hard currency debt service. Domestic pension funds and life insurers hold local currency liabilities, so they need local currency assets. By issuing a local currency bond to these institutions, you align the currency of your debt with the currency of your revenues. This structural alignment is the ultimate defense against the currency mismatch that derails so many African projects.

3) Tenors that match the life of the asset: The most significant limitation of domestic commercial banks is their liability structure. Because they must maintain liquidity to fulfil short-term customer deposits, they are fundamentally constrained from offering the long-term debt that infrastructure requires, typically capping out at five to seven years, if ever reaching that. That short tenor creates a crushing annual debt service burden for infrastructure projects in their most vulnerable phases of construction and initial operations, where little or no funds are being generated.

Pension funds are the opposite. They manage long-term liabilities, collecting contributions today that they will not pay out for decades, which makes them the natural buyers of longer-duration instruments. Supported by credit enhancement, project bonds can reach tenors of 15 to 20 years, dramatically reducing your annual debt service, freeing up cash flow, and making capital-intensive projects viable.

So, while strenuous, if you are building a steady pipeline of infrastructure assets or have a large project to fund, that you want to thrive long term, domestic bond markets are a strong source of structurally aligned funding.

Bringing It All Home

Assembling a capital stack that ensures the long-term survival of your infrastructure asset means looking beyond the familiar reliance on international hard currency loans and short-term domestic bank facilities. Bonds in local markets can offer tenors that stretch toward two decades, aligning your debt service with the long operational life of your asset, but issuing one means submitting to public disclosure, navigating regulatory approval, and accepting rigid covenants managed by independent trustees. To lift your project to investment-grade ratings, you will often rely on a guarantor.

When you prepare a project to the exacting standard of the bond market, you unlock the deepest, most resilient pool of local currency capital available.

You solve your foreign exchange risk and secure the long-term tenor that gives your project room to breathe and thrive.

Long-term funds in local currency are the best protection infrastructure assets on this continent can have.

These pools of capital are rising and searching for investments in which to deploy capital.

With 4.4 trillion dollars equivalent, the question is no longer whether the money exists.

It is now how to successfully direct them to projects.

Reaching into those domestic vaults demands the discipline and focus to develop projects that have been de-risked enough to receive funding from them.

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Reviewed to Complete This Note

1. Notes on Project Development. Decoding Commercial Institutional Debt. Ebun Mesaiyete, 2026.

2. Notes on Project Development. CFADS to Cash Sweeps: Decoding Debt in Project Finance. Ebun Mesaiyete, 2025.

3. Notes on Project Development. Can Investors Trust Your Sponsorship and Structure With Long-Term Capital? Ebun Mesaiyete, 2026.

4. Africa Finance Corporation, remarks by President and CEO Samaila Zubairu on Africa’s 4.4 trillion dollars in investable domestic capital, South Africa Investment Conference, 2026.

5. The Exchange Africa. Africa’s 600 Billion Dollar Pension Funds Paradox (PAFMA / FSD Africa data). 2026.

6. National Pension Commission (PenCom) and reporting on Nigerian pension assets and the proposed infrastructure vehicle, as reported by Nairametrics and CNBC Africa, 2026.

7. OECD. Blended Finance Case Studies: InfraCredit, Making Infrastructure Projects in Nigeria More Bankable Through Credit Enhancement. 2025.

8. OECD. Unlocking Local Currency Financing in Emerging Markets and Developing Economies. 2025.

9. News Ghana. Ghana’s Record Pension Pot Faces New Push Into Infrastructure (Ghana Infrastructure Investment Fund credit guarantee scheme). 2026.

10. Retirement Benefits Authority (Kenya) data and KEPFIC, the Kenya Pension Funds Investment Consortium. 2025 to 2026.

Further Reading

1. Harvard Business School. Infrastructure in Nigeria: Unlocking Pension Fund Investments (InfraCredit case). 2024.

2. World Economic Forum. Risk to Reward. 2025.

3. ThirdWay Partners, BII, and Mobilist. Secondary Market Vehicles in EMDEs. 2024.

The second note looked more closely at Development Finance Institutions (DFIs) and Multilateral Development Banks (MDBs), and how they anchor so many African deals, signal credibility, and crowd others in.

Now we move to another group of investors: Commercial Institutional Investors.

These investors operate with fundamentally different mandates from development institutions. They are not pursuing development goals. They are pursuing a predictable, risk-adjusted return for their shareholders and pensioners, and that single difference in motivation explains almost everything about how they behave. They are motivated first by capital preservation and profit, even where other social benefits accrue alongside those investments.

This third note in the series covers what commercial institutional debt is, who provides it, how it differs from DFI lending, how these investors price risk and enforce discipline, how they work alongside DFIs, and where they typically like to sit in the capital stack as they provide capital to infrastructure projects.

What Commercial Institutional Debt Is

Commercial institutional debt is market-priced capital, invested with a strict expectation of return at or near market rates. It comes from two main sources.

• Commercial banks: lend from deposits and carry short-term obligations to those depositors. A bank must be ready to honour withdrawals on request, so most of the funds it manages target shorter-term instruments to preserve that liquidity.

• Other institutional investors: manage long-term funds on behalf of others, whether individuals, other institutions, or governments. They can deploy longer-term instruments because the assets they manage are locked in for longer. Examples are pension funds, life insurance companies, sovereign wealth funds, and other specialised funds.

Let me explain each further.

Domestic commercial banks: Local banks hold deposits in local currency, which makes them the most natural source of funding to avoid a foreign exchange mismatch. But they are constrained by their own liability structure. Because their deposits are short-term, they usually cannot offer the 15-to-20-year tenors that energy and transport assets require. Their debt typically comes with tenors of five to seven years and high rates that stress a project’s early cash flows. Single-obligor and sector exposure limits further restrict their ability to fund large, capital-intensive projects.

International commercial banks: Global banks have the balance sheet to fund large projects and often price their interest rates below those of domestic African banks. But they lend in hard currency, which introduces severe foreign exchange risk when your revenues are in naira, cedis, or shillings.

They have retreated from riskier emerging markets, in part because of global banking regulations, now that Basel III capital rules penalise banks for holding long-term, unrated emerging market debt, and in part because unfamiliarity with the market exaggerates their perception of risk on the continent. They will often engage only with robust guarantees or DFI participation alongside them.

Other Institutional investors: They manage very long-term liabilities, which makes them a natural match for the long lives and predictable, often inflation-linked cash flows of infrastructure. This category prefers larger ticket sizes and requires highly rated, usually investment-grade debt to satisfy their fiduciary and regulatory mandates. Pension funds, Insurance companies, and sovereign wealth funds fall in this category.

Where Commercial Debt Sits, and How It Differs From DFI Capital

To negotiate well, you must know exactly where commercial debt sits relative to everyone else, and how its holders differ from the DFIs and MDBs.

Capital is stacked in a strict order of repayment priority. If revenues fall short, the investors at the bottom of the stack are the first to bear loss, delay, or default; if the shortfall deepens, the mezzanine or subordinated investors in the middle absorb the next blow, deferring their own payments so the senior investors are kept whole.

That last point is the heart of the difference. A DFI and a commercial investor can sit in the same deal and behave in opposite ways, because their mandates differ.

• Motivation. A DFI pursues development impact first, then enough return, which is why it could accept a lower or later-paid position to make a project happen. A commercial investor pursues capital preservation and return first and foremost. They cannot take first-loss positions.

• Position. DFI capital can move down into mezzanine, subordinated, or first-loss layers to build a cushion. Commercial capital always wants the senior, first-paid position.

• Conditions. A DFI attaches development, environmental, and social conditions. A commercial investor attaches financial covenants and security first, above all else.

• Patience. A DFI can wait and stay through difficulty. A commercial investor prices for a defined return over a defined period and enforces the exit.

This is what lets you assemble a stack that works: place the patient, mandate-driven capital where its patience is needed, and give commercial capital the senior, protected position it requires. The trade-off for that safety is yield. Senior commercial debt carries the lowest risk in the stack, so it accepts the lowest return. These investors are not chasing upside; they are protecting principal and securing a stable, predictable yield.

How They Determine Their Lending Rates

Their Lending Rates are driven by either of two things.

1) Perception of risk: When pricing debt, they start with a risk-free rate, such as the yield on sovereign instruments in their home countries, and add premiums to compensate for the country and project exposures they are taking.

• Country risks: this is the risk African countries are often most penalised for. It covers perceptions relating to political instability, regulatory shifts, and currency volatility.

• Project-specific risks: cover things like construction delay, technology failure, off-taker default, and environmental and social risks, more related to the particular nature of the sector and the project itself.

International commercial lenders determine their lending rates primarily in this way. They lack the on-the-ground resources to conduct exhaustive sovereign risk analyses in other markets. Instead, they rely heavily on sovereign credit ratings provided by the big three rating agencies: S&P Global Ratings, Moody’s Investors Service, and Fitch Ratings.

The problem for African developers is that these sovereign credit ratings frequently overstate the default risk of private projects in Africa, and actual performance tells a different story.

The Global Emerging Markets Risk Database, which pools the default experience of the major DFIs, shows default rates for development-backed lending in emerging markets are in the low single digits, far below the frequency of occurrence that leads to the high country risk premium that is often applied.

2) Government macroeconomic actions: Across the continent, governments use domestic borrowing and the setting of benchmark lending rates as primary tools for macroeconomic activity, such as controlling inflation, money supply, and funding of government expenditure. These policy actions are the signals and requirements against which domestic commercial banks set their lending rates and participation in debt markets.

• Fiscal policy action: For domestic debt in many African countries, the government is your competitor for capital. It borrows heavily from the domestic market, issuing treasury bills and longer-term bonds at high yields to fund recurrent and capital expenditure. This creates a crowding-out effect for other domestic lending. Why would a bank lend to your solar project, which it must spend understanding and managing, when it can buy a federal bond or treasury bill yielding 18 percent at almost no risk?

• Monetary policy action: Across the continent, it is common practice for central banks to use the monetary policy rate as the primary tool to manage inflation and money supply, raising it to tighten liquidity when prices climb and easing it as inflation cools. Because commercial banks are regulated to set interest rates benchmarked against this monetary policy rate, a developer’s cost of local currency debt rises and falls with the central bank’s inflation fight.

Lending rates for Domestic commercial investors are shaped by reasons that have nothing to do with the project and everything to do with the macroeconomic environment.

While international commercial investors often lend at lower rates, taking on long-term obligations in the currency that matches project income provides the best protection for the painful reality of currency devaluation in infrastructure projects in Africa.

No matter what happens to the currency, the project’s debt obligations remain more stable and predictable long term.

More Stringent Covenants, Security, and Financial Discipline

Because project finance depends entirely on the cash flows of the asset, investors protect themselves through strict discipline, imposed by covenants and project security. However, the way commercial lenders enforce and manage this discipline differs from that of the DFIs and MDBs.

The DFI approach to covenants and distress: DFIs are developmental organisations. Their covenants often include strict environmental, social, and governance milestones, gender inclusion targets, and development impact reporting requirements. While they demand financial sustainability, their primary goal is market creation. If your project faces distress, DFIs are generally willing to act as patient partners. They bring a disciplined approach to due diligence and a commitment to long-term engagement. Rather than exiting early, they often prefer to work through non-performing loans, restructure the debt, and recover value over time.

The commercial approach to covenants and distress: Commercial investors operate under entirely different pressures. They are subject to mark-to-market expectations, quarterly earnings pressures, and strict regulatory frameworks that impose high capital charges on underperforming emerging market portfolios. Consequently, they have almost zero patience for project distress, and they enforce discipline through rigid financial covenants.

The most critical covenant for them is the Debt Service Cover Ratio (DSCR), which measures the project’s available cash flow divided by the total debt service required for that period. Commercial investors generally demand at least a DSCR of 1.3x to 1.5x (often 2x), meaning the project must generate 30, 50, or 100 percent - more residual cash after meeting agreed operating expenses - than what the debt service actually needs.

To ensure liquidity, commercial investors mandate a Debt Service Reserve Account (DSRA), which typically holds enough cash to cover six months of future debt payments. If your project performance begins to slip and your DSCR drops below agreed thresholds, they trigger a hard cash sweep, legally forcing the project company to divert any excess cash, which would normally reach you as dividends, to prepay the senior debt principal early.

Commercial investors also demand aggressive step-in rights. If you commit a material default, step-in rights allow them to legally take control of the project, remove your management team, and sell the asset to recover their capital. They will not wait years for a market to mature; they will liquidate to protect their balance sheets.

How Commercial Debt Works Alongside DFIs

Commercial Lenders like to work in tandem with DFIs or DFI-backed institutions. They do so as follows:

• Syndication and A/B loans: The most powerful tool for bringing international commercial banks into emerging markets is the A/B loan. The MDB is the sole lender of record, retaining the “A” portion on its own books and distributing the “B” portion to private banks. You sign a single loan agreement and deal with the MDB for administration. For the commercial investors holding the B portion, the benefit is the MDB’s Preferred Creditor Status, which shields the loan from sovereign foreign exchange rationing and transfer restrictions, and lowers their cross-border risk.

• Co-lending: Commercial lenders also come in through co-lending platforms. The IFC’s Managed Co-Lending Portfolio Program, for instance, lets institutional investors automatically co-invest alongside the IFC in senior loans that meet pre-agreed criteria.

• Credit enhancement: DFIs and MDBs also fund or back credit guarantors who wrap a local bond or loan in a guarantee; that uplift lifts the instrument’s rating to the level cautious commercial institutional investors require, which mobilises long-term local currency debt that would otherwise never move. InfraCredit (Nigeria-focused), Dhamana (East Africa-focused), and the African Guarantee Fund (Africa-focused) are examples of guarantors on the continent set up or co-funded by DFIs and MDBs.

Bridge Financing: Short-term Commercial Capital Can Buy You Time

Not all commercial debt is meant to stay.

Sometimes, the most useful capital in a deal is the money that is designed to leave.

Bridge financing is short-term debt, typically provided for six months to three years, that covers funding until longer-term capital arrives.

It is a bridge in the literal sense: it carries the project across a gap that would otherwise stall it, and once the permanent financing is in place, it is repaid, and the bridge investor exits.

For infrastructure developers, bridge finance solves a real timing problem. Long-term capital can be slow to arrange, and construction stalls while it is awaited. Bridge finance from a commercial investor can fill that gap and ensure construction is delivered well before market dynamics alter project costs significantly

• Who provides it: Short-term commercial investors, such as domestic commercial banks and specialist private credit funds, are the natural providers. They are willing to take on a defined, short-duration exposure, which they price accordingly, then earn arrangement and exit fees on top.

• How the exit works: The defining feature of a bridge is its takeout: the identified source of long-term capital that will repay it. That takeout might be a DFI senior loan, another institutional investor providing longer-term facilities, an infrastructure bond, or an equity injection by the sponsors post commercial operations. The bridge investor’s entire credit decision rests on the credibility of that exit. If the takeout is uncertain, the bridge is dangerous, and the developer risks a maturity before the permanent financing arrives.

Used well, bridge finance is a powerful tool for keeping a project moving through the process of securing longer-term capital. Used carelessly, it becomes a trap.

The discipline is simple: never draw a bridge without a clear, credible, and well-progressed path to the long-term capital that will repay it.

Practical Guidance for Attracting Commercial Debt

Commercial institutional lenders do not underwrite potential and impact.

They underwrite proven, stress-tested facts.

For an African developer, domestic pools of capital are the ultimate defence against foreign exchange risk. Structure your project to qualify for local currency so you can match the currency of your debt to the currency of your revenues.

In addition to the well-prepared project, prepare to do the following with these types of investors:

• Sell financial certainty before impact. When presenting to a DFI, your pitch deck leads with development additionality, highlighting jobs created and emissions reduced. When presenting to a commercial bank or pension fund, you must lead with your Cash Flow Available for Debt Service (CFADS). Commercial investors view development impact as a welcome bonus, but it will never compensate for a weak financial model. Be prepared to defend every revenue assumption and cost estimate, proving that your project can comfortably sustain a DSCR of 1.3x or higher even under severe downside stress.

• Structure for familiarity and simplicity: DFIs are willing to engage in highly bespoke, deeply customised capital structures to accommodate a specific market failure. Commercial investors despise complexity. Institutional investors prefer standard, easily tradable instruments that look identical to the assets they buy in developed markets. If you want to attract pension funds, do not offer them a complex bespoke loan. Offer them a standardised, listed infrastructure bond. Keep the commercial tranche of your capital stack as simple and boring as possible, and let the DFIs handle the complex mezzanine structuring underneath.

• Prepare to meet conditions precedent by yourself: DFIs can offer Technical Assistance grants to help you finalise your environmental assessments or improve your legal contracts before financial close. Commercial banks do not. They tell you what is missing, hand you a strict list of conditions precedent, and expect you to resolve them yourself. If your land titles are not perfectly finalised, your insurance policies are inactive, and your EPC contracts do not protect the project, a commercial lender will simply withhold disbursement. You must hold sufficient sponsor equity to carry the project through these final hurdles, because the commercial debt will not flow until every box is checked.

• Model your cash sweeps aggressively: Because commercial investors are highly sensitive to risk, they will embed cash sweeps into your term sheet. You must understand the exact triggers. If your project faces a slight delay and the DSCR dips, they will sweep all excess cash to pay down principal, leaving you with zero dividend distributions for years. Build these downside scenarios into your own financial model before you sign the term sheet, ensuring you have enough operational buffer to avoid trapping your own returns.

• Prepare for the drawdown process: Commercial investors do not release the full loan on day one. They require pro-rata drawdown, with your sponsor equity injected alongside the debt at each construction stage, and they will not release any cash until you have satisfied an exhaustive list of conditions precedent, including finalised permits, executed land leases, and active insurance. Do not underestimate the time and resources it takes to clear them.

• Prepare to use a guarantor: in addition to all the above, for the first few transactions, credit guarantors will likely be required. Look for and secure strong working relationships with a credit enhancement facility active in your market, and learn what they need to support the structure of your projects. That credit uplift is what brings domestic institutional capital to the table. Over time, after proving you can keep up, the need for such guarantors starts to diminish.

Bringing It All Home

Assembling the capital stack is a test of a developer’s endurance and judgment. In this note, we moved down from the patient, development-focused mandates of the DFIs into the stricter, more unforgiving world of commercial institutional debt.

Private banks, pension funds, and asset managers hold a large volume of capital needed to close Africa’s infrastructure deficit, but their money behaves differently from the DFI capital.

Where a development institution can move down the stack and stay through difficulty, commercial lenders want the senior position, strict financial covenants, and a defined return, enforced through reserve accounts, cash sweeps, and step-in rights.

International ones price African risk higher than the evidence justifies, and domestic ones benchmark against government borrowing and policy rates.

The deeper lesson is that your project must speak two languages at once.

It must speak to development impact to win the DFI or DFI-backed funding that anchors the stack. It must also speak to financial certainty to satisfy the commercial lenders beside it.

Develop projects that allow you to speak to both, and you can combine the credibility of the DFIs with the depth of commercial and domestic capital.

Do not overlook the pools of capital closest to home, match the currency of your debt to the currency of your revenues, and you will remove the foreign exchange mismatch that has quietly derailed so many good projects.

The single most important shift available to an African developer is to stop reaching only for foreign currency debt and to structure instead for the domestic institutional capital that already exists, which is unlocked through local currency guarantors.

The capital is there. What it waits for is a project built well enough to receive it.

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Reviewed to Complete This Note

1. Notes on Project Development. The Capital Stack Decoded: Where Money for Infrastructure Actually Comes From. Ebun Mesaiyete, 2026.

2. Notes on Project Development. The Capital Stack Decoded: DFIs and MDBs. Ebun Mesaiyete, 2026.

3. Notes on Project Development. CFADS to Cash Sweeps: Decoding Debt in Project Finance. Ebun Mesaiyete, 2025.

4. The Business and Financial Times (Ghana). Comparative African lending rate analysis, 2026.

5. Convergence State of Blended Finance 2025. Convergence (2025).

6. Convergence report: Affordable Housing in Africa. Convergence (2025).

7. Scaling Blended Finance. BII and BCG (2024).

8. Unlocking Local Currency Financing in Emerging Markets and Developing Economies. OECD (2025).

9. Africa Capital Markets Report 2025: Local Currency Bond Markets for Development Financing in Africa. OECD 2025.

10. GuarantCo / Private Infrastructure Development Group. Local currency credit solutions and the InfraCredit, Dhamana, and InfraZamin facilities, 2024 to 2026.

11. Portfolio re-guarantee facility for African SME infrastructure, African Guarantee Fund and GuarantCo. 2024.

12. The Cost of Capital in Emerging Markets and Developing Economies. Columbia Center on Sustainable Investment. 2024.

13. GEMs Insights on Default and Recovery Statistics. GEMs Consortium 2025.

14. Convergence Blended Finance. Blended Finance: Scaling Capital for Sustainable Income. 2025.

15. World Economic Forum. Risk to Reward. 2025.

In the second note in the Capital Stack Decoded series, we move from the map to the terrain, starting with the institutions that anchor the top of many African infrastructure deals.

Local commercial capital often lacks the patience for the fifteen-year tenors that energy and transport projects need and offers financing at rates that can cripple a model before construction begins.

International commercial investors have deeper pockets, may be more patient, but are highly sensitive to the political, regulatory, and currency risks of operating and have attached a high, often unfair risk premium when investing across the continent

This gap in longer-term, low-interest capital is where Development Finance Institutions and Multilateral Development Banks come in. This note decodes what they are, the types of capital they provide, how their presence de-risks a deal, what they demand from you, and some realities you must plan around before you ever approach them.

Understanding DFIs and MDBs

A Development Finance Institution is a specialised entity, established or backed by a government or governments, that invests in private sector projects in emerging markets under a dual mandate: i) to achieve measurable development impact, such as jobs created or emissions avoided, and ii) to generate returns to sustain itself. That dual mandate explains almost everything about how they behave.

Because they are government-backed, DFIs offer patient capital and a higher risk tolerance than most traditional investors.

They are built to go where commercial capital hesitates, which is exactly why they matter so much for African infrastructure.

DFIs and MDBs are terms that get used interchangeably, but there are three categories that should be recognised as you build your target list.

• Multilateral Development Banks: Owned by many member governments, these institutions hold pristine credit ratings, usually AAA, which allows them to borrow on global markets at a low cost and pass the savings on. The African Development Bank (AfDB), the World Bank, and its private sector arm, the International Finance Corporation (IFC) sit here. They carry enormous balance sheets and deep convening power.

• Bilateral DFIs: Owned by a single high-income government, these execute their home country’s development and foreign policy in other countries while operating on commercial principles. British International Investment (BII), the US Development Finance Corporation (DFC), Proparco of France, DEG of Germany, and FMO of the Netherlands are the ones you will meet most often in African energy and transport deals.

• National and regional development banks: Owned by a developing country or a regional consortium. In Nigeria, the Development Bank of Nigeria (DBN) provides wholesale funding to financial intermediaries. On a continental scale, the Africa Finance Corporation (AFC) is a specialised institution focused specifically on closing Africa’s infrastructure deficit. Their proximity to the market, and in some cases their ability to work in local currency, makes them increasingly important.

The lines blur in practice, so what matters most is what each institution can provide, what it requires, and whether your project fits its mandate.

What They Provide Across the Capital Stack

A common misconception is that DFIs only provide loans. Either directly as themselves or indirectly, through the facilities they support, they provide various forms of capital, and understanding this is what lets you use them well. They can be in any tier of the capital stack; they also provide credit enhancements.

• Senior debt: The most common instrument is featured in over half of their blended finance transactions. Here, the DFI sits at the top of your waterfall, providing large-ticket loans with longer tenors and more favourable grace periods than local banks can offer. That extended profile is frequently the single most valuable thing a DFI brings, because infrastructure needs patient debt.

• Subordinated and mezzanine debt: Debt that sits below the senior lenders. If the project hits a cash shortfall, the DFI agrees to defer its own interest or principal so the senior lenders are paid first. This structural buffer is exactly what rebalances a project’s risk profile enough to attract risk-averse commercial senior debt.

• Equity: Less common, because it carries more risk, but powerful. Senior equity attracts co-investors; junior or first-loss equity absorbs initial losses and creates the blended-finance cushion that crowds in private capital, they can also provide this as well on some deals.

• Guarantees and political risk insurance: Instead of handing you cash, offers credit enhancements, i.e., the DFI promises to cover all or a portion of your debt service if the project defaults. This guarantee upgrades your credit profile and lets you borrow from commercial investors at lower rates because there is someone to hold in case of default.

  Some, like the World Bank through the Multilateral Investment Guarantee Agency (MIGA), also provide political risk insurance against expropriation, breach of contract, and currency inconvertibility.

• Local currency solutions: Borrowing dollars to build infrastructure that earns local currency can be a path to insolvency if the currency moves. DFIs support hedging facilities such as The Currency Exchange Fund (TCX), so lenders can offer synthetic local currency loans, and back domestic guarantors such as InfraCredit in Nigeria, which wraps local infrastructure bonds so domestic pension funds can invest their naira directly into your project.

• Project preparation and concessional funding: Before a project is ready for debt or equity, it needs feasibility studies, legal structuring, and environmental work. DFIs and their donor partners provide technical assistance and preparation grants to cover these high upfront soft costs. This is pure concessional funding aimed at turning a good concept into a bankable reality.

How They De-risk a Deal and Crowd In Commercial Capital

The primary reason you want a DFI in your stack is not just their money. It is the money they bring with them.

When private institutional investors look at an African infrastructure project, they see unfamiliar terrain and high perceived risk around regulation, off-taker reliability, and macroeconomic stability. Lacking the resources to do exhaustive due diligence themselves, they often simply decline.

DFI participation changes this through what is often called the halo effect. DFIs have decades of experience in these markets, deep relationships with governments, and gruelling, world-class due diligence. When an IFC, FMO, or BII commits, it acts as a seal of quality. That credibility can then mobilise private money on the sidelines. At the portfolio level, DFI investments account for roughly 15 to 20 percent of total foreign direct investment flows to Africa, and considerably more private capital moves in behind them.

MDBs also crowd in commercial lenders through something called the A/B loan structure. The MDB is the sole lender of record for the whole facility, holding the “A” portion on its own balance sheet and distributing the “B” portion to private lenders. This works because MDBs benefit from Preferred Creditor Status, a convention under which sovereign governments prioritise repayment to MDBs during a crisis or a foreign exchange shortage. By taking the B portion, commercial lenders step under that protective umbrella, which lowers their cross-border risk and lets them lend at better rates.

Through subordinated debt, guarantees, and A/B structures, DFIs and MDBs engineer a risk-and-return profile that matches the strict requirements of global commercial capital.

That is blended finance doing its work.

However, there are some hard realities you must plan around.

The First Reality: They Take Longer Than You Think

DFI capital is patient but securing it is slow. These are careful, mandate-driven, often politically accountable institutions, and their diligence reflects that. A sponsor’s project development and preparation may take up to 12 months or longer. Structuring a deal with a DFI/MDB can take up to 6 months in the best case scenario that assumes you have provided all project information at an acceptable quality. Often, deals take longer. From serious preparation to close, assume one to two years, and treat anything faster as good fortune rather than the plan.

This has direct consequences for how you develop.

• Start the conversation early, even as you are doing the project development.

• Do the development work or at least be ready with a detailed project concept and scopes of work for detailed project development, if what you need from them is technical assistance to complete it. Arriving unprepared extends this timeline. Regular readers of Notes on project development should not have this issue.

• Build the timeline into your own financial planning, so you are not trying to survive a funding gap while a multi-month process runs.

• Sequence your capital. If you need faster-moving money for early stages, arrange it separately, and position the DFI for the part of the stack where its patience is an advantage rather than a constraint. They should not be the only party you are speaking with.

The developers frustrated by DFIs are almost always the ones who approached them expecting speed, least prepared with their ask and project documentation.

The Second Reality: Size Matters, and Small Projects Need a Programme

Here is the second hard truth, and it hits distributed energy developers particularly hard.

Direct DFI investments are large and, therefore, not suited to small-scale finance. A single solar mini-grid, a small captive plant, or a modest transport asset is very often simply too small for a DFI to finance directly. The cost of originating, appraising, and monitoring a deal is roughly the same whether the cheque is five million dollars or fifty, so it is rational for them to concentrate on larger transactions.

This is not a flaw in your project. It is a structural feature of how these institutions work, and there is a well-established way around it: aggregation and thematic programs.

Rather than financing many small projects one by one, DFIs increasingly channel capital into intermediary facilities that then finance smaller projects underneath them, which can allocate capital to smaller-sized projects often considered too small for large international development banks and too technically complex or novel for many local lenders. The lesson for the off-grid and distributed generation developer is direct. If your individual project sits below the threshold that a major DFI will look at, you have three practical routes.

• Aggregate: Project Develop and Bundle multiple sites into a single portfolio of a fundable size.

• Find the smaller facility: Identify the thematic fund or programme whose mandate is built for projects of your scale, and approach it rather than the parent DFI.

• Work through a local intermediary: DFIs frequently lend to local banks and funds, such as the DBN or BOI in Nigeria, which then on-lend to smaller projects. Your route to DFI capital may run through a domestic institution rather than to the DFI directly.

Understanding these early changes, how you develop your projects, whether to target the DFI/MDB directly or look for a thematic facility they support. It may push you to develop a pipeline of replicable, standardised projects rather than a single site, because an aggregated portfolio is far more fundable than one small project alone.

What DFIs Require From Sponsors

DFIs and MDBs are not commercial banks, but they are not charities either. If you want their capital, build your project to their standards from day one.

• Development additionality: They must prove their money has achieved something that commercial markets could not. A profitable model is not enough; you must articulate how the project advances development, whether skilled jobs, emissions avoided, or gender equality in the workforce. Build these relevant indicators into your business plan and demonstrate how you will measure and report during the implementation/operating phase

• The highest ESG standards: DFIs consider themselves change agents and will not compromise here. You need Environmental and Social assessments and plans that meet international standards, have a robust governance structure, transparent procurement, and a clear anti-corruption policy. If the project involves land, your resettlement plans must be sound. The ESG note in the bankability series covered exactly what this involves.

• Strong sponsor commitment: They want to see skin in the game: meaningful equity, a healthy debt-to-equity ratio, a credible track record, and the operational capacity to manage a complex asset over a twenty-year life.

• Commercial viability: Despite the development mandate, the project must have sustainable, predictable cash flows and a clear path to servicing its debt. DFIs can use market-based pricing to avoid distorting local economies, so the project must genuinely stand on its own.

• Fit and Alignment: Match your projects to the right institutions for the project. Not all DFIs are the same; each has its own priorities and mandates. Research the institution before you approach it and check for fit and alignment between your project and their current focus.

Practical Guidance for Developers

Understanding mandates is only half the battle. Here is how to engage these institutions well.

• Start early and use preparation facilities: Engage during late concept or early development, not when you are ready to pour concrete. Many MDBs and donor networks offer preparation grants and technical assistance. Using a DFI’s own facility to fund your feasibility work ensures the project is structured to their standards from the beginning.

• Hire experienced transaction advisors: The legal structuring, financial modelling, and ESG compliance behind an A/B loan or credit guarantee are genuinely complex. Advisors with a track record of closing DFI-backed African deals reduce delays and prevent costly renegotiations.

• Prepare a flawless data room: Your model must be dynamic, integrated, and stress-tested. Your commercial agreements must allocate risk to the parties best able to bear it. Your ES documents must be complete. A disorganised or incomplete data room signals weak sponsor capacity and can drag out a deal.

• Solve the size problem deliberately: If your project is small, aggregate many in the pipeline together or find a facility built for your scale that they support, or route through a local intermediary. Do not approach a major DFI directly with a single small-scale project.

• Favour local currency where possible: Do not blindly accept hard currency debt against local currency revenue. Ask about local currency-indexed loans or structure debt to be wrapped by a local currency guarantor. Aligning the currency of your liabilities with the currency of your revenues is a critical risk mitigation.

Bringing It All Home

Development Finance Institutions and Multilateral Development Banks are not just participants in the African infrastructure market. They lay foundations that many other investors build on.

They hold the patient capital, the risk appetite, and the structural tools to turn difficult environments into investable opportunities, and in the language of our first note, they are the institutions that most often provide the first loss cushion, or make the cushion possible, that lets everyone else feel safe enough to participate.

Used well, they anchor your entire stack. Their senior debt gives you tenor that local banks cannot match. Their subordinated debt and guarantees rebalance your risk profile. Their equity and their halo effect pull cautious commercial money off the sidelines. Their A/B loans extend their preferred creditor protection to lenders who would otherwise stay away. And their local currency solutions can spare you the foreign exchange mismatch that has sunk so many good projects.

But they are not a fast or a universal solution, and this is the honest part that too few developers hear early enough. They move deliberately on timelines measured in months or years, so you must approach them long before you need the capital in hand. And they invest at scale, which means that if your project is small, you cannot simply walk up to a major DFI and ask. Plan for the two realities, the time and the scale, master their ESG and additionality requirements, and DFIs and MDBs become one of the most powerful sources of capital available to you.

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Reviewed to Complete This Note

1. Notes on Project Development. The Capital Stack Decoded: Where Money for Infrastructure Actually Comes From. Ebun Mesaiyete, 2026.

2. Notes on Project Development. Critical Late-Stage Prep Before Approaching Investors. Ebun Mesaiyete, 2025.

3. Resonance. How Companies Partner with Development Finance Institutions (DFIs). 2022.

4. Facility for Energy Inclusion. Clean Energy Debt Fund: facility overview and financing terms. feiafrica.com

5. Publish What You Fund. Why Do DFIs Invest in Financial Intermediaries, and Why Do We Need to Know More? 2022.

6. Energy Capital Power. What DFI Financing Strategies Reveal About Africa’s Development Priorities. 2026.

7. IFC and the DFI Working Group. DFI Working Group on Blended Concessional Finance for Private Sector Projects, Joint Report. 2023.

8. Convergence Blended Finance. A Framework for Structuring a Blended Finance Fund. 2025.

9. Convergence Blended Finance. Blended Finance: Scaling Capital for Sustainable Income. 2025.

10. Convergence and UNDP. Strategic Framework for Blended Finance. 2024.

11. Convergence Blended Finance. Global Concessional Climate Finance. 2024.

12. Open Capital. Improving the Effectiveness of Guarantees: Final Report. 2025.

13. DFC. An Overview of Impact Measurement Frameworks for Mobilized Private Capital. 2023.

14. GEMs Consortium. GEMs Default and Recovery Statistics: Sovereign and Sovereign-Guaranteed Lending. 2024.

15. Itad. Opportunities for DFIs to Scale Private Capital Mobilisation. 2025.

16. BII and BCG. Scaling Blended Finance. 2024.

17. OECD. Unlocking Local Currency Financing in Emerging Markets and Developing Economies. 2025.

18. World Economic Forum. Risk to Reward. 2025.

19. De-Risking Development in Sub-Saharan Africa: A Qualitative Study of Investment Dynamics in Angola. 2025.

Four pillars of Good Demand and Cash Flows, Good Risk Allocation and Documentation, Good Sponsor and Structure, and Good Timing and Luck were explained.

That series taught you how to build a project that attracted investors.

But an investable project is only half the journey. The other half is knowing exactly who you are asking for money, what kind of money you are asking them for, and how their money fits together with everyone else’s.

Once your project is bankable, the question becomes: bankable to whom, and from which pocket does the funding actually come?

In large-scale infrastructure, whether you are building a solar mini-grid, a toll road, or a municipal water facility, if project-financed, your project will rarely be financed from a single source.

Infrastructure requires too much capital upfront, and bearing the risks of financing alone is avoided for by institutions.

That means developers and sponsors need to work to combine different types of capital from different types of investors and build a capital stack that layers different types of financing to achieve a financing structure that supports the project, while balancing the risk profiles of various sources and protecting the project over the long-term.

This new series will focus on decoding the capital stack.

It will provide “a map of the territory” if you will for types of sources of capital that could make up the stack and the common principles and positions that each source adopts when investing in infrastructure.

This first note in the series provides introductory concepts on capital stacks, the layers, leverage, and blended finance, which is an innovative form of capital stacking

What is the capital stack?

The capital stack is the layered structure of all the capital financing your project, arranged in a strict order of priority by risk and reward.

One permanent law of finance: risk and return are linked.

• Investors who take more risk demand more return, usually

• Investors who want safety accept less return, usually

A project finance structure simply builds a separate layer for each appetite. Two rules govern the order of those layers:

• Who gets paid first? This is the repayment waterfall, and it runs from the top down.

• Who absorbs losses first? This runs from the bottom up.

The waterfall

Picture your project revenues as water pouring into a series of buckets set on a staircase. Each bucket on each step must first fill up before a drop spills into the buckets in the step below it.

The bucket on the top stairs is always operating costs and taxes, because the project must survive first.

The buckets on the next step below that belong to senior investors. They are the ones who sit at the top of the stack and hold the first claim on any remaining cash flows after operating expenses.

Only once they are paid their interest and principal for the period does cash spill to the layer beneath, and so on down, until it reaches the final bucket at the bottom step. which belongs to the equity holders.

The cushion

When revenues fall short, the pain is felt from the bottom up. The equity holders at the base simply do not get paid. They take the first loss. If the shortfall is severe, the mezzanine layer above them may miss a payment too. The senior investors at the top are shielded by everything sitting beneath them.

The lower layers are therefore a first loss cushion, absorbing the shock and guarding the rears of those at the top layers.

This is the core mechanism of project finance.

You protect the most risk-averse investors at the top by paying them first, then you reward the investors at the bottom for their willingness to take more risk by paying a higher potential return for carrying the bulk of the risk.

The layers: Top to bottom

Every deal is unique, but a standard infrastructure stack shares common layers, running from the party that absorbs the least risk to the party that absorbs the most.

• Senior debt: The largest slice, sitting at the very top, is after operating expenses. These sources are institutional investors such as pension funds, large development finance institutions, and banks. Because this holds priority in the waterfall, it is the safest commercial layer, so senior investors typically accept the lowest return. They do not want surprises. They want predictable, fixed returns and near-certainty of getting their principal back, and their rates are benchmarked against the lowest permissible by regulation, policy, or the credit rating on the transaction and its issuer.

• Mezzanine and subordinated debt: Mezzanine comes from the Italian for middle, and that is exactly where it sits, between senior debt and pure equity. It comes from impact funds, DFIs, and specialist institutional investors. It ranks below senior debt for repayment, so these investors are paid only after the senior obligations are met. In exchange for that higher risk, and for cushioning the senior layer, they expect a higher return.

• Shareholder loans: Debt provided directly by the sponsors or existing equity holders. It sits below third-party debt but above pure equity. Sponsors use it as a flexible way to inject capital without issuing new shares and diluting ownership. To senior investors, it behaves like equity, since it is fully subordinated to their claims, but it gives sponsors a defined route to pull cash out before common dividends are declared.

• Preference shares: A hybrid, sitting just above common equity, often from specialist financial investors or private equity. They usually carry a fixed dividend that must be paid before any common dividend. On liquidation, they rank ahead of common equity, basically choosing to relinquish some positive upside potential if they can receive preference for receiving dividends. They will be paid before common shareholders.

• Common equity: The foundation of the commercial stack is provided by sponsors, developers, and private equity. Equity holders are the true owners. They sit at the very bottom of the waterfall, paid last and hit first when the project underperforms. Because they carry the maximum risk, they expect the maximum reward, with upside that is, in theory, uncapped once the debt is satisfied.

• Grants: These sit outside the commercial risk and return logic entirely, forming the bedrock of early-stage projects. They come from donor agencies, philanthropic foundations, and climate funds. They require no repayment and expect no financial return, only measurable development impact. They are usually deployed at the earliest stage to cover feasibility studies, environmental assessments, and legal structuring, paying for the work that makes the project bankable for everyone above them, also support initial working capital of the project and the project SPV

Leverage, in brief

The proportion of debt to equity in your stack is your financial leverage, measured by the debt-to-equity ratio, which compares total long-term debt against total shareholder equity.

Infrastructure is capital-intensive to build; once running, it throws off steady cash for decades. That predictability is exactly what lets it carry a lot of debt. And here a natural tension appears between you and your senior investors:

• You want high leverage. Debt is more abundant and cheaper than equity, and using more of it lifts the return on the cash you actually put in. You want to use more of their money to amplify your profit.

• They want lower leverage. High leverage reads as high risk. They want you to inject meaningful equity, both so you have skin in the game and so that a thick equity layer cushions them. If value falls, your equity absorbs the blow long before their debt is touched.

Because of that pull, the final structure is heavily negotiated. A safe and standard range for infrastructure project finance runs roughly from 60:40 to 85:15 debt to equity. Investors rarely let equity fall below 15 percent because they want a real commitment from you to keep incentives aligned.

What blended finance is

You will often find that even a well-designed stack does not close. Commercial debt is too expensive, or the perceived risks of your market send institutional investors walking. This is where blended finance earns its place.

Blended finance is not an asset class. It is an innovative structuring approach.

Convergence - a global network for the field - defines it as the deliberate use of catalytic capital from public or philanthropic sources to increase private investment in sustainable development.

In plain terms, you mix money that wants to do good with money that wants to make a profit, so a project gets built that would otherwise fail to attract funding.

The engine is catalytic capital, often called concessional capital: funding from DFIs, governments, or philanthropies on terms far better than the market would offer. That might mean below-market interest, unusually long tenors, or equity that willingly takes a disproportionate share of the risk. It is deployed to bridge the gap between what your project can afford and what commercial investors demand, and it does so in two main ways:

• Downside protection: It reverses the risk profiles on the capital stack. In a typical capital stack, the lower tiers will demand a higher return, but with blended financing, concessional capital, with the lower returns, sits at the very bottom of your stack and agrees to take the first loss.

  That cushion lowers the risk for the commercial banks in the senior layer, and with lower risk, they are now willing to participate.

• Return enhancement: Concessional investors might cap their own returns, letting a larger share of revenue flow up to the commercial investors. That lifts the yield for the commercial players enough to clear their internal hurdle rates.

• Lower Cost of Capital: With Concessional Capital in the mix at typically much lower rates than investors who will be at the bottom tiers on the stack, the blended cost of capital across all the layers is lowered.

The goal of all of this is mobilisation or more capital. The public or philanthropic money is not there to subsidise your profit. It is there to act as a magnet, crowding in larger volumes of private capital that would otherwise have stayed on the sidelines. It also provides a way to reduce the burden of returns that projects with high social impact must generate to repay financing.

Why it matters for African infrastructure

This is not academic. For a developer working in Africa, it is a survival skill.

There is a persistent myth that African infrastructure struggles because the world is short of capital. It is false. Globally, trillions sit in institutional portfolios hunting for yield. The capital exists. The real constraint is how that capital prices the risk of operating in African markets.

When international investors look at a project in Nigeria or Kenya, they see layers of uncertainty:

• Regulatory and political change.

• Off-taker creditworthiness.

• Complex land rights.

• And above all, foreign exchange risk. Lend in dollars to a project that earns in local currency, and a sharp devaluation can make the debt impossible to service.

Because of those risks, real and perceived, commercial investors demand a steep risk premium to enter emerging and developing markets, and that pushes the cost of capital to punishing levels.

In many African countries, the weighted average cost of capital for power projects can exceed 20 percent, against less than 5 percent in developed markets. At those rates, even a beautifully engineered project becomes unbankable. The revenues simply cannot carry the debt service.

That is precisely why blended finance matters here. It is the most practical tool we have to correct the risk-and-return imbalance. By using concessional capital to absorb the local risks private investors refuse to bear, you can lower the cost of capital. You can use development finance to hedge currency exposure, or a philanthropic guarantee to lift your credit rating. Blended finance is how you translate African realities into the strict, risk-averse language of global institutional capital.

Bringing It All Home

Here is the shift I want you to carry out of this note.

A bankable project earns the right to be financed. It does not tell you how the financing is built. That is the work of the capital stack, and it is a design task, not a given. You are not simply looking for money. You are assembling it, layer by layer, from investors who each want something different from the same project.

The most risk-averse sit at the top, paid first, cushioned by everyone beneath them, and content with a modest, predictable return. The most adventurous sit at the bottom, paid last, hit first, and are rewarded for that exposure with the largest potential upside. Between them sit the hybrids and the subordinated layers, each filling a specific gap. Understanding who sits where, and why, is what lets you build a structure that holds.

Leverage is the tension running through that structure, the negotiation between the profit you want to amplify and the commitment your senior investors need to see.

And blended finance is the tool that rescues the stack when the commercial numbers alone will not close, using patient, catalytic capital to absorb the risks that would otherwise keep private money on the sidelines.

For those of us developing projects in African markets, this is not theory; it is the difference between a project that reaches financial close and one that stalls at a cost of capital its revenues can never carry.

This note was the map. In the notes that follow, we walk the territory one layer at a time, starting with the institutions that anchor the top of so many African infrastructure deals: the development finance institutions.

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Reviewed to Complete This Note

• A Framework for Structuring a Blended Finance Fund. Convergence Blended Finance (2025).

• Blended Finance Playbook for Climate-Smart Agrifood Systems. Convergence (2024).

• Blended Finance: Scaling Capital for Sustainable Income. Convergence (2025).

• Can Investors Trust Your Sponsorship and Structure With Long-Term Capital? Ebun Mesaiyete (2026).

• CFADS to Cash Sweeps: Decoding Debt in Project Finance. Ebun Mesaiyete (2025).

• Concessional but Catalytic: Insights on DFI Blended Concessional Finance. ODI (2021).

• Convergence-UNDP Strategic Framework for Blended Finance. Convergence and UNDP (2024).

• Convergence Insurance Playbook V3. Convergence (2024).

• Affordable Housing in Africa. Convergence (2025).

• Cost of Capital in EMDEs. CCSI (2024).

• Energy Infrastructure Equity Gap. Author to confirm (2025).

• Project-Based Guarantees in Climate Finance. FDL (2025).

• Blended Finance Report. GOGLA (2024).

• Infrastructure Monitor 2024. Global Infrastructure Hub (2024).

• Blended Finance Case Studies, Brazil. SIRI (2025).

• Scaling Blended Finance. BII and BCG (2024).

• Scaling Up Blended Finance. Author to confirm (2024).

• Secondary Market Vehicles in EMDEs. ThirdWay Partners, BII, and Mobilist (2024).

• State of Blended Finance in URT. Convergence (2025).

• The Power to Scale Impact: A Blended Finance Primer. UBS (2024).

• Unlocking Local Currency Financing in Emerging Markets and Developing Economies. OECD (2024).

• Innovative Development Finance. Innpactia (2023).

Six months, 26 weeks, and 181 Days.

It feels like only a few weeks ago that I was writing to you about the first quarter.

And yet here we are, at the start of the second half of the year.

So, how has the year treated you so far?

How are you doing?

How are you keeping up with the goals set? Are they still relevant or do they need to be changed?

I hope that through everything, you hold on to the best health of mind and body and maintain laser focus as you develop and build with intention.

April to June 2026 was a full quarter for Notes.

Over the past three months, we completed the entire bankability series, breaking down what really makes an infrastructure project bankable, from protecting demand all the way through to the readiness checklist that pulls it all together.

The average open rate held strong at 40.21%, which is well above what most publications see, and a sign that what is written here matters to the people receiving it.

The top three most-read notes of the year so far were:

· 1st - Ebun, Explain It to Me Like I’m 5: What Really Makes a Project Bankable? — 160 views

· 2nd - Building Skyscrapers: Frameworks for Scaling Companies in Nigeria’s Renewable Energy Sector — 145 views

· 3rd - For Project Bankability, Protect the Operations and Cash Flows That Repay Investors — 129 views

I find it telling that the foundational framework notes and the operations note both ranked so highly. It tells me you value both the big picture and the practical, less-discussed detail.

I thank every one of you who has been here since 2025 and stayed.

I welcome the 18 new subscribers who joined between April and June 2026. I hope you find your reasons to stay, too.

And my deep gratitude goes to the 27 of you who opened more than 80% of the emails this year.

In a busy and noisy world, your sustained attention is something I do not take for granted.

We have grown from 115 subscribers at the end of March to 131 subscribers at the close of this quarter. The reach widened again, with one new subscriber each from the United Arab Emirates and Egypt joining the community for the first time.

Countries represented are:

Nigeria – 90; South Africa – 5; Kenya – 4; Ghana – 2; Sierra Leone – 1; Rwanda – 1; Egypt – 1

United Arab Emirates – 1; Azerbaijan – 2; India – 1

United Kingdom – 5; Netherlands – 1; Croatia – 1

United States – 10; Canada – 4

Australia – 1; New Zealand – 1

From Lagos to Zagreb, from Accra to Wellington, I remain genuinely moved that this work travels as far as it does.

Thank you, all of you.

Now I want to hear from you.

Please reply to this email and tell me what you would like to read more of.

A new topic on developing projects that attract capital?

A past note you want me to go deeper on?

A related question you have been carrying?

I would be genuinely glad to oblige, and your replies shape what I write next.

I wish every one of us a strong second half of 2026, filled with more wins, steady progress, and lasting success in your endeavours.

Sincere regards,

Ebun

P.S. See links to Notes Written over the past 90 days. Reread, Enjoy. Share.

This week’s note turns all of these notes into a checklist you can run against your own project to see what is in place, what is missing, and what to work on next.

This checklist also follows the five stages of project development, stages that build upon each other to develop and raise financing for the project. Those stages have been covered in previous notes written in 2025.

The Concept stage, i.e. the pre-feasibility stage, where you decide whether an idea is worth pursuing at all and what the major boundaries of the project are.

The Early stage, where you build the evidence base for demand, establish the project’s technical and operational reality, and determine if there are any viability gaps.

The Mid-stage is where the risk allocation and contractual architecture that protects the project is locked in.

The Late stage, where all three elements of the project’s structure are confirmed, and project documentation is consolidated in preparation for due diligence.

And Financial Close and beyond, where the project transitions from development into raising capital for project delivery, and bankability must be maintained through the loan’s duration.

The 4 pillars of Bankability are organised into the 5 stages of Project Development, so you can see exactly which stage your project is in, what you need to do, and which bankability requirements are fulfilled when you carry out that activity.

Under each of the 5 stages, an output, action, or requirement is described. Each item is then matched to one or more Bankability Pillars.

Many requirements serve more than one pillar at once, and seeing these connections across the stages for each pillar underscores why systematically executing one item could address several issues of bankability at once.

The legend applied

• Good Demand and Cashflows - [Demand & Cash Flows]

• Good Risk Allocation and Project Documentation - [Risk & Documentation]

• Good Sponsor and Structure - [Sponsor & Structure]

• Good Timing & Luck - [Timing & Luck]

Work through it by stage. If an item from an earlier stage is not yet ticked, that is where your attention belongs before you move forward.

Stage 1: Concept Stage

This is where you decide whether the project is worth developing at all.

• Clear alignment of the project with the Developer/Sponsor’s Vision. [Sponsor & Structure]

• The market gap or need the project addresses has been clearly identified and articulated. [Demand & Cash Flows]

• An initial demand screening confirms there is plausible, evidence-based demand worth investigating further. [Demand & Cash Flows]

• The project type has been classified, and the likely revenue structure (off-take, concession, or government-supported) is understood. [Demand & Cash Flows] [Risk & Documentation]

• An initial environmental and social screening of the proposed site and activity has been completed. [Risk & Documentation]

• The land acquisition strategy has been planned with International Environmental Performance standards on resettlement, compensation, and acquisition in mind, before any land is bought or agreements signed. [Risk & Documentation] [Demand & Cash Flows]

• The sponsor’s genuine conviction and project value proposition have been established in a project concept note with a clear reason that this project is worth years of effort, capital, and credibility. [Sponsor & Structure] [Demand & Cash Flows]

Stage 2: Early Stage

This is where you build the evidence base and establish the operational reality of the project.

• A full, detailed demand study is commissioned from a credible source, decomposing demand into its answerable components. [Demand & Cash Flows]

• Demand has been stress-tested across a base case, a conservative pessimistic case, and a realistic optimistic case. [Demand & Cash Flows] [Risk & Documentation]

• Actual off-takers or anchor users have been identified, and commitments secured (MOUs are in place or in progress) as applicable. [Demand & Cash Flows]

• An early-stage financial model exists as a feasibility and viability-gap tool, honest enough to support a go or no-go decision. [Demand & Cash Flows]

• A full Environmental and Social Impact Assessment or Environmental and Social Management plans have been commissioned in line with National and International Standards. [Risk & Documentation]

• Meaningful stakeholder engagement with affected communities has begun and is being documented. [Risk & Documentation] [Demand & Cash Flows]

• A grievance mechanism has been established, even before construction begins. [Risk & Documentation]

• A technical design with clear, output-based performance standards has been developed. [Risk & Documentation] [Demand & Cash Flows]

• Clear operational requirements for staffing, raw materials, and administrative costs are determined and modelled annually. [Demand & Cash Flows]

• The Special Purpose Vehicle has been established and positioned as the contracting entity. [Sponsor & Structure] [Risk & Documentation]

• The in-house project development team is being built, covering project management, business analysis, legal, financial, and ESG competencies. [Sponsor & Structure]

• The operating model is developed based on all the assumptions generated from the early stage, and a basic check of project viability is done to ascertain if revenues can comfortably cover costs to identify any viability gaps. [Demand & Cash Flows]

Stage 3: Mid Stage

This is where the project’s risk allocation and the contractual architecture that protects the project long term are carried out

• A comprehensive risk matrix is complete, with every material risk allocated to the party best placed to manage it. [Risk & Documentation]

• The operating model is expanded into a financial model and used as a live negotiation tool, testing whether proposed tariffs and project terms can still produce a bankable DSCR. [Demand & Cash Flows] [Sponsor & Structure]

• The commercial agreements (off-take, concession, power purchase) are negotiated, using committed off-take structures like take and pay where applicable, contractually securing tariffs and revenues for the project. [Demand & Cash Flows] [Risk & Documentation]

• The off-taker’s creditworthiness has been assessed honestly, with payment mechanisms clearly defined and off-taker risks properly mitigated. [Demand & Cash Flows] [Risk & Documentation]

• The EPC contract is structured as fixed-price, date-certain, and turnkey, with performance bonds and liquidated damages secured.

  [Risk & Documentation] [Demand & Cash Flows]

• The EPC contractor’s creditworthiness and track record have been verified. [Risk & Documentation] [Sponsor & Structure]

• The O&M agreement is in place, with KPIs that mirror the financial model’s operating assumptions, with financial incentives and penalties clearly spelled out. [Risk & Documentation] [Demand & Cash Flows]

• The operator’s creditworthiness and relevant experience have been verified [Risk & Documentation] [Sponsor & Structure]

• Direct agreement rights for lenders are provided for in each major project contract. [Risk & Documentation]

• The Project’s ESIA and/or ESMPs have been developed and already approved by the relevant agency or submitted for said approval. And the relevant obligations are integrated into the EPC and O&M contracts. [Risk & Documentation]

• Land and resettlement obligations have been resolved, and land documentation obtained in line with the applicable standards and applicable law. [Risk & Documentation]

• Project-specific licenses and permits have been obtained from the relevant authorities or are in progress. [Risk & Documentation]

Stage 4: Late Stage

This is where the project is prepared to withstand investor scrutiny.

• Project SPV is incorporated, and equity shareholders are known and duly registered as part of the project SPV [Sponsor & Structure]

• The capital stack has been designed, with leverage in a safe range and adequate first-loss protection for senior lenders. [Sponsor & Structure] [Demand & Cash Flows]

• Equity is confirmed, traceable, and genuinely at risk, not structured for early recovery through fees. [Sponsor & Structure] [Demand & Cash Flows]

• Where one or more of the equity sponsors is also the contractor or operator, conflict-of-interest firewalls have been built into the shareholder agreement. [Sponsor & Structure] [Risk & Documentation]

• All project contracts are now in the name of the SPV, with closely aligned timelines across the strategic agreements. [Risk & Documentation] [Sponsor & Structure]

• The detailed project financial model is audit-ready, presenting base, pessimistic, and optimistic cases with every assumption documented and sensitivities that can be run in minutes. [Demand & Cash Flows] [Sponsor & Structure]

• A complete Information Memorandum has been prepared, presenting the project honestly and addressing weaknesses directly. [Risk & Documentation] [Sponsor & Structure]

• Lead sponsors and majority shareholders have prepared a list of encumbrances or litigation. [Risk & Documentation] [Sponsor & Structure]

• Data room properly categorising all project and sponsor information for ease of due diligence and project assessment by investors. [Sponsor & Structure]

Sponsor Corporate Quality Requirements That Are Outside Project Development Stages

While the 5 stages of project development cover the steps focused on taking a specific project or group of projects from idea to financial close, these requirements here are indicators of a high-quality sponsor and help position the sponsor to attract capital to their projects.

• General and industry compliance is demonstrated by the lead project sponsor. All taxes, pension remittances, and industry operating licenses linked to the company are up to date. [Sponsor & Structure] [Risk & Documentation]

• An honest self-assessment of the sponsor’s track record and experience gaps has been done, and a list of past project sites is available for site visits by investors. [Sponsor & Structure] [Risk & Documentation]

• There is a strong in-house capacity, covering project management, business analysis, legal, financial, and ESG competencies to engage with investors. [Sponsor & Structure] [Risk & Documentation]

• There is a strong environmental and social management system (ESMS) in place along with other health safety and environment policies and records [Sponsor & Structure] [Risk & Documentation]

• The CEO and Chairman roles are separated. [Sponsor & Structure]

• An effective board is in place, including independent directors with no material relationship to the company or its shareholders. [Sponsor & Structure]

• The board has functioning audit, risk, and remuneration committees, each with a majority of independent directors. [Sponsor & Structure]

• The sponsor is present in the rooms where capital and opportunity flow, with active relationships across the capital landscape. [Timing & Luck] [Sponsor & Structure]

• The sponsor is targeting or positioning a pipeline to align with where DFI and institutional capital mandates are currently concentrating. [Timing & Luck] [Sponsor & Structure]

• Macroeconomic, policy, and DFI mandate signals affecting the sector are being actively tracked so that the company can position itself for opportunities. [Sponsor & Structure] [Timing & Luck]

Stage 5: Financial Close and Beyond

This is where the project transitions from development to securing financing for project delivery.

• Project cashflow analysis provides a strong margin of error and falls well within the DSCR limits for the lenders [Demand & Cash Flows]

• An operations readiness plan is in place that transitions construction into operations, with the operator ready to be mobilised before the contractor leaves the site. [Risk & Documentation] [Sponsor & Structure]

• A single agreed financial model has been fixed as the binding reference for all parties. [Demand & Cash Flows] [Risk & Documentation]

• Due diligence findings with a few material issues to address for project, contract counterparties, and project SPV [Demand & Cash Flows] [Risk & Documentation] [Sponsor & Structure]

• All conditions precedent to the first drawdown have been satisfied. [Risk & Documentation] [Sponsor & Structure]

• Cash waterfall structure, Reserve accounts, covenant thresholds, and distribution lock-up triggers have been set. [Demand & Cash Flows] [Risk & Documentation]

• Equity commitments are in place to be drawn down alongside debt during the project construction phase. [Sponsor & Structure] [Demand & Cash Flows]

• Monitoring and reporting systems for environmental, social, and operational performance are operational, providing reports to investors and their representatives. [Risk & Documentation] [Sponsor & Structure]

Bringing it All Home

Run your project and your organisation against this checklist, and the pattern of what is ticked tells you something important.

If your gaps cluster under one pillar, that is your priority. A project strong on demand and documentation but weak on sponsor and structure will stall at due diligence.

A project with an excellent sponsor and strong structure, but a thin demand case will fail at the first technical advisor’s review.

If your gaps cluster at one stage, you have moved too fast. A project at the late stage with unticked early-stage items has skipped foundational work that will surface during due diligence and force expensive rework.

And if the timing items are the only ones you cannot tick, take heart.

Those are the items least within your control. If everything else is ticked and you are simply waiting for the window to open, you have done your job. You are bankable. Now you position, you stay present, and you wait, ready, for the moment the capital turns in your direction.

Notice, too, how many items carry a second pillar tag. That is not accidental. A take-or-pay off-take agreement protects demand and allocates risk

The pillars are not separate boxes. There are four parts of the same underlying question, and the strongest projects are the ones where a single well-executed decision strengthens multiple pillars at once.

That is the whole framework. Five stages, Four pillars of bankability, one Readiness Checklist.

Demand the market will pay for. Risk allocated and documented. A sponsor and structure capital can trust. Timing and luck you have positioned your project to receive.

Leave a comment,

is there an important step I missed under any stage?

Is there a sponsor requirement that wasn’t captured?

Is there a requirement that should be matched to another pillar?

What other topic on project development and financing would you like to read more about?

See you in the next note.

Share Notes on Project Development

Related Past Notes

1. Notes on Project Development — Ebun, Explain It to Me Like I’m 5: What Really Makes a Project Bankable? Ebun Mesaiyete, April 2026.

2. Notes on Project Development — For Project Bankability, Protect Demand in Commercial Agreements. Ebun Mesaiyete, April 2026.

3. Notes on Project Development — Protect Construction: Master the EPC Contract for Project Bankability. Ebun Mesaiyete, April 2026.

4. Notes on Project Development — For Project Bankability, Protect the Operations and Cash Flows that Repay Investors. Ebun Mesaiyete, May 2026.

5. Notes on Project Development — The Financial Model: A Tool to Negotiate Smarter, Close Gaps Earlier, and Provide One Coherent Picture of Project Bankability. Ebun Mesaiyete, May 2026.

6. Notes on Project Development — Protecting the Project: Environmental, Social, and Governance Bankability Requirements. Ebun Mesaiyete, June 2026.

7. Notes on Project Development — Can Investors Trust Your Sponsorship and Structure With Long-Term Capital? Ebun Mesaiyete, June 2026.

8. Notes on Project Development — For Project Bankability, Respect the Fourth Pillar: Good Timing and Good Luck. Ebun Mesaiyete, June 2026.

9. Notes on Project Development — The infrastructure asset lifecycle - 4 phases from idea to disposal. Ebun Mesaiyete, Apr 2025.

10. Notes on Project Development - Resource for the future you want: An In-House Project Development Team Ebun Mesaiyete, Jan 2026.

The previous seven notes covered the first three pillars in depth, because those are the pillars you can build and control. You prove the demand. You structure the contracts. You build the company and the SPV. With enough discipline and enough time, all three are achievable through deliberate effort.

The fourth pillar is different. You can do everything right across the first three and still find that the deal does not close, because the market moved, the capital window narrowed, the currency depreciated, or the lender you were counting on reached their exposure limit in your sector the week before your roadshow.

This note is about that reality. It is not a comfortable subject, because it acknowledges that effort alone does not guarantee outcomes in infrastructure development. But it is an important one, because while you cannot control timing and luck, you can do a great deal to position yourself so that when fortune does turn, you are ready to catch it.

It is Not Fair, But Timing Matters

Infrastructure projects take a long time to develop and finance. Projects often take years to structure, negotiate, guarantee, and close. By the time financing is fully arranged, market conditions may already have shifted.

That sentence describes the central vulnerability of every infrastructure developer. You are not bringing your project to a static market. You are bringing it to a moving one. And the same project, with the same fundamentals, can be highly financeable in one window and unfinanceable in another.

Consider what shapes the window in which you are trying to close.

The macroeconomic environment matters enormously. Interest rates determine the cost of debt and the viability of your debt service assumptions. Currency stability determines whether lenders providing foreign-denominated debt will accept your local-currency revenue projections. Sub-Saharan Africa is currently in a relatively favourable phase on some of these measures. According to the IMF, sub-Saharan Africa is set to be the fastest-growing region globally in 2026, with ten of the world’s twenty fastest-growing economies being African, inflation cooling, currencies stabilising, and portfolio flows turning positive. But the same source is direct about the headwind: the biggest challenge is debt, with twenty countries in or near distress, and many governments increasingly relying on expensive domestic borrowing that crowds out private investment.

The availability of capital in your specific sector matters. Development finance institutions concentrate their mandates, and those mandates shift. Right now, DFI mandates are concentrating on energy transition and renewable energy assets across multiple institutions simultaneously, making clean energy the dominant pull factor for concessional and blended capital in 2026. If you are developing a renewable energy project in this window, the capital is actively looking for you. If you are developing something outside the current mandate focus, you will have to work considerably harder to find a home for your project.

The regulatory and policy environment matters. A project that benefits from a government actively prioritising its sector has a structurally different risk profile from an identical project in a market where policy is ambiguous or shifting.

None of these factors is within your control, yet all of them affect whether your well-built project closes or not.

Capital Is Available, but Preparation and Timing Decides Who Gets It

There is an important nuance in the current market that every developer should understand, because it reframes what timing actually means.

The dominant narrative is that Africa faces an infrastructure financing gap caused by a shortage of capital. The infrastructure financing gap is estimated to range between 68 billion and 108 billion dollars annually, within a broader total investment requirement of 130 billion to 170 billion dollars per year. That sounds like a capital supply problem.

But the more precise diagnosis from current market analysis is different, and it matters for how you think about timing. Infrastructure trends in emerging markets in 2026 expose a market where capital is available, but the projects that can absorb it are not.

The investment gap is not a funding gap. It is a structuring gap. It is a project development gap.

The analysis goes further. Global foreign direct investment and international project finance values have fallen, and this divergence is evidence that the gap is a risk pricing failure, not a capital supply problem.

This reframes the fourth pillar in a way that should give you some comfort and some urgency at the same time.

The comfort is that capital exists. The money is there, looking for projects. Timing is not about waiting for capital to appear in the world. It is about being ready when capital is looking in your direction.

The main constraint is the scarcity of projects that are architected to meet international standards for technical completeness and financial rigor. In other words, when the timing is right, and capital is flowing toward your sector, the projects that capture it are the ones that have already done the work of the first three pillars.

Timing rewards the prepared.

Increasing the Surface Area of Your Luck

There is a concept that has circulated among entrepreneurs and investors for years, often attributed in its modern form to Marc Andreessen and popularised further by others. It is called luck surface area. The core idea is simple and powerful. Luck is where preparation meets opportunity, and you can manufacture luck by expanding your luck surface area: adding value, broadcasting your work, and building connections.

The principle, applied to investment and career success, is that you cannot time opportunity precisely, just as you cannot time the markets. The best strategy is to keep turning up and increase the number of occasions of demonstrating your skill. That increase in the number of occasions is what increases your luck surface area.

One useful way to think about this comes from a formulation that breaks luck into three multiplied factors: surface area, position, and staying power. We can figure out ways to position ourselves better, where more luck and opportunity flow, and we can build grit and perseverance to stay in the game longer than others.

Applied to infrastructure development, this gives us a practical framework for the part of timing and luck you can actually work on.

• Surface area: be in more of the right rooms. The developer who attends the African Investment Forum, who is present at the energy and infrastructure convenings, who maintains active relationships with DFI officers, commercial bank infrastructure teams, and development programme managers, is exposed to more opportunities than the developer working quietly in isolation. When a new concessional facility is announced, when a DFI is looking to deploy in your sector, when a co-investor is searching for projects, the developer with the larger surface area hears about it first and is positioned to respond. Capital flows through networks before it flows through formal processes.

• Position: be where the capital is already looking. This is about aligning your pipeline with where the momentum is. The African Development Fund mobilized a historic 11 billion dollars in its replenishment cycle in December 2025, with energy access among its core strategic priorities, and institutions across the continent are concentrating on energy transition and renewable energy. A developer who understands where the mandates are concentrating, and who positions their pipeline accordingly increases the probability that their project meets willing capital at the right moment. This does not mean abandoning your conviction or chasing trends. It means being strategic about which projects you bring to market first, and when.

• Staying power: stay in the game long enough for the timing to turn. This speaks to the belief and resilience that underpin the conviction discussed in the note about good sponsor and project structure.

  Infrastructure development is long, expensive, and harder than projected. The developer who runs out of resources, patience, or resolve before the window opens does not get to benefit when it does. Investment in African infrastructure requires patience and a long-term perspective, and this patience is often lacking, which further weakens interest. The developers who are still standing, still developing, still maintaining their projects in an investment-ready state when the timing turns, are the ones who close. Staying power is not glamorous. But it is decisive.

What This Means in Practice

The practical implication of all this is that you manage timing and luck not by trying to predict them, but by organising yourself so that you are continuously ready to benefit from them when they turn in your favour.

Do the following:

1. Keep your project investment-ready, not investment-eventually-ready. A project that has completed the work of the first three pillars and can move quickly when a financing window opens has a fundamental advantage over one that still has months of preparation to do when the opportunity appears. The window will not wait for you to finish your demand study.

2. Maintain active relationships across the capital landscape before you need the money. The time to build a relationship with a DFI officer or a commercial bank infrastructure team is not the week you need their term sheet. It is months and years before, through consistent presence, honest updates, and demonstrated progress. Capital providers fund people they have watched deliver over time.

3. Track the macroeconomic and policy signals that affect your financing window. Interest rate trends, currency stability, sector policy momentum, and DFI mandate cycles are all knowable if you are paying attention. A developer who understands that their sector is currently in favour, or that a major new facility is about to be launched, can time their approach to market deliberately rather than arriving by accident.

4. Build the staying power to outlast the cycle. Ensure that your company has the resources, the resilience, and the financial discipline to keep developing through a period when the timing is unfavourable, so that you are still standing when it turns.

Bringing It All Home

The fourth pillar is the humbling one. After all the discipline of demand studies, risk allocation, financial modelling, governance, and structuring, the fourth pillar acknowledges that some of what determines whether your project closes is genuinely outside your hands.

The interest rate environment, the currency, the sector mandate of the capital that happens to be deploying this year, the regulatory momentum in your market, the comparable deal in a neighbouring country that either de-risks or sours investor perception of your sector overnight. None of these is yours to command.

But the lesson of this note is not resignation. It is the opposite.

You cannot control timing and luck, but you can take steps to position yourself and your project in a way that enhances their impact. You can increase your surface area by being present in the rooms where capital and opportunity flow. You can improve your position by aligning your pipeline with where capital is already looking. You can build the staying power to remain in the game long enough for the timing to turn in your favour.

Above all, you can do the work of the first three pillars so well that when the window opens, your project is ready to move while others are still preparing. Because the deepest truth of this fourth pillar is that timing rewards the prepared, and luck favours those who have positioned themselves to receive it.

The capital is there. The need is there. The windows open and close. Your job is to have built something genuinely bankable, to have positioned yourself where the opportunity flows, and to still be standing, ready, when your moment arrives.

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Reviewed to Complete This Note

1. Notes on Project Development — Ebun, Explain It to Me Like I’m 5: What Really Makes a Project Bankable? Ebun Mesaiyete, April 2026.

2. Notes on Project Development — Can Investors Trust Your Sponsorship and Structure With Long-Term Capital? Ebun Mesaiyete, June 2026.

3. Notes on Project Development — Strategic Forecasting: A Competitive Advantage. Ebun Mesaiyete, 2025.

4. Money Marketing — “Africa Investment Trends 2026: These Are the Opportunities.” January 2026. Available at: https://www.moneymarketing.co.za/africa-investment-trends-2026/

5. Delphos — “Infrastructure Trends Emerging Markets 2026: What Investors Require.” May 2026. Available at: https://delphos.co/news/blog/infrastructure-trends-emerging-markets-2026-what-investors-require/

6. Delphos — “DFI Investment in Africa Energy: What Kenya’s Deal Signals for 2026.” May 2026. Available at: https://delphos.co/news/blog/dfi-investment-in-africa-energy-what-kenyas-2026-deal-reveals/

7. Energy Capital Power — “What DFI Financing Strategies Reveal About Africa’s Development Priorities.” March 2026. Available at: https://energycapitalpower.com/what-dfi-financing-strategies-reveal-about-africas-development-priorities/

8. MOHAC Africa — “Infrastructure Gap in Africa: Trends and Opportunities, 2026 Report.” January 2026. Available at: https://mohacafrica.org/infrastructure-gap-in-africa/

9. UCL Bartlett — “Infrastructure Financing in Africa: Five Key Themes for Sustainable Development.” Available at: https://www.ucl.ac.uk/bartlett/urban-lab/research/research-projects/infrastructure-financing-africa-five-key-themes-sustainable-development

10. Business Day — “Financing Africa’s Power Infrastructure in the AI Economy: Why Catalytic Capital Matters Now.” May 2026. Available at: https://businessday.ng/opinion/article/financing-africas-power-infrastructure-in-the-ai-economy-why-catalytic-capital-matters-now-part-one-of-two-2/

11. Sam Matla — “How to Increase Your Luck Surface Area.” April 2024. Available at: https://sammatla.com/luck-surface-area/

12. Tapan Desai — “How to Increase Your Luck Surface Area.” September 2024. Available at: https://tapandesai.com/increase-luck-surface-area/

13. Rohan Jaikishen — “Increasing Your Luck Surface Area.” April 2022. Available at: https://medium.com/@rohanjaikishen/luck-surface-area-bcbb662351fb

Further Reading

1. Collins, J. and Hansen, M. T. — Great by Choice. HarperBusiness, 2011.

2. Wiseman, R. — The Luck Factor: The Scientific Study of the Lucky Mind. Miramax, 2003.

The first note introduced the summary of the four good pillars that make a bankable project.

The second to sixth notes in the series on bankability delved into the first two pillars

• Good Demand and Cash Flows

• Good Risk allocation and Documentation

Providing details for what each must demonstrate, contain, and how it must protect the project.

This seventh note will focus on the third pillar: Good Sponsor and Project Structure

Investors are not just underwriting the concrete, steel, and the cash flows generated from constructing the asset. They are underwriting the sponsor’s capacity to deliver and the project’s ability to stand on its own.

They are asking. “Do I trust the organisation behind this project and the project enough to commit long-term capital on behalf of my own investors?”

Your idea, concept, plan, contracts, and financial model can be good and even great, but they are not enough.

When an investor evaluates your project, they are acutely aware that a technically sound project housed inside a poorly structured or poorly governed company will eventually fail. They know that a brilliant off-take agreement is worthless if the SPV collapses due to internal chaos or leadership disputes.

A Good Sponsor with a Good Project Structure is crucial because that pillar will ensure the execution and sustainability of all that has been developed, documented, and financed.

That is the pillar that gives confidence that the cash flows on paper will materialise.

So let’s break it down

A Good Sponsor

A good sponsor is one with a track record, skin in the game, team, governance, and the conviction to see a project through construction and beyond.

Track Record

What has this sponsor successfully developed, financed, built, and operated before? Not proposed, not started, or not been involved peripherally. What have they completed? What is the sponsor’s reputation? Are complaints of fraud and mismanagement rife?

First-time sponsors are not automatically disqualified, but they must compensate for the absence of a comparable track record with a stronger team, a more conservative project structure, a smaller project scale, greater transparency about the gaps in their experience, and a willingness to receive strategic support from the investors. Presenting a first-time project as if it carries the credibility of an established track record is a strategy that consistently fails during due diligence.

Skin in the Game

Investors do not commit capital to sponsors who are seeking 100 percent of the financing with none of their own money meaningfully at risk. Equity contributions to the project are required. They take the form of future financial commitments in cash and demonstrable evidence-based past efforts that have led to outputs that improve project bankability.

It is a signal of conviction and alignment. It tells investors that the sponsor has something real to lose beyond reputation if the project fails.

Note that Investors will know the difference between equity that is genuinely at risk and equity structured to be recovered through development fees or management contracts before the project faces any meaningful adversity, removing the protections that the equity is actually to provide for the project.

The Team: An Effective Management Structure

The Chief Executive Officer must have evolved from the Chief Everything Officer to a full Chief Executive Officer.

The CEO’s job is no longer to be the best engineer or salesperson in the room. It is to set vision, manage culture, and hold the executive team accountable. When due diligence reveals that the CEO is still approving small tasks and expenses and is the only person with relationships at the relevant ministry, the investor sees a key man risk. A CEO who cannot function strategically because they are embedded in daily operations cannot scale the company or protect future investments.

You need an executive management team with at least:

• The Chief Operating Officer: To translate strategy into operational reality. In an infrastructure company where execution risk is high, the COO is the strategic guardian of delivery and execution.

• The Chief Financial Officer: To act as manager of the company’s cash flows, manage the capital structure, ensure financial controls, and facilitate fundraising.

The presence of this capable, distributed leadership team answers the key man risk question by demonstrating that the company can function and honour its commitments regardless of what happens to any single individual.

The Team: The In-House Project Development Team

You cannot successfully expand your portfolio of infrastructure assets off the side of your desk, and you cannot rely solely on external consultants to hold the institutional memory that develops your project pipeline. While external consultants provide vital specialist input, only an internal team can provide the ownership, continuity, and institutional memory that grows your organisation’s capacity.

A company expanding its pipeline needs a project development team with five roles working in coordination:

• The Project Manager: The tactical integrator who ensures that the various workstreams, engineering, finance, legal, and ESG, move forward on schedule and within budget, and prevents the silos that form naturally between them.

• The Business Analyst: The professional who moves the company beyond assumptions and intuition, gathering empirical data and building the demand evidence that proves to investors that the project addresses a real, quantified market need.

• The Legal Counsel: The architect of risk allocation, ensuring that project contracts are not just legally binding but commercially viable and structured to meet the requirements of investor legal due diligence.

• The Financial Analyst: The professional who translates commercial realities, engineering costs, and contractual terms into the dynamic financial model that investors will interrogate, a distinct discipline from corporate accounting.

• The ESG Specialist: In modern infrastructure finance, this role is a strategic gatekeeper. They ensure the project complies with applicable standards, protect the project from environmental liabilities and community disputes, and serve as the internal counterpart to the investor’s independent environmental and social advisor during due diligence.

When investors see a fully resourced, competent internal team, they see a sponsor who can deliver the current transaction well but also grow a pipeline of projects that leads to many other transactions.

The Team: Delegated Authority and Standardised Practices

A good sponsor streamlines permission-seeking into structured authorisation.

To attract project finance, the company must transition from relying on oral tradition and founder intuition to relying on documented processes and delegated authority.

• Financial authority must move from ad-hoc approvals on a case-by-case basis to a system of tolerances. Instead of requiring every invoice to reach the CEO’s desk, team leads are granted authority to spend within pre-approved budget parameters that align with corporate goals, with escalation required only when a tolerance in the forecast is breached. This proves to investors that the company has shown a balance between financial control and agility that allows speed, effectiveness, and scale.

• Decision authority on technical decisions and project scopes must be matched to the appropriate levels to ensure that decisions are made quickly by those with the most relevant expertise within predefined guidelines while preventing scope creep from destroying timelines and budgets.

  These delegation frameworks must be codified in a Responsibility Assignment Matrix that defines who is Responsible, Accountable, Consulted, and Informed for every critical task.

• Standard Operating Procedures that document how the company operates must be in place to ensure that institutional memory is preserved and not residing in people’s heads or emails alone. They are a signal of bankability during corporate due diligence. It proves that operations are predictable and institutional, rather than dependent on who happens to be in the office that day.

Governance: Effective Institutional Oversight

The governance architecture of the sponsor company is the dimension that most often separates developers who consistently attract institutional capital from those who consistently do not.

Are you coachable? Can you the leader be led? Can you submit to oversight? These are not things you pay lip service to; rather must be demonstrated by the presence of an effective and functioning board. For investors, a functioning advisory board signals intent: the company is actively moving away from founder omniscience and toward structured accountability. It could be either:

• An Advisory Board is a great starting point for a company transitioning out of the startup phase. It provides an experienced external perspective without the legal complexity of a fiduciary board, allows the founder to practice the discipline of reporting to a body of peers, and serves as a vetting mechanism for potential future directors. This is like a board with training wheels; as the company grows, it must move to the structural board.

• A Structural Board/Board of Directors becomes necessary as the company seeks significant capital. This is a formal governing body with legal duties and ultimate responsibility for the oversight of the company’s affairs. A structural board that satisfies institutional investors must include independent directors who have no material relationship with the company, its management, or its major shareholders.

  Three board committees considered mandatory by institutional investors in a board of directors are:

1. The Audit Committee oversees financial integrity and the external audit relationship.

2. The Risk Committee monitors the specific operational, financial, and project-level risks that the company’s activities create.

3. The Remuneration Committee ensures executive compensation is determined independently of the people whose compensation is being set.

   There must also be a separation of the CEO and Chairman roles. When one person holds both positions, they are responsible for executing the strategy and for evaluating whether that strategy is being executed well. This conflict removes an essential check. Separating the roles signals that governance is designed for accountability rather than convenience.

Governance: Strong Compliance

Strong compliance is not simply about avoiding penalties. It is evidence that the organisation behind the project operates with institutional discipline at every level. From a good governance perspective, strong compliance goes far beyond a mere box-ticking exercise; it is a strategic mechanism that ensures accountability, institutional legitimacy, and the protection of a company’s social license to operate. To build a professional corporate structure that attracts institutional capital, organizations must rigorously govern three distinct levels of compliance.

• General Corporate Compliance forms the foundational baseline, requiring strict adherence to entity-level obligations such as incorporation rules, tax filings, pension remittances, adherence to labour laws, occupational health and safety programs, and employee welfare regulations.

• Industry-Level Compliance focuses on securing and maintaining the necessary sector-specific certifications and registrations from industry regulators, which validates the company’s broader operational capacity across its portfolio.

• Project-Level Compliance demands meticulous management of site-specific requirements, including localized environmental permits, licenses, and rights-of-way that are unique to individual assets.

Conviction

• Belief that the project is worthy work that addresses a real need, that the market will support it, and that the investment of time, capital, and credibility is justified and worth the effort. Demonstrated in the passion, in the deep familiarity with the sector and its numbers, with the current company’s numbers and goals, with the project’s numbers and future potential, with the focused attention given to delivering the project.

• Resilience in managing obstacles, in taking focused actions that keep the project developing, and in addressing bankability issues. Infrastructure development itself can be long, expensive, and harder than projected. A sponsor who retreats at the first obstacle, the first regulatory delay, is hard to trust with long-term capital.

A Good Project Structure

A good project structure is one built around a properly ring-fenced vehicle with clear ownership, a robust capital stack, good financial leverage, binding contracts over the operating phase, and governance that protects the project’s interests even from its owners.

Properly Ringfenced Vehicle

At the core of the project structure is the Special Purpose Vehicle (SPV). Project finance requires the creation of this legally separate, single-purpose entity to house the project assets and capture all revenues. The SPV ring-fences the project, ensuring it is financially and legally self-contained. It limits risks and obligations to the specific asset being financed, protects the sponsor’s broader corporate balance sheet from the project’s liabilities, and gives investors a clean, unencumbered entity over which they can exercise step-in rights if a default occurs.

The SPV must be genuinely ring-fenced. Its finances must be separate from the sponsor’s finances. Its bank accounts must be dedicated to the project. Its governance must be capable of functioning independently of the sponsor’s direction. Its contracts and agreements, land rights documentation, project licenses, and permits must be in the name of the SPV, not the sponsor company.

Financing Structure: Clear ownership, a Robust capital stack, and Good Financial Leverage.

• Clear Ownership means no ambiguity at all in who actually owns the SPV. The exact names of the corporations and individuals that hold equity in the SPV, and what percentage of each type of share each party holds.

• Robust Capital Stack is capital “stacked” from sources with different return and loss expectations in a way that gives adequate first-loss protection for Senior lenders.

  This means that the total capital required for the project is spread across different types of debt and equity, with some willing to take more risks and bear more losses than others.

  A robust stack also includes credit enhancements like guarantees and asset insurance that senior lenders and other institutional investors can lay claim to in the event of default.

  A Robust stack will have the most risk-averse senior debt, sitting at the top of the repayment hierarchy. It is also often the largest proportion of the total capital, sized against the debt capacity of the project.

  It will then be followed by Mezzanine Debt, Convertible notes, Shareholder loans from existing shareholders, then Preference Shares, then Common Shares, and then grants forming the bottom of the stack.

  Senior debt providers sitting at the top of the “stack” means they do not bear any loss and are paid first before any other investor. In the event of insufficient cashflows the other types of capital take losses first before their own.

• Good Financial Leverage: means an acceptable ratio of debt to equity in a project’s capital. Financial leverage is the sum of all debt divided by the sum of all equity. Meaning the sum of all capital that is like debt (Senior Debt, Mezzanine Debt, convertible notes) divided by all capital that is like equity (Shareholder loans, preference shares, common shares)

  The higher the ratio, the more the debt, the less the equity.

• Because infrastructure is capital-intensive, a higher debt portion is expected, but a good, safe range for lenders, depending on the other project dynamics, tends to fall between debt-to-equity ratios of 60:40 to 85:15. Small equity shares below 15% are often avoided.

Operating structure: Binding contracts over the operating phase

This clearly defines the commercial boundaries and contractual engagements between the project and parties who are building (the EPC contractor), operating (the O&M contractor), supplying inputs (Strategic resource supply contracts, and buying outputs from the project (Offtake agreements) or defining terms of PPPs (Concession and Government lease agreements). These contracts have been covered extensively in earlier notes on bankability. The key points that investors will look for across all of them are contracts that

• Have credible, creditworthy counterparties

• Protect the project long-term

• Have closely aligned timelines between the strategic contracts

Governance Structure: Oversight that protects the Project even from its owners.

This defines the executive oversight and administration of the specific project entity.

• Board independence from sponsors: Lenders to project finance transactions typically require the appointment of independent directors to the SPV’s board with veto power over voluntary bankruptcy filings. This protection ensures that a financially distressed sponsor cannot drag a performing project into its own insolvency to liquidate assets for cash. Without independent directors holding this power at the SPV level, the ring-fence is incomplete.

• Protect the project from Sponsor-Counterpart: The shareholder agreement governing the SPV must also address the conflicts of interest that arise when a sponsor is also the operator, the contractor, or the off-taker. The sponsor cannot use its board position in the SPV to prevent the SPV from enforcing performance obligations against itself.

  Lenders will require that the SPV have the unimpeded legal right to act against any underperforming counterparty, regardless of whether that counterparty is also a shareholder.

  The shareholder agreement must contain explicit provisions preventing the contractor-sponsor or operator-sponsor from voting on board decisions that relate to the enforcement of their own contracts.

Bringing It All Home

Investors are not just buying your project. They are entering a long-term partnership with the organisation and the structure behind the project.

When they look at your company, they need to see a sponsor with a track record, real capital at risk, a leadership team that reduces not concentrates key man risk, strong compliance and effective oversight, and the conviction to stay the course when execution gets hard.

When they look at your project, they need to see a properly ring-fenced SPV, clear ownership, a robust capital stack, binding contracts with creditworthy counterparties, and governance that protects the asset even from its own sponsors.

This is the unglamorous work. It is not the vision, the pitch, or the groundbreaking ceremony. It is the institution building that happens quietly, consistently over time, and long before the capital arrives.

But it is exactly this work that answers the question every investor carries into every transaction.

Can I trust this sponsor and their structure with my capital for the next five, seven, ten, fifteen, or twenty years?

Do the work that lets their answer be yes.

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Other Notes in the Bankability Series

1. Notes on Project Development — Ebun, Explain It to Me Like I’m 5: What Really Makes a Project Bankable? Ebun Mesaiyete, April 2026.

2. Notes on Project Development — For Project Bankability, Protect Demand in Commercial Agreements. Ebun Mesaiyete, April 2026.

3. Notes on Project Development — Protect Construction: Master the EPC Contract for Project Bankability. Ebun Mesaiyete, April 2026.

4. Notes on Project Development — For Project Bankability, Protect the Operations and Cash Flows that Repay Investors. Ebun Mesaiyete, May 2026.

5. Notes on Project Development — The Financial Model: A Tool to Negotiate Smarter, Close Gaps Earlier, and Provide One Coherent Picture of Project Bankability Ebun Mesaiyete, May 2026.

6. Notes on Project Development — Protecting the Project: Environmental, Social, and Governance Bankability Requirements. Ebun Mesaiyete, June 2026.