Project Finance: A Credit Strategy Based on Contractual Linkages

Abstract

The paper argues that the existing literature on project finance almost exclusively describes it either in terms of the narrow principles of ‘non-recourse’ and ‘off-balance sheet’ finance, or in terms of the unbounded sources of finance ,for industrial investment. As a consequence, definitions and explanations of project finance have tended to be too generalised and in many respects contradictory depending upon the author's perspective or the financial structure of he project in question. In attempting to redress this situation, the paper utilises a case study approach and an empirical survey to derive a better understanding of project finance which explains it in terms of a risk strategy which reconciles the potentially conflicting objectives of borrowers and lenders by utilising the so-called ‘community of interests’ which exists in the commercial and industrial linkages between the various parries involved in a project.