Infrastructure investment calls for huge financing resources and neither the government nor the conventional funding sources in Bangladesh can fill the need. For a developing country like Bangladesh, it is imperative to develop a long term investment plan for infrastructure improvement. Sporadic and add hoc investment may not result in optimum benefit, and not necessarilly be the most cost-effective way. The dismal power sector of Bangladesh stands as a glaring example of this fact.

Multilateral and bilateral organizations have remained as the primary sources of infrastructure financing for developing countries. Occasionally, few infrastructure projects in these countries receive the blessings of international commercial lending. Developing countries cannot do away with commercial lending for infrastructure projects, even though is expensive. On the other hand, to attract commercial lenders to develop infrastructure projects in developing countries, multilateral and bilateral organizations assumed the role of "catalyst funding source" by offering softer lending terms and conditions, thus leaving room for the commercial lenders to charge what they deem as commercially viable.

Against this backdrop, in the early 1990s, international and regional development banks undertook large scale infrastructure investment programmes for developing countries. These efforts were supplemented by offering technical services for capacity building to implement and manage these projects. These initiatives resulted in establishment of a number of infrastructure funds and fund management companies. The "Emerging Africa Infrastructure Fund," created in January 2002, aims at providing long-term debt financing to commercially viable private sector infrastructure projects in 44 Sub-Saharan African countries. Jeddah based Islamic Development Bank, in collaboration with some Gulf states, established $ 1.5 billion infrastructure fund to invest in similar projects in its 56 member countries. In 1998, the governments of Japan and the United Kingdom, in collaboration with the World Bank, set up Public-Private Infrastructure Advisory Facility for offering technical assistance to developing countries to tap the full potential of private involvement in infrastructure projects.

In 1999, with collaboration of the World Bank, the Government of Bangladesh established a $ 225 million infrastructure fund, to be managed by Infrastructure Development Company Ltd. Another organization, Infrastructure Investment Facilitation Centre was established to render infrastructure related advisory services.

The overriding objective of these initiatives, popularly known as public private initiative (PPI), was to induce commercial financing into the infrastructure sector. By offering longer maturity, and relatively softer financing terms, these infrastructure funds were expected to attract private and commercial financing for infrastructure projects.

Unfortunately, neither in Bangladesh nor elsewhere did such initiative achieve what it was meant to. Some commercial lenders financed infrastructure projects jointly with development banks, but they never delved into such ventures alone in developing countries on a large scale. Development banks still remain the preferred lenders to project sponsors, and preferred co-financiers to the commercial banks. After one and half decades of PPI endeavour one lesson is clear -- private commercial lenders can never be the leading infrastructure financing source in Bangladesh, at least in the near future.

There can be many hypotheses as to why infrastructure projects in Bangladesh and other developing countries fail to attract commercial lenders to a desired level. Chief among the factors is the country risk profile, a parameter which reflects a country's position on a global risk scale based on a host of macro-economic factors. High risk perception regarding Bangladesh does not prompt commercial banks to take a larger role in infrastructure financing. Hence, the issue of infrastructure development and scarcity of commercial financing calls for a holistic diagnosis. Pointing fingers to stand alone factors such as lack of adequate government initiative, sector reform, underdeveloped local capital market etc. will only give a partial answer to the problem.

Will Bangladesh continue to rely on soft infrastructure financing from development partners

until such time when macro-economic factors are on a strong footing? The journey from aid dependence to self reliance has to be guided by a sound economic policy agenda, of which infrastructure investment is a critical constituent.

Infrastructure, in economic terms, is primarily a "public good." Sometimes it can be of "quasi public" nature, but can never be in the private domain. Instead of looking at the ever shrinking soft loans for infrastructure development, hasn't the time come to develop a "home made" solution? Setting up a local currency infrastructure fund can be a modest start in this regard. It may not be a panacea to the host of issues mentioned earlier, but at least it will be a good start in addressing the issue of foreign exchange risk and creating an appetite among local bankers for infrastructure financing. The fund will also lessen the pressure on project sponsors to attract longer term cross-border financing, and the associated currency exchange rate risk.

The obvious difficulty is the availability of resources to establish a local currency infrastructure fund. It is unlikely that the government, being handicapped by budgetary constraints, will be in a position to make a large contribution for setting up the fund. However, the government can accumulate the funds gradually by making annual contributions, even by imposing a minor infrastructure duty if necessary.

In 1976, when a professor of the University of Chittagong launched a small credit programme in a remote village of Chittagong, nobody imagined that this embryonic operation would reach more than one hundred million borrowers across the world. If the Grameen Bank history is any guide, a local currency infrastructure fund may also become a role model for other developing countries to follow.

Fida Hassan Rana is a financial columnist.