The use of non-recourse project financing has grown steadily in emerging markets, especially in basic infrastructure, natural resources and the energy sector. Because of its cost and complexity, project finance is aimed at large-scale investments. The key is in the precise estimation of cash flows and risk analysis and allocation, which enables high leverage, and in ensuring that the project can be easily separated from the sponsors involved. Project finance is more difficult in emerging countries, which tend to pose unpredictable risks with unfavorably biased results. This study investigates the role of project finance as a driver of economic growth. It is hypothesized that project finance is beneficial for the developing economies as it compensates for any lack of domestic financial development. The contractual structure unique to project finance should lead to better investment management and governance.
| Definition. Project financing involves non-recourse financing of the development and construction of a particular project in which the lender looks principally to the revenues expected to be generated by the project for the repayment of its loan and to the assets of the project as collateral for its loan rather than to the general credit of the project sponsor.Project financing is an innovative and timely financing technique that has been used on many high-profile corporate projects, including Euro Disneyland and the Eurotunnel. Employing a carefully engineered financing mix, it has long been used to fund large-scale natural resource projects, from pipelines and refineries to electric-generating facilities and hydro-electric projects. Increasingly, project financing is emerging as the preferred alternative to conventional methods of financing infrastructure and other large-scale projects worldwide.Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan,