Definition: Impact Project Finance

And why it matters in 2025 and beyond

Project Finance is the funding of long-term infrastructure, industrial projects, and diverse other types (see In3’s focus sectors) using a “nonrecourse” or limited-recourse financial structure. That means the tradition of debt and equity, or minority equity only in the case of In3CAP, used to finance the project, which means the owners make the majority of profits from the cash flow generated by the project (ref).

Although there are some similarities, it is important to note several key differences between this type of project-based financing compared to Venture Capital, Trade Finance or Mergers & Acquisitions (M&A), mainly risk, expectations for returns, and timing of delivery of funding.

Why developers (should) seek to use In3 Project Finance versus Venture Capital or other traditional methods

Impact innovators can now take advantage of quite affordable, low-cost Project Finance, which is a “method of long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of its sponsors.” Compare this to venture funding

Similar to how Microfinance (small loans to those who would otherwise not have access) has moved the needle on poverty (more on this earlier revolution here), modern mid-market Impact Project Finance has opened up vast opportunities for impact entrepreneurs globally. In the past, strict banking standards and performance ratios determined eligibility. If you did not have a substantial cash “skin in the game” (funds to invest in your project), you would have to find an equity partner before you had any chance of leveraging debt. We’ve turned that around.

If you haven’t previously built projects of a similar type and size you would be scrutinized that much more carefully, held to even higher standards. We also do not object to fire-time project developers, including those with first-of-a-kind projects. The unstated rules for traditional project finance have been decidedly undemocratic — basically, unless you already had money (and/or a team that basically “walks on water” with comprehensive insurance, loan guarantees, etc.), you could not get money.

Now, thanks to an innovative structure, a fundamental shift in assumptions has been disruptive of the traditional methods since before the COVID Pandemic, enabling those who seek 100% financing, have one or more mid-market projects that are not yet shovel-ready (whatever “shovel-ready” actually means — it is wide open to interpretation), and/or may be less-than-creditworthy or otherwise not investible, to secure attractive terms for diverse projects globally.

In3 Capital Partners help make such projects investible and in many cases even bankable.

Even if you have a long history of success in business, this matters because it can be quite hard to diligence an investor’s true intention until it is too late in the process. Developers seek to gain access to capital, at affordable rates, predictably (and without upfront fees), with a proven process that is (as we like to say) “faster, easier and better” than the older methods. In3’s Completion Assurance Program (In3CAP) provides up to 100% financing to illiquid developers, or in case the developer simply wishes to preserve available cash, offers greater leverage, using a guarantee instrument (definition) during construction as a type of completion surety. Guarantee options and facilitation guide.

Why Impact Entrepreneurship Matters NOW in the runup to 2030

As clean energy and other “renewables” and sustainable technologies, green buildings, and many others prove commercially viable and reliable (low risk, relatively high reward), they become increasingly popular with project developers and more risk-averse project impact investors and asset managers worldwide.

While early stage venture capital remains a key source of fundamental technology innovation, in the current economy, heading toward a more “circular” and sustainable economy, middle-market project finance (more on the difference between “project” and “venture” capital), particularly in deploying clean technologies, continues to deliver these benefits and advantages:

An engine for sustainable economic development and improved quality of life for populations typically overlooked and ignored by Western-style capitalism.
Above average returns, reliably, especially in developing/emerging markets.
A source of positive social impacts at scale, including good jobs with the potential to help lift people out of poverty … enabling self-reliance, communities that are safe and prosperous
Often a powerful and sustainable way to protect valuable natural resources — projects begin to push back on traditional “take-make-waste” economic development and toxins from petroleum, plastic wastes, pesticides, and other materials that should not come in contact with sensitive ecosystems. Project finance offers a practical, much more predictable/reliable path to the scale that is required to make a meaningful difference by delivering social and/or environmental benefits
Acceptance of some technology risk, enabling affordable project funding for projects that involve new solutions that have yet to reach commercial proof-of-concept (see CGP Resources).
A “free and open market” — not reliant upon grants (though they can still be leveraged when available for technical assistance or proving new markets, etc.), market-distorting incentives or manipulative policies — and thus offer a more sustainable path to a cleaner environment and a just society using market economies. Impact entrepreneurs are behind an increasingly important sector of our economy, just as how “climate finance” can be a form of “enlightened capitalism.”

These and other facets underpin In3’s Investment Strategy … making a material contribution to achieving the UN Sustainable Development Goals (SDGs) by or before 2030.

A few final observations on where the impact investment market is heading

The true cost of capital: Project principals, sponsors and equity owners appreciate access to affordable, non-dilutive capital (loans), preserving owner income streams, secured by project assets and/or guarantees, repaid to lenders from operating cashflows. Some borrowers actually prefer to pay greater than market rates because there is less paperwork involved (think Mafia). But qualified and professional teams can obtain long-term debt at or below market rates (sometimes called “concessionary” loans), which is a common scenario in impact investing, as roughly one third of investors recently said of their expectations for returns — the term “blended” finance refers to financial returns alongside social and/or environmental value. For more on this, see impact investing for sustainability.

Where is project finance most cost effective and why? Key territories include developing economies, frontier and emerging markets worldwide, including parts of Latin America (Chile, Ecuador and Peru), Sub-Saharan Africa, developing Asia (particularly Malaysia, Vietnam, Thailand, etc.), Eastern Europe, and others. See project finance frequently asked questions, or where we work.

Ripe for Innovation: In many developing countries that lack a well-regulated banking system for affordable lending, or the physical assets for telephones or electricity transmission, for example, clean technology projects for “distributed” (local) power generation prove more affordable than building infrastructure. This is so-called “leapfrog” innovation (see references to Stuart Hart’s research, below). In some regions, the answer is both distributed power and building necessary infrastructure, to prepare for further development and growing regional affluence.

Internationally, clean energy, health and sustainability-related project finance is growing and succeeding, one of the few bright spots in the current global economy. It works at the intersection of purpose-driven “impact” investing, positive social change and sustainable business.

Definition: Impact Project Finance