8 principles distilled from 2500 years of project finance

Why Infrastructure Developers in Africa must learn and embed them.

Jan 29, 2025

I was 12 years into my 16.5-year career before I heard the terms "project development" and "project finance".

I had unknowingly been applying some of the principles—first working as an analyst and then as a project lead —in a global transport and logistics business.

My work had justified and supported investments in cargo handling equipment, seaport expansions, and new inland cargo facilities.

From being on a corporate team preparing projects to then evaluating projects and sponsors’ readiness, I have observed that projects fail because project finance is misunderstood as a narrow exercise in financial engineering or contract law and driven by the company’s top leaders but siloed within the finance or legal teams only.

In reality, achieving project finance requires a holistic approach that combines vision from leadership, strategic resourcing across operational, commercial as well as financial and legal capabilities, proper team organization, and project managing execution.

Mastering and embedding the principles of project finance should be a cornerstone of the business strategy for infrastructure asset developers who:

are in transport, renewable energy, and other sectors,
want to raise institutional finance repeatedly for a pipeline of projects
intend to finance and operate assets that last.

So,

What is project finance?
What are its origins?
What are its core principles?
Why should developers care?

Project finance is one of the two main ways of raising capital to fund a project. The other way is corporate finance.

Project finance involves raising financing for a specific project, with repayments or returns provided primarily from the cash flows generated from that project.

Evolution of Project finance through time - From Spartan Wars to British Rail

The principles of project finance have evolved over 2500 years, showing up in ancient civilizations and evolving into the sophisticated framework it is today. Here’s a glimpse into its rich history:

Ancient times:

Spartan War Financing: Around 499 BC, the Spartans borrowed from the Persian king to fund their fleet, promising to repay from the spoils of war and levies taken from Ionic Greeks if they were conquered.
Roman Merchant Financing: The Romans advanced this concept with the fenus nauticus (sea loan), a legal framework for sharing maritime risks with the lenders who financed vessels and crews for voyages to be repaid from proceeds of sales realised on the voyages, formalizing the risk-sharing concept that was present in earlier Greek practices.

17th Century Trade Expeditions

Expeditions to India: similar principles as the Romans, underpinned European mercantile expeditions to India. Financiers funded voyages with repayment tied to the sale of goods acquired during the journey. Risk-sharing became a cornerstone—financiers bore the risk of loss due to shipwrecks or failed ventures.

19th Century large-scale infrastructure

US Railroads (1840–1870): Bond offerings funded railroad expansions, with repayment sourced from steam engine revenues.
The Suez Canal (Opened 1869): Financed using loans repaid from canal tolls and other waterway revenue. This project introduced the concept of concession agreements and special purpose entities—private operators incorporated a company to manage the canal for a set period before returning control to the government.

1930s US economic recovery:

Oil Exploration: In Texas and Oklahoma, banks financed drilling based on projected cash flows from extracted oil. This cemented the principle of cash flow-based lending.
Housing Programs: After the great depression, several Acts were passed into law and government agencies were created to provide liquidity to financial institutions to on-lend capital to homeowners, introducing innovations like mortgages, longer-term and low down-payment loans.

1980s–1990s: Shift towards Privatization and Public-Private Partnerships (PPPs)

The late 20th century marked a shift toward privatization and public private partnerships globally particularly in the UK and in the USA where public utilities were handed over to private operators through different PPP models.

Privatising Telecoms: like British Telecoms, unbundling of America’s AT&T.
Privatising Transport: like British rail, Britain’s Channel Tunnel, creation of toll bridges amongst others.
Privatising Social Infrastructure: Schools, hospitals, and prisons were funded through PPPs under Britain’s Private Finance Initiative.

In addition to privatization, developers unlocked asset value by securitizing revenues, a practice that remains essential for large-scale infrastructure financing.

8 Principles at the core of project finance

This historical evolution highlights 8 enduring core principles at the heart of modern project finance:

Cash Flow-Based Lending: Loans are repaid from a project’s cash flow, not the sponsor’s existing assets. Therefore, cashflows must be clear, predictable, large enough to cover obligations, repayments and expected returns.
Special Purpose Vehicles (SPVs): Projects are structured as new and legally distinct entities, isolating liabilities and assets from any previous, ensuring that cash flows remain dedicated to repayments.
Ring-Fenced Projects: Projects are self-contained financially and legally, limiting rewards, risks, and obligations to the assets being financed and its resultant operations.
Risk Allocation and Mitigation: Risks are understood, and allocated to parties best equipped to manage them, using contracts and insurance mechanisms.
Private Sector Involvement in Public assets: Private sector participation in investment and operation of public infrastructure through different ranges of PPP structures is a strong fixture as budgetary and funding capacity of governments reduce.
Long-Term Financing: Financing typically spans 15–25+ years to match the concession or operational lives of the assets being built. Also to permit lower interest rates as possible over longer tenor financing.
Securitization: Techniques like securitization of cash flows and asset-backed lending enable financing for complex projects.
Limited or Non-Recourse Financing: Lenders have limited or no claim to the sponsors’ other assets, tying repayment primarily to the project’s success. Therefore clear cash flows, risk mitigation and strong contractual frameworks are crucial.

Why Developers of infrastructure in Africa must integrate Project Finance principles into their businesses.

Africa has an estimated annual infrastructure funding gap between USD 68 – 108 billion. (AfDB, 2023)

With a widening infrastructure gap, the opportunity exists for developers serious about scaling their businesses of building and operating assets.

The capacity to fund projects backed by existing assets is small, therefore there is a necessity to internalize and embed project finance principles and execution.

I present a few reasons here:

1. Holistic Integration

Project finance must be central to the business strategy that delivers your vision. It must be integrated into an expanding infrastructure business as a core competence, not an add-on. Success requires equipping the organization across functions to align financial expertise with corporate objectives, ensuring that projects are developed and operated to be viable.

2. Competitive Advantage

Understanding and applying project finance principles can lead to a competitive edge in strategic investments. This requires a firm grasp of competitive analysis, forecasting, and business planning, all applied to the project's financial structure. Being able to organize and deploy resources that consistently deliver projects demonstrates financial acumen, then positions you as a trusted partner for infrastructure projects.

3. Winning more Bids

Winning public tenders demands more than technical proficiency; it requires a firm grasp of market conditions, financing frameworks, and relationship management. Developers who incorporate project finance expertise into their bid preparation are better positioned to meet tender requirements and deliver value propositions that stand out and earn trust in their competence and capacity to deliver.

4. Proactive Risk Mitigation

From political instability to currency fluctuations, projects face numerous risks. By intentionally embedding de-risking tools and frameworks into your business and each project, you protect project viability and long-term investor confidence.

5. Higher Pipeline Conversion

Embedding project finance principles early increases project bankability, attracting investors and securing funding. This approach builds a sustainable pipeline of projects, ensuring long-term growth.

Bringing it all home

Project finance has evolved from ancient times to adopt more sophisticated structures.

Yet its core principles endure—linking repayment to project outcomes, sharing risks, and relying on cash flow from a project that doesn’t yet exist at the time of contracting.

Understanding how to apply these principles and organizing teams to develop projects to be ready to attract project financing is foundational to the revolution needed to close Africa’s Infrastructure gap.

By embedding these principles into the core of how their infrastructure businesses function, developers can more effectively navigate project complexity, mitigate risks, and secure sustainable growth.

For Africa to unlock its infrastructure potential, mastering project finance isn’t optional—it’s essential.

So tell me

Which of the historical insights were surprising?

Which of these principles have you used recently?

Discussion about this post

Ready for more?