Take-out financing
Topic: Infrastructure: Transport, Communications and Energy · NCERT: Beyond NCERT
Meaning
Take-out financing is an arrangement in which a long-term lender takes over an infrastructure loan from the original bank after some years, usually once construction is finished. Banks raise short-term deposits but lend to projects for 15–25 years. This is called asset-liability mismatch, and take-out financing helps fix it. The bank carries the loan only for the risky early years, and a long-term lender carries it for the rest of the loan's life. In India, IIFCL started a take-out financing scheme in 2010.
Example
A bank lends to a power plant for 20 years. After the plant is built and starts earning, IIFCL takes over the loan. The bank's money is freed for new lending, and the plant keeps its long-term loan.
Don't confuse with
- Infrastructure debt fund (IDF): an IDF is a fund that pools money from insurance and pension funds to refinance projects, while take-out financing is the act of one lender taking over a loan from another.
Related concepts
- Greenfield project
- Brownfield project
- Infrastructure debt fund
- Asset recycling
- User charges
- Value capture financing