The purpose of the paper is to investigate how Asset-Backed Securitization (ABS) can be used to fund infrastructure development in developing countries. This paper also presents a case study on how ABS has been used to fund infrastructure in Australia and points out the lessons that developing countries can learn from the Australian experience. Huge amounts of funds are being poured into infrastructural investment. However, much of this activity is occurring in developed countries with little activity in developing countries. Developing countries can participate in this windfall, if clear policies, well-functioning institutions, and well led out regulations are put in place. Structured debt or ABS is seen as an innovative way of funding infrastructure.

The shortage of infrastructure in developing countries is an important obstacle to meet the needs of the population, enterprise development and achieve the Millennium Development Goals (MDG). The needs for infrastructure investment worldwide in the coming decades are estimated at levels exceeding US$1,800 bn per year (OECD, 2007). To meet MDGs for infrastructure, for example, Africa needs an estimated US$5-12 bn a year as additional infrastructure finance (Estache, 2004). If such amounts are to be raised, policy makers need to mobilize all potential sources of capital and consider innovative schemes for infrastructure financing. To sustain infrastructure systems, adequate financing is also necessary (Fox, 1994). Traditional sources for the initial investment are central government grants, donor funds and private-equity (or self-help) financing with user fees being the most viable option in the operational and maintenance stage.

Limited public resources for infrastructure provision and the promise of better efficiency from private funding of public infrastructure have led to the transfer of risks to private parties through privatization of public infrastructure enterprises for existing assets and Public Private Partnerships (PPPs) for new assets. In most countries, the principal vehicle of delivering PPPs is through Private Finance Initiative (PFI). Extensive literature exists on PPPs and PFIs mainly on United Kingdom (UK) and on other countries following the UK lead. Dixon et al. (2005) and Hodge (2004) present comprehensive overviews of the PPP market in UK and Australia, respectively. Structured debt or Asset-Backed Securitization (ABS) is seen as an innovative way of funding infrastructure. For instance, when Macquarie Infrastructure Group (MIG) and its Spanish partner, Cintra, paid US$3.8 bn for a 75-year lease on the Indiana Toll Road in the US this year, they put up US$385 bn of equity for their US$1.9 bn stake. The balance of US$1,515 bn was in the form of structured debt (Chancellor, 2007).

Financing Infrastructure, Asset-Backed Securities, Public Private Partnerships, Private Finance Initiatives, Macquarie Infrastructure Group, Millennium Development Goals, Infrastructural investment, Infrastructure systems, Operational stage, Maintenance stage.