User right as a mezzanine capital investment: Innovations in infrastructure debt financing

Bank-led infrastructure financing in India has subsided in a reflection of the micro-prudential risks faced by banks. Bond-based financing is constrained by an incomplete bond market. Foreign borrowing is particularly inappropriate as it forces currency mismatch upon infrastructure projects. In the search for innovative methods of infrastructure financing this paper introduces the possibility of "User right" as one component of infrastructure financing. The key insight is to harness users, from amongst the universe of investors, as financiers with a high yield tradeable debt instrument that derives its value from a rebate on user charges. Liquidity would come about through trading at exchanges, which would yield a liquidity premium. Users as bond-holders would have the incentive to perform monitoring functions, which would enhance accountability. Public interest vested in public infrastructure may improve existing institutional mechanism.