Second, as pointed out by Eduardo, most of infrastructure financing in Latin America is undertaken by banks, rather than non-bank financial institutions, which would be much
better positioned to do so. Specifically, pension and mutual funds are in a better position (especially the former due to long-term liabilities and the latter due to risk profile) to invest in infrastructure. My own case study for Colombia (undertaken a few
years ago for the IDB) shows that pension funds are relatively well developed in Colombia, though mutual funds focus mostly on low-risk, low-return securities (also referred to as “AAA-itis”). So, infrastructure is still supported mainly by banks
rather than by non-banks. On the upside, the Financiera de Desarrollo Nacional, set up in 2011 by the government, with support from IFC and CAF, as well as – at a later stage – by the IDB, has evolved into a best practice example of public-private
partnership taking on a critical role in structuring financing arrangements using a mix of instruments. It has successfully provided not only direct finance, but also been a catalyst in bringing in domestic and foreign private funding for infrastructure. However,
broader challenges in long-term finance continue: how to bring a larger share of the active population into the pension fund system – mainly a problem of informality -, how to address the high concentration in the pension fund industry and how
to lower entry barriers. The ultimate challenge, however, is: how to increase the risk appetite of non-bank financial institutions?