---
title: "Sources of financing large projects"
subject: "Project Engineering"
chapter: 6
key: "semester_7/project_engineering:sources-of-project-finance-large-projects"
source: https://www.bctengineer.com/q/semester_7/project_engineering/sources-of-project-finance-large-projects
site: BCT Engineering
---

# Sources of financing large projects

Project Engineering · Chapter 6: Introduction to Project Financing

- Asked in: 2071 Chaitra
- Video: [Overview of Project Finance & Project Funding Mechanism | How Projects Get Funded #projectfinance](https://www.youtube.com/watch?v=25LzyfRTs_8) — CA. Deepak Maheshwari
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/project_engineering/sources-of-project-finance-large-projects
- Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-6

## Question

What are the sources of financing large projects?

## Short answer

Large projects use sponsors' equity, ordinary shares or IPO, retained earnings, preference shares and convertibles, bank and syndicated loans, debentures and bonds, government grants, soft loans from ADB, World Bank, JICA and Exim banks, plus supplier credit, leasing, PPP/BOT, and community contributions. Choice depends on cost, risk, tenor, control, and project cash flow.

## Answer

Large projects (hydropower, highways, airports, pipelines) need big long-term funds, which are usually raised from a combination of sources.

| Type | Sources |
|---|---|
| Equity | Ordinary shares, sponsors' equity, retained earnings, public issue (IPO) |
| Quasi-equity | Preference shares, convertible debentures |
| Debt (long term) | Bank and financial institution loans, debentures/bonds, syndicated loans, term loans |
| Government / donors | Government grants and budget, soft loans from ADB, World Bank, JICA, Exim banks, bilateral aid |
| Others | Supplier's credit, leasing, venture capital, public-private partnership (PPP), build-operate-transfer (BOT), community and user contribution, remittance/pooled funds |

1. **Sponsors' equity:** the owners' own contribution, normally 20 to 30% of the cost.
2. **Commercial bank loans and syndicated loans:** many banks share the large loan.
3. **Multilateral and bilateral institutions:** World Bank, ADB, JICA, EXIM banks give long-term, low-interest loans.
4. **Government funding:** budget, grants and viability gap funding; Employees Provident Fund and Citizen Investment Trust invest in Nepali projects.
5. **Bonds and debentures:** long-term borrowings from the public and institutions.
6. **Public offering of shares (IPO):** common in Nepali hydropower companies, with part reserved for local people.
7. **Supplier's credit and export credit** for imported equipment.
8. **Public-private partnership and BOT:** the private party raises funds and recovers them from operation.
9. **Leasing and venture capital** for equipment and risky ventures.

The choice is based on the cost, risk, tenor, control and the project's cash flow.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What share of cost is normally sponsors' equity?
   A. 70 to 80%
   B. 20 to 30%
   C. 5%
   D. 100%
   Answer: B. Sponsors' equity is normally 20 to 30% of the project cost. (Key point: Sponsor equity)

2. What is the purpose of a syndicated loan?
   A. One bank gives a small loan
   B. The government pays
   C. Many banks share a large loan
   D. Supplier provides credit
   Answer: C. In syndicated loans many banks share the large amount. (Key point: Syndicated loans)

3. Which institutions give long-term low-interest loans?
   A. Local grocery suppliers
   B. Only commercial banks
   C. Stock exchanges
   D. World Bank, ADB, JICA and EXIM banks
   Answer: D. Multilateral and bilateral institutions provide long-term, low-interest loans. (Key point: Multilateral lenders)

4. On what is the choice of financing based?
   A. Cost, risk, tenor, control and project cash flow
   B. Colour of project logo
   C. Only the lowest interest
   D. Only the sponsors' preference
   Answer: A. The mix depends on cost, risk, tenor, control and the project's cash flow. (Key point: Choice of source)

## Related in Project Engineering

- [Risk sources in over-budget, delayed projects of Nepal](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Arisk-sources-nepal-delayed-projects) — Project Engineering, chapter 5
- [Project finance sources; capital structure determinants](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aproject-finance-sources-capital-structure-determinants) — Project Engineering, chapter 6, asked 3×
- [Finance sources; capital budgeting steps; NPV](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Asources-project-finance-steps-capital-budgeting) — Project Engineering, chapter 6

## Related in other subjects

- [Sources of risk; best building height](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Arisk-sources-nepal-building-floors) — Engineering Economics, chapter 6