Understanding Bankability

What makes a project “bankable?”

A lot of LIFT is about figuring out how to make an investment proposition more attractive for an investor. A common phrase for this is “bankable”. But really, this concept refers to any type of investor. And we’re not just talking about businesses; bankability refers to projects and programmes, specific activities, investments for new products etc.

Imagine yourself in the shoes of your local banker

Or if you are a banker, imagine Monday morning. You’re having your breakfast smoothie, and your manager tells you to evaluate two different projects.

One project concerns a sector you know well, let’s say, real estate. It’s a profitable project, you’re familiar with the company and they give their office building as security against the loan.

The second, is a reforestation project. A local NGO is the main organisation behind the project. You know nothing about forests and reforestation. And you’ve never even heard of the NGO. Their project idea sounds profitable, but the NGO admits there’s some risks on that. And they don’t offer any security in case they can’t pay back the loan.

Which one would you tell your manager to go for? You may be feeling playful, but in reality, we all know that the bankers would go for the real estate project.

Bankers are conservative

They will avoid risk when they can. In fact, they’re normally obsessed with risk. They’re so conservative because they lend money to people and projects that they do not control. And if they do decide to lend that money to someone, they straight away get nervous about you not paying it back in the agreed time frame. So if you want money from your bank, or any investor really, you need to make them comfortable in your ability to deliver and return what they loan or invest. In short, you need to design bankable projects.

Photo by NORTHFOLK on Unsplash

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