This paper discusses two issues of project managementproject finance and credit rationing. It tries to gain a better understanding of project finance and explains it in terms of a risk strategy that reconciles the potentially conflicting objectives of borrowers and lenders. This is done through discussion of the concept of the community of interests that exist in the commercial and industrial linkages between the various parties involved in a project.

In 2002, new private commercial bank lending worth approximately US$80 bn went on project financing. During the same year the World Bank made loan disbursements totaling US$27.1 bn. This suggests that new project financing in the private and public sectors, even excluding the World's various regional development banks and private placement markets, was much more than has been thought.

Despite the size and importance of the market, there is still not much focus and importance attached to project finance and there is no precise definition, which adequately explains it. Where there exists a definition, project finance is not a precise concept and, in particular, there are no theories of project finance. Most studies have simply helped to popularize the subject without fully explaining it or focused on the descriptive aspect and emphasized the `mechanics' of project finance rather than attempting a serious theoretical exposition of the subject. As a consequence there are no obvious structures in any of the research studies, which explain project finance in terms of a risk strategy that reconciles the divergent objectives of borrowers and lenders.

Wynant's study [1977]¹ came close to a tentative general theory of project finance because it did attempt to analyze the effects of project finance on the debt-raising capacity of the firm, but it assumed that all forms of financing which were off-balance sheet were synonymous with project finance. This popular conception may also have resulted in some disinformation about the real phenomenon of risk in project finance. In particular, literature definitions seem inconsistent with each other, being either too narrowly modeled on the principles of `pure non-recourse' and `off-balance sheet' financing or too unbounded in their reference to diverse capital and money markets as sources of finance for industrial investment.

Project management, project finance, credit rationing, risk strategy,borrowers and lenders, commercial and industrial linkages, private commercial bank, lending , private and public sectors, regional development banks, private placement markets, theoretical exposition,debt-raising capacity, capital and money markets, industrial investment.