The rule and method of risk allocation in project finance

The nature of project finance is risk allocation. Effective risk allocation can improve project performances. The rule of effective risk allocation in project finance is that risk is mostly allocated to the participants whose risk tolerance is high. However, during the risk allocation of actual project finance, the participants’ degree of risk tolerance is very abstract and difficult to be measured. According to the elements of risk allocation, the method and procedure of risk allocation is put forward in this study based on the rule of risk allocation in project finance. The rule and method of risk allocation proposed in this paper could serve as a guide for the development of project finance on theory and practice in China.