Description
While non-concessional loans are provided at or near market terms, concessional loans are provided at softer terms. Concessional finance is used for projects that contribute significantly to market development by helping overcome a market failure and giving returns to society beyond the investors' returns.
Instrument category
Debt financing
Implementation status
High - much evidence available
Enabling conditions and success factors
- There needs to be a financial institution that can provide reduced-cost loans, typically development finance institutions.
- This funding should not crowd out private investment.
Instrument benefits
- Offers lower-cost financing.
- Fosters collaboration between institutions with a different risk/reward appetite.
- Can also finance adaptation projects that cannot access commercial rate funding.
Challenges and risks to implementation
- Can skew the market, making it more difficult for private investors to come in if commercial funding is used for a longer time than necessary.
- Funding requirements may be considered burdensome and change often.
