Will you concede that you don’t know what concessional loans are? At least you know what “concede” means, so you’ve made a concession. Maybe even a confession. Well, now you can find out what concessional loans really are. We’re sure it will make a big impact.
Heike Ruettgers, head of development and impact finance at the European Investment Bank, joins us on this week’s A Dictionary of Finance podcast to explain these two terms, which are key to development finance.
Heike points out that concessional loans differ from traditional aid, in that as they are loans “the money comes back. That therefore allows you to reuse the funds for further projects. You can recycle and recommit the funds for other projects.”
That, she explains, makes “things happen that otherwise wouldn’t happen.”
Concessional loans use public money to “crowd in” private finance by providing a cushion for the losses of private investors. It’s in this context that Heike also explains how “blending” and “risk-sharing” work.
Concessional loans make projects financially sustainable. Impact finance backs projects that are already financially sustainable—they just can’t find anyone to finance them, because they are in countries or sectors perceived as risky.
EIB economists Nina Fenton and Claudio Cali work in impact finance. Both came to A Dictionary of Finance to talk about impact finance, as well as microfinance. Says Nina, “Impact finance doesn’t provide money cheaper, as concessional finance does. But it provides money that otherwise wouldn’t be there at all.”
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