Concessional finance
Also called: Concessional loan · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
Concessional finance is money given on terms easier than the market's. It can be a grant, which never has to be repaid. It can also be a concessional loan: a loan with a lower interest rate, a longer time to repay, or a grace period (years before repayment starts) than a bank would normally give. The softer the terms, the larger the "free" part of the money, called the grant element. This matters because a market-rate loan adds to a poor country's debt. Concessional money helps the country without adding as much to its debt.
Example
At UN climate talks, India asks for climate finance from developed countries that is "predictable, largely public and concessional" and does not add to the debt of developing countries. India's objection is that much of what is reported as climate finance comes as loans. A grant for drought-proof farming in a poor country is concessional finance. A near-market loan for the same project is not, even if it carries the same headline amount.
Don't confuse with
- Market-rate (non-concessional) loan: it is priced like ordinary commercial lending. It counts as finance in reports, but it must be repaid in full with normal interest. So it raises the borrower's debt.
- Tariff concession (in a WTO schedule of concessions): this is a trade promise not to charge more than a stated bound tariff rate on a product. It is not money.