Loans: AFD’s main financing tool

Loans contracted or guaranteed by States are called sovereign loans. To benefit from them, States must be in a position to borrow and have a low level of debt. 

Another possibility: a country whose debt has returned to a low level following a debt relief program, in the context of the Heavily Indebted Poor Countries (HIPC) Initiative. This is, for example, the case with Senegal.

 

“Non-sovereign” loans are intended for local authorities, public institutions and NGOs, without a State guarantee.

AFD also allocates loans to private sector companies with public service remits. This type of financing is increasingly used for large-scale infrastructure operations.   

 

Soft or “concessional” loans are loans whose interest rate is lower than the market rate. 

AFD can offer this type of financing when the project represents a real opportunity for the country: it provides a way of going further than usual practices or than national regulation in a specific field.

One example is the EUR 40m loan allocated to Burma in October 2016 to improve water supply infrastructure in the city of Mandalay. 

It is the budget contribution from the French State which allows us to offer this type of tool. However, to avoid any unfair competition, AFD’s operations are determined by the principle of subsidiarity. This means that we only intervene when we are sure that the local financial system does not have the capacity to finance the planned operation alone.   

 

AFD also offers loans with variable repayment terms and maturities. These “countercyclical” loans are, for example, indexed on the international price of a raw material. The objective: reduce the vulnerability of agricultural actors to fluctuations on international markets.

On the same principle, we are working on introducing a range of loans whose margins vary depending on the borrower’s performance in terms of social and environmental responsibility, or with repayments indexed on raw material prices.