Development Loans
The enormous investment needs in development countries cannot be solved by grants alone. Development loans provide opportunities to expand and leverage available resources for economic development by linking grant aid with market finance. Sida provides a grant to complement a loan facility. The grant is typically 35–80 percent of total funding, while the market financed loan is 20-65 percent. Market financed loans are structured and issued by banks or multinational financial institutions (MFIs).
Sida is also working with loans targeting environmental sustainable development – Environmental loans. These loans are primarily aimed at improving energy efficiency and renewable energy; management of waste, water and sewage, and transportation. These can stand alone or be combined with a guarantee arrangement.
Guarantee Arrangement
Companies that require additional capital to expand their activities with clear benefits for people in poverty in developing countries can, if certain conditions are met, take advantage of Sida's guarantee programme. Sida can share the risk with other lenders or investors, who in turn lend money to, or invest in, companies through this instrument. Sida's support can be in the form of a guarantee or a development loan, not shares or cash. In addition to the cost of the loan (the interest rate), the applicant company must also pay a risk-reflecting guarantee premium, as for any other warranty. Having Sida sharing the risk often makes borrowing possible and usually provides better conditions.
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