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Regional Knowledge Center

Funding types

The main types of funding that you will need to consider include:

  1. Grants
  2. Loans – soft (sometimes called “concessional”) and commercial
  3. Equity

The main differences between these types of funding are in the amount of money and the conditions under which they can be made available. All funds are associated with costs (including grants). The costs if the funds will depend on the conditions under which they are made available.

Grants

A grant is a direct payment to carry out a project. It does not have to be repaid.

Grants are generally only available for smaller projects and those which cannot reasonably be funded on the basis of a loan (commercial or soft loan) or equity funding. Grants are usually given to projects regarded as important from a national or international perspective, and which cannot be funded in any other way.

May funder provide technical assistance through grants? This usually involves transfer of expertise of technology. This can be especially important aspect of institutional strengthening projects.

Bilateral funders sometimes provide grants for pre-feasibility or feasibility studies. This can lower the total costs of obtaining a larger loan from a domestic or international bank for a project, because the studies would otherwise have to be funded from the loan. They may also provide grants to fund part of a project which is also supported by IFI loans.

Advantages of grants:

  • no repayment is required

Disadvantages of grants:

  • are not available for project which will generate revenue
  • funder priorities may require project objectives to be changes

 

Loans

A loan is money borrowed for a project that has to be repaid to the finder under the specific conditions. This required that the recipient is:

  • creditworthy,
  • had potential cash flow sufficient to meet the interest payments and to repay the sum borrowed (also known as the principal), and
  • can provide security against default.

A loan will usually cover only a part of the total project costs (e.g. 20-50%).

A soft loan (or a concessional loan) is one provided on more favourable terms than could be obtained on the market (e.g. lower interest rates or longer repayment period).

Advantages of grants:

  • enables the development of revenue generating process
  • loans are often the only form of funding available to private enterprises

Disadvantages of grants:

  • can be expensive to obtain and to administer
  • local banks may be unwilling (or unable) to accept the risks of a project
  • need to sufficient financial resources to repay the loan
Equity

This is where an investor puts money into a company or a project (usually by buying shares) without a specific claim for direct repayment. In doing so it takes an equity stake. The expectation is that over time there will be a significant return of investment – perhaps as much as 20% – but this is a risk. The return of investment from environmental projects is often below that required by an equity investor.

Выбор финансирования будет зависеть от нескольких факторов, но особенно от:

  • размера проекта - объем требуемого финансирования;
  •  характера проекта, например, будет ли проект получать доход;
  • подходит ли проект для коммерческого финансирования, например, будет ли он приносить достаточное количество доходов для погашения обычного банковского кредита.

Большие проекты могут финансироваться за счет сочетания этих видов финансирования. Например, крупный проект может финансироваться за счет сочетания грантов, льготных и коммерческих кредитов и инвестиционного капитала в рамках общего объема ассигнований. Более того, крупные проекты всегда финансируются более чем одной стороной: национальный банк, МФИ и национальные экологические фонды, как правило, обеспечивают лишь определенный процент (например, 20-50%) от общих затрат по проекту, чтобы ограничить и разделить риски (иногда называемые как «ограничение их воздействия»).

Основные источники финансирования:

  • Внутренние – деньги от инициатора проекта, государственного бюджета, коммерческих кредитных учреждений или национальных экологических фондов;
  • Двусторонние фонды – денежные средства, предоставляемые в качестве помощи другой страной;
  • Многосторонние финансовые учреждения – денежные средства, предоставляемые рядом стран в рамках программы помощи;
  • МФИ – денежные средства, предоставленные на коммерческих базах международными банками и связанными с ними институтами.

This project is funded by the European Union

And implemented by a consortium led by