Sustainability Language

Sustainable Finance & Investment

Concessional finance

Development finance provided on terms more favourable than the market, through below-market rates, grace periods or subordination.

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Definition

Concessional finance is funding extended on terms more favourable than market conditions — typically below-market interest rates, extended tenors, grace periods or subordinated positions. The OECD Development Assistance Committee measures concessionality (including the 'grant element' of loans) to define official development assistance, distinguishing genuinely concessional flows from commercial finance.

References

Overview

What it means

The subsidy embedded in soft terms is what allows finance to reach projects and countries where commercial risk-adjusted returns are impossible.

How it is used

Deployed by multilateral development banks, climate funds and blended-finance structures to de-risk investment and create markets in low-income and fragile contexts.

Why it matters

Concessionality is the scarce ingredient that makes much climate and development finance possible at all.

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