Case Study Details - Playbook of Solutions

Description

Concessional loans are loans at softer terms (e.g., lower interest rates, extended repayment periods, income-contingent repayment) than market loans, and are typically offered by institutions such as development banks, multilateral funds, philanthropies, and governments. Concessional loans are a sub-type of concessional financing (the latter also including mechanisms such as grants or equity). The primary objective of concessional loans is to accelerate development and climate change objectives by providing affordable financing solutions. As such, they have a key role to play in financing the energy transition of emerging markets and developing economies.

Benefits

By offering favourable borrowing terms, concessional loans enable projects that might not attract private investment due to high risk or insufficient capital. The financing is designed to address a market failure and deliver societal benefits that exceed the financial return to investors. Concessional loans allow countries to build sector capacity for private sector participation.

Case Study

African Development Bank concessional loan to support electrification in Rwanda

In 2018, the African Development Bank announced supporting Rwanda’s efforts to improve electricity supply and expand access under the Scaling Up Electricity Access Program Phase II (SEAP II). This initiative built on the initial SEAP launched in 2013, and which included a combined EUR 40 million loan and grant. SEAP II involved a EUR 165.59-million loan from the African Development Bank, and EUR 63.61-million from the African Development Fund, the concessional arm of the Bank, covering 8.2% of the Government’s EUR 2.85 billion budget for its Energy Sector Strategy Plan. The concessional nature of this finance was critical, providing affordable capital to enhance national electrification goals.

The program spanned three fiscal years, ending in 2021/22. It aimed to construct 795 km of Medium Voltage and 7,317 km of Low Voltage lines, increasing nationwide electricity connectivity. It targeted reducing service interruptions and network losses, contributing to financial sustainability. The initiative anticipated adding over 193,000 new on-grid and 124,000 off-grid connections. The project also included training for over 4,000 individuals, 30% of whom were women.

Additional Sources

Concessional Loans