Soft loan: What is a soft loan?
A soft loan is a loan on which no interest is charged or the rate is lower than the market rate. This is also called ‘soft financing’ or ‘concessional funding’. Soft loans have flexible terms such as extended extension period in which only interest or service charges are payable and interest is on leave. Compared to traditional bank loans, they usually have a longer loan waiver schedule (up to 50 years in some cases). Multinational development banks (such as the Asian Development Fund), World Bank affiliates, or federal governments provide loans to developing countries that cannot borrow from the market.
How does a soft loan work?
Soft loans are often given not as a way to help developing countries but to build economic and political ties with them. This often happens when the borrowing country has a resource or material that is in the interest of the borrower who not only needs to repay the loan but also has favorable access to that resource.
-Soft financing or soft loan is a loan that is given without any interest or at low interest which gives more flexibility than the traditional form with extended period of time.
Many developing countries need funding but do not have the capacity to borrow at market rates.
In the case of government lenders, soft loans can be used to build a relationship between the lender and the lending country.
In particular, China has been active in financing African countries over the past decade. Ethiopia, for example, received कर्ज 10.7 billion in loans from the Chinese government between 2010 and 2015. This includes a total of एक्स 23 million in ex-gratia and soft loan packages for Ethiopia’s development and to support infrastructure such as power lines, cellular networks, industrial parks, roads, etc.
#Soft #loan #soft #loan