AFD has considerably scaled up its financing volumes in recent years in order to offset the drying up of private resources. Thanks to its Standard & Poor's AA+ rating – (and Moody's and Fitch AAA) - the highest possible rating for long-term loans – AFD can allocate loans to beneficiaries with more favorable terms than those offered by markets. However, the subsidiarity of the envisaged financing is always analyzed prior to all AFD operations (“Can the local financial system finance the envisaged operation alone?”) in order to avoid any risk of market distortion.

Carine Malardeau for the European Commission
Carine Malardeau for the European Commission

AFD loans can be allocated to a State or a public entity benefiting from a State guarantee (“sovereign loan”), or an actor (business, private or public entity) that does not benefit from such a guarantee (“non-sovereign loan”).

Sovereign loans: taken out or guaranteed by States and destined for countries with low levels of debt that wish or are in a position to borrow. They also concern countries with debt that has returned to a low level following a program to alleviate their debt (HIPC Initiative). This is, for example, the case of Cameroon, Ghana or Senegal.

Non-sovereign loans: they are rising sharply and are destined for State-owned companies, local authorities, public establishments or NGOs. AFD also allocates subsidized loans to the private sector. Indeed, certain public service missions are sometimes carried out by the private sector. Businesses often replace the State by providing social services to their employees when public authorities are unable to do so. AFD encourages these players to take part in development by allocating them financing with attractive terms. AFD has raised its capacity to allocate non-sovereign loans at its own risk, without guarantees from the relevant States. The size of loans to finance mega infrastructure operations implemented by the private sector is constantly rising.

AFD allocates both market-rate loans (“non-concessional loans”) and subsidized loans (“soft loans”).

Soft loans

AFD may subsidize the financial conditions of a loan when the underlying project presents an additional nature (“Does the operation make it possible to go further than usual practices or the national regulations in the relevant sector?). The subsidy, which corresponds to the difference in rate between a market-rate loan and a soft loan, is subsequently provided by the French Government.

Market-rate loans

AFD has started extending its activity for market-rate loans at the request of its partners and in view of the crisis. These loans are destined for countries with low levels of debt and counterparts with profitable projects to finance. They provide a response to the lack of liquidity caused by the crisis and the urgent need for credit. For example, AFD has allocated its first market-rate sovereign loan to Senegal in order to help its public finances recover. The Pointe Noire Port Authority in Congo has also benefited from a market-rate loan to finance its priority investments.
The conditions for these loans are also defined on the basis of:

  • the nature of the project (its social, environmental and economic impacts),
  • the status of the borrower (its business sector, ratings, guarantees),
  • and the environment of the project (political, economic, social and environmental context).

AFD’s action makes it possible to allocate long-term financing and offer innovative financial solutions tailored to the geographical and economic context of the countries in which it operates.
Countercyclical loans: AFD can tailor loans to the cyclical nature of the resources of certain borrowers by offering variable repayment and maturity options, for example, indexed on international raw materials prices. These tools make agricultural players less vulnerable to fluctuations on global markets.
Senegal, whose economy is dependent on raw materials, has benefited from a highly-concessional countercyclical loan for a sanitation project in Hann Bay.

AFD is also preparing to offer loans:

  • with margins indexed on the borrower’s performance in terms of social and environmental responsibility,
  • with debt service indexed on raw materials prices.
Last update in December 2016

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