Types of funds

Grants are made to non-profit organizations by development assistance agencies and foundations. Usually grants do not have to be repaid. Grant money is available to enhance country institutional capacity, to support governmental and non-governmental institutions and to finance project formulation, policy reform and sector management and development. Grants are provided by bilateral donors, multilateral grant aid institutions, United Nations organizations and specialized agencies, international financing institutions, international non-governmental organizations, the private sector, foundations and charity organizations.

Loans, unlike grants, have to be repaid. Loans can be obtained from most banks, but development assistance agencies may provide loans for development priorities at preferential rates of interest, with an initial interest free period, repayable over the long term. To justify a loan a strong business case must be made. Loans are made to borrowing countries that are further up the development ladder and to the private sector and development groups in all countries. Loans are made at near-to-commercial conditions reflecting the cost of resource mobilization on capital markets plus a small fund administration margin to cover a donor's operational costs. Interest rates are generally variable. Loans are generally repayable over 15 to 20 years and often include up to a five-year grace period. There are some interest-free loans but these carry an annual service charge and a commitment fee is usually applied. These loans are repayable over 25 to 50 years with a maximum ten-year grace period.

Equity investments enable persons and institutions to invest in shareholding of a company managing or implementing a sustainable forest management project. The investment may make an enterprise viable or enable it to expand, while the new shareholder will benefit through shareholder voting rights and dividends on profits.

Co-funding is provided by some donor agencies to complement existing funding. Depending on the proposal, it may be possible to find an agency that provides the full cost of a project proposal. However, it is frequently the case that funding is only available on the basis of shared cost. It may be necessary, therefore, to identify perhaps as much as 50% of the project cost from other sources of funding. If an agency requires co-funding, it is important to include a co-funding component in the project proposal. To secure co-funding it is necessary to identify existing matching funds. Complementary projects being formulated by other groups may provide possible sources of co-funding.