Grant element

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The grant element (Engl. And Grant element ) brings the financial terms of a financial commitment of funds (esp. Loans ) expressed, that is, interest rate, term and breaks (ie, the time to first repayment of a loan). It is used for measuring the reduction degree of a loan which in per cent expressed difference between the present value of the expected total repayments and the repayments, which would take place at a certain reference rate indicates.

Grant element within the framework of development cooperation

When determining the Official Development Assistance (ODA), the reference interest rate is set at 10% by the Development Committee of the OECD ( DAC ). This interest rate was chosen approximately for the marginal performance of a domestic investment, that is, as an indication of the opportunity costs that a state donor incurs through the provision of the funds. As a result, the grant element is zero for an interest rate of 10% and 100% for a pure grant . For a loan with an interest rate of less than 10%, the grant element lies between the two values. To qualify for financing as official bilateral development aid ( ODA ), a minimum grant element of 25% is required for financing that is not tied to delivery .