IFU - Investeringsfonden for Udviklingslande

Subsidised loans to infrastructure projects

As of January 2020, Danida Business Finance (DBF) became Danida Sustainable Infrastructure Finance (DSIF). The change of name reflects the nature of the projects that are financed in accordance with the Danish Government’s commitment to sustainable and climate resilient infrastructure in developing countries.

Danida Sustainable Infrastructure Finance (DSIF)) can provide access to finance and can leverage finance for sustainable infrastructure projects in developing countries based on the countries’ development strategies, delivering measurable results toward the SDGs that create growth and employment in developing countries. DSIF offers subsidised loans to infrastructure projects in developing countries with income per capita below USD 3,995 (2020) and with a Danish representation (see list of countries). The projects must contribute to sustainable development in the recipient country in line with the UN Sustainable Development Goals (SDG). A typical loan has 10 years’ maturity and is issued in USD or EUR. The DSIF subsidy covers:

• Interest in the whole duration of the loan
• Export Credit premium and other financial costs
• Cash grant to reduce the principal of the loan (in case interest, premium and financial costs do not constitute 35% or 50% subsidy level, a cash grant is included in the subsidy to reach the minimum levels required by the OECD)

The buyer/borrower repays the loan in equal, semi-annual instalments, normally starting six months after the commissioning of the project. The borrower will pay only a commitment and a management fee. Only projects that are commercially non-viable can be financed; that is projects that do not generate enough profit to service a loan on commercial terms. There are two approaches under DSIF:

• DSIF Classic: Tender limited to Danish companies where DSIF support has been approved prior to tender
• DSIF Fast Track: International tender where DSIF can provide support in case a Danish company is the best evaluated bidder (DSIF support approved after tender evaluation).

The following procedures apply to obtain Danida’s approval of a project

Some of the most important steps are outlined in the timeline below. The first step is a screening of the project proposal. This will produce a preliminary assessment of eligibility and a positive indication to continue project preparations. In order to screen a project Danida will need a full project description, including:

• Information about project background
• Poverty reduction objectives
• Total project investment incl. detailed budget
• Type of equipment to be delivered
• Contract amount to be financed
• Financial set-up including borrower and guarantor (confirmed by a letter of intent)
• Organisational set-up
• Timetable and milestones in the project

Requirements for support

Danida Sustainable Infrastructure Finance contributes to sustainable and transformational change in developing countries in line with the Sustainable Development Goals by softening the terms of commercial loans for investments primarily in public infrastructure. The below core principles form the foundation of DSIF project identification and selection.

Core principles for project selection:

• DSIF is available in developing countries with GNI per capita below USD 3,995 (2020) and with a Danish representation.
• Projects must address at least one of the UN Sustainable Development Goals.
• Projects in sector with Danish core competencies will be prioritized.
• All projects must be tendered. If there are sufficient Danish suppliers, the bidding will be limited to those.
• The minimum contract amount to be financed is DKK 100 million.
• The Ministry of Finance or a solid bank in the recipient country is required to act as borrower/guarantor.
• Projects will be assessed on sustainability criteria, including IFC performance standards and UN Guiding Principles on Business and Human Rights.
• Projects should be based on local demands and needs and be reflected in national development strategy and sector plans.

General conditions, rules and guidelines

General conditions

• Buyer/End User’s Declaration
• Exporter’s Declaration
• Borrower’s Declaration
• General Conditions for Loan Agreements
• Application Form for Lending Bank

Rules and guidelines

• Guiding principles for Danida Sustainable Infrastructure Finance
• Rules for Procurement

OECD documents

• Ex Ante Guidance for Tied Aid 
• Arrangement on Officially Supported Export Credits
• Ex Post Notification Template

Danida Sustainable Infrastructure Finance eligible countries

What does Danida Sustainable Infrastructure Finance offer?
Danida Sustainable Infrastructure Finance provides subsidised loans – in effect 10-year interest free loans – to developing countries investing in sustainable infrastructure in line with the Sustainable Development Goals.

What kind of projects do Danida Sustainable Infrastructure Finance support?
Danida Sustainable Infrastructure Finance finances primarily public infrastructure projects in sectors like transportation, energy, water supply and sanitation. Projects in sectors with Danish core competencies will be prioritized. This means that Danish companies should be internationally competitive – based on total project cost, that is not just purchase price but also operational cost.

Where does Danida Sustainable Infrastructure Finance operate?
For more info on our country list, please see What we offer.

How can I apply for support?
For info on applications, please see How to apply for support

What does the Danida Sustainable Infrastructure Finance support cover?
A Danida Sustainable Infrastructure Finance subsidy consists of three elements:

• All interest on the loan – both draw down and repayment period
• Export Credit Premium and other financial costs
• A cash grant to reduce the principal of the loan, if above does not amount to the subsidy level determined by the ruling OECD agreement. DSIF does not cover management and commitment fee on the loan. This is to be paid by borrower.

DSIF also provides technical assistance on grant terms for tender procedures, monitoring, etc.

How much support?
According to OECD rules, and depending on the developing country in question, the grant will be around 35 percent for middle-income countries and 50 percent for least developed countries.

Can anyone apply for support?
Official request for support must come from the public authorities in the recipient countries. However, private companies may also present project proposals to the DSIF team for initial discussions on eligibility.

How are the project contractors chosen?
All projects must be tendered. As a point of departure tenders must be limited to Danish suppliers. If there is a lack of Danish tenderers, international bidding may be chosen.

How can Danida Sustainable Infrastructure Finance finance large projects with relatively small grants?
Danida Sustainable Infrastructure Finance does not provide the loans directly – this is done by private commercial banks. Private banks consider Danida Sustainable Infrastructure Finance support as equivalent to a sovereign guarantee and therefore practically risk free. Therefore, by providing a guarantee backed by the Danish state and providing a subsidy reducing investment cost for the local buyer, Danida Sustainable Infrastructure Finance can mobilise private financing that would not otherwise be available due to high risk and/or non-commercial viability of the projects.