Under German Financial Cooperation grants funded from the German Federal Government's budget are mainly allocated to poor and poorly developed countries. The funds are not repaid. However, to be eligible to receive this funding, development policy criteria must be met including the partner country's ownership and commitment. We mainly deploy grants in poor and poorly developed countries. More developed countries are also eligible for grants for projects that contribute directly to reducing poverty or to protecting global public goods such as, e. g., tropical rainforests.

On behalf of BMZ, KfW also grants loans from purely budgetary resources. They are used to finance development projects in developing countries and emerging economies. The classification of countries is based on World Bank criteria. Depending on the classification of the country in the corresponding World Bank category, a distinction is made between countries that receive budget loans on IDA, blend and IBRD terms. Unlike the grants, these loans have to be repaid by the partner country. However, these loans are characterized by long maturities with many grace years and at the same time a low interest rate, and thus a high degree of concessionality. The concessionality level and the amount of the grant element of the loans will decrease with increasing level of country development.

In the case of development loans, KfW combines budget funds of the German Federal Government with own funds that it raises at favourable terms on the capital market. When our own funds are used, partner countries benefit from the cheap refinancing options available to KfW thanks to its AAA rating and a partial risk assumption by the German Federal Government. The development loans were created in collaboration with the Federal Ministry for Economic Cooperation and Development (BMZ) to increase the funding volume for the projects and programmes in the partner countries. The terms and conditions are structured to ensure that the projects are able to bear the costs and that the loans comply with the international agreements for Official Development Assistance (ODA). Even though the terms of the development loans are higher than pure budget funds, they are significantly below market level.

Development loans are generally structured as reduced-interest loans: only KfW's own funds, which are partially secured by a guarantee line from the German Federal Government, are deployed for the loans. We then lower the loan interest rates with grants from budget funds. The result is that the projects can be financed for the partners and the loans meet the ODA criteria for public development cooperation.

Promotional loans are loans to partners in developing countries and emerging economies commissioned by the government that are 100 % funded by KfW on the capital market. The loans are deployed for projects that are effective when it comes to development policy and viable in economic terms for which, however, funding is not available from the commercial banking sector (e. g. due to long financing terms required).

The FC promotional loans aim to fill the gap between FC development loans and commercial bank loans and give German Financial Cooperation more flexible options for action. By granting promotional loans, KfW can provide more funding for eligible development projects without burdening the budget.