Categories

Financial constructions can be devided in five categories: funds, guarantees,subsidising, financing/lending and organising. These categories can be found below.

Funds – a fund is similar to financing, in the sense that the financier assumes that the money contributed will generate a financial return. The return results from the activities developed by the fund, whether or not supplemented by payment of interest. A fund is generally set up as a social safety net, as a flywheel for innovation or for sustainability purposes. There are three types of funds: donor-advised funds, revolving funds and raising funds.

Guarantee – a guarantee or security is a structure used to reduce a certain risk and thereby arrange the financing. In case of a guarantee, the guarantor states that another party will meet his obligations. If the latter falls to do so, the guarantor can be called upon to meet these obligations. A guarantee can be used to start up a project, which would otherwise suffer an undesirable delay or would be cancelled entirely due to the financial risk.

Subsidising – a subsidy is a one-off or recurrent investment, intended for project which cannot be realised in the free market. The essence is that the investment does not generate any (directly attributable) financial revenue. The benefits are usually social or otherwise non-financeable.

Financing/lending – the essence of financing or a loan is that interest is paid. This means that, in principle, financing is profitable. However, if the government acts as a moneylender, it runs a bed debt risk: this is the risk that the interest or debt is not paid. In case of government financing, it is important to determine why the other party is unable to take out a regular loan with a bank.

Organising – Organising actually does not involve any direct financing by the government. An attempt is made to bring parties together and facilitate processes in other ways, the cost being limited to the related overheads and implantation cost.