SOFT LOANS - ECONOMY

SOFT LOANS - ECONOMY

News: India has given $15 bn as soft loans to neighbors 

What's in the news?

●       The volume of India’s soft loans to neighboring countries has increased from about $3 billion to almost $15 billion in the last eight years (2014 -2022).

Soft loans:

●       A soft loan is basically a loan on comparatively lenient terms and conditions as compared to other loans available in the market.

●       These easier conditions might be in the form of lower interest rates, prolonged repayment duration, etc.

Description:

●       The repayment of these soft loans might also include interest holidays.

●       This process of extending soft loans is also known as soft financing or concessional funding.

●       As the loans extended are at much easier terms, these are generally not provided by private financial institutions.

●       They are primarily provided by government agencies.

Benefits of soft loans to Lending country:

1. Soft loans are often offered not only as a way to support developing nations but also to form economic and political ties with them. Example, Japan’s soft loans to India.
2. Nations exchange credit in return for some important resources like critical minerals.
3. Soft loans have been an important diplomatic tool to sustain political influence in the neighborhood and beyond as well as counter the growing Chinese presence, especially in Africa.