# Calculation of Grant Element

On October 11, 2013, the Executive Boards of the Fund and of the Bank adopted a new methodology setting a single, unified discount rate to calculate the grant element of individual loans (see Unification of Discount Rates Used in External Debt Analysis for Low-Income Countries). The new unified discount rate is set at **5 percent** and will remain unchanged until the completion of the next review of the LIC DSF, set for 2015. More

*Updated as of July 1, 2015*

^{1 }Values should be entered in the following format: ###,###.00

**Technical definitions**

1. **Discount rate (in percent)** – This field is the unified discount rate. The unified discount rate methodology is not currency-specific, i.e. the unified discount rate is used for all concessionality assessments, regardless of the currency of the loan. The discount rate is used to calculate the present value (PV) of the loan (or financing package). PV calculations are used to compute the grant element of individual loans and to assess observance with concessionality requirements.

2. **Repayment profile** – This field selects the repayment characteristics of the loan (or a financing package). There are five options to choose from: Equal principal payment, Annuity (repayment with fixed total annual amortization amount), Lump sum principal (the entire principal or nominal amount is paid on the last repayment date while the interest is paid throughout the repayment period), Lump sum principal & interest (both principal and the interest are paid on the last repayment date), Lump sum principal & compounded interest (both principal and interest are paid on the last repayment date, however the interest is capitalized over the repayment period).

3. **Face value** – Nominal amount in the selected currency of the loan contract (or a financing package) that needs to be repaid to the creditor. The face value of a loan (or financing package) should not include the interest paid nor should it include any grants included in the financing package. The calculator assumes an upfront disbursement of a hundred percent.

4. **Grant (as part of financing package)** – This is the nominal amount granted as a part of a financing package that will not be repaid to the creditor.

5. **Upfront commission (in percent)** – These are amounts paid as commissions for contracting the loan or financing package. Typically these commissions are quoted as percent of the contracted nominal amount. Upfront commissions (and/or management fees) throughout the lifetime of the loan constitute a cost of contracting/managing the loan and therefore an implicit interest cost, which should be included in calculating the level of concessionality.

6. **Management fees **– These are fees paid per payment period and are quoted in the contract as either a fixed nominal amount or a percent of the outstanding nominal amount.

7. **Interest rate (in percent)** – This is negotiated rate of interest on the loan. The calculator only allows for fixed rates of interest and cannot accommodate variable rates of interest.

8. **Maturity (in years)** – The numbers of years required to service the loan. The maturity period includes the grace period.

9. **Payments per annum** – The number of payments made on an annual basis while servicing the contracted loan (or financing package).

10. **Grace period (in years)** – The grace period is defined as the period during which only the interest and no principal payments are payable by Borrower to the creditor.

11. **Grant element (in percent)** - The grant element measures the concessionality of a loan. It is defined as the difference between its nominal value (face value) and the sum of the discounted future debt-service payments (net present value) to be made by the borrower, expressed as a percentage of the face value of the loan. Whenever the interest rate charged for a loan is lower than the discount rate, the resulting present value of the debt is smaller than its face value, with the difference reflecting the grant element of the loan.