Definition of soft loan

extended term project financing made at below-market rates, especially in loans to developing countries. Soft loans are made by the special lending facility of a multinational development bank (for example, the Asian Development Fund and the African Development Fund) or the International Development Association, an affiliate of the World Bank. Typically, soft loans have extended grace periods in which only interest or service charges are due, longer (up to 50 years) amortization schedules, and lower interest rates than conventional bank loans. Access to the soft loan window is limited to developing countries with low per capita incomes, and developing countries experiencing balance of payment problems.