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Traditional grants are consumed in one transaction. Recoverable grants recycle — deploying, recovering, and redeploying. The same dollar funds multiple projects. Here's the structural comparison.
Capital flows one way. Donor gives, recipient spends, capital is consumed. The grant becomes an expense on both sides — never an asset, never available for redeployment.
Result: Every dollar is single-use. Zero compounding.
Capital deploys as a grant (tax-deductible, no debt). Revenue generated by the funded asset flows back to the vehicle through revenue-sharing. Capital redeploys to the next project.
Result: Same dollar funds multiple projects across multiple years.
| Dimension | Traditional Grant | Recoverable Grant |
|---|---|---|
| Capital lifecycle | Single-use — deployed once, consumed as expense | Recycling — deployed, recovered via revenue-sharing, redeployed |
| Legal obligation to repay | None | None — recovery is structural, not legal |
| Tax treatment | Tax-deductible donation | Tax-deductible donation (same treatment) |
| Balance sheet effect | Pure expense — destroys balance sheet | Asset — builds balance sheet through receivable |
| Recovery mechanism | N/A — capital is consumed | Revenue-sharing from funded asset's income |
| Incentive for recipient | Spend grant, apply for next one | Generate revenue, build recovery history, access more capital faster |
| Duration | Fixed grant period (1-3 years typical) | Perpetual — capital persists through recycling |
| Knowledge preservation | Lost between cycles | Accumulated through governance scaffolding |
| Scaling path | Linear — more donors = more grants | Compounding — same capital funds multiple projects sequentially |
Kiva has deployed over $2 billion across 80+ countries with a 96% repayment rate — without legal enforcement. Capital deploys, borrowers repay (structurally incentivised by access to future rounds), and the same capital redeploys.
This isn't technically a “recoverable grant” — Kiva structures its capital as loans. But the enforcement mechanism is identical: reputational access, not legal obligation. Borrowers repay because repayment history determines future access to capital.
The lesson: capital recycling works at massive scale when enforcement is structural rather than legal.
Read the full Kiva case studyMyth: A recoverable grant is just a loan with a different name
A loan creates a legal obligation to repay. A recoverable grant creates no such obligation. Recovery happens through revenue-sharing from the funded asset — if the project generates no revenue, there's nothing to recover. The recipient retains surplus as an institutional buffer.
Myth: If there's no legal obligation, why would anyone pay back?
Reputational access. Organisations with strong recovery histories get faster, larger access to subsequent capital rounds. This is the same mechanism that makes Grameen Bank's 97% repayment work — not legal enforcement, but structural incentive through future access.
Myth: Recoverable grants are only for revenue-generating projects
Revenue-sharing is the most common recovery mechanism, but not the only one. Capital can be recovered through cost savings, efficiency gains, or structured repayment from operational surplus. The key is that recovery is structural, not an obligation.
A recoverable grant deploys capital as a grant — tax-deductible, no debt, no legal obligation to repay. Revenue-sharing returns capital to the vehicle for redeployment. The same dollar funds multiple projects across multiple years. It's philanthropy with a recycling mechanism.
A loan creates a legal debt obligation. A recoverable grant creates none. Recovery happens through revenue-sharing — if the project generates no revenue, there's nothing to recover. The donor retains tax-deductible treatment. The recipient takes on no debt.
Development finance institutions (DFIs), social enterprise funds, and forward-looking foundations. Kiva's model is structurally similar — capital deployed, recovered through repayment, and redeployed. The Ford Foundation has used program-related investments with similar recycling logic.
Yes, in most jurisdictions. Because there is no legal obligation to repay, the contribution qualifies as a donation. If capital is recovered, it returns to the vehicle for redeployment — not to the donor. The tax deduction is for the original contribution, not offset by potential recovery.