Introduction
Even the greatest of leaders needed someone to rely on at some point in their life. Help is not just limited to the one between two friends but also between two nations that might require dependency upon each other at different or simultaneous times. This not only helps in the easy acquiring of services but also strong international relations. There are two terms that we may come across when we discuss financial aid: Grants and Aids.
Aid vs. Grant
The main difference between aid and a grant lies in who the transactions take place between and the objective behind sanctioning the same. Aid is sanctioned between one country to another country to develop the receiver country in multiple ways. On the other hand, a grant is sanctioned by one party to another party for objectives that are non-profitable.
Difference Between Aid and Grant in Tabular Form
| Parameters of Comparison | Aid | Grant |
| Definition | Aid is a transaction of funds or resources from one country to the other. | Grant is a transaction of funds that takes place between any two parties. |
| Objective | Aids are usually given to strengthen a nation's security, economic, cultural, and other aspects along with international relations. | Grants are usually given to benefit the general public through specific fields. However, they can also be given to individuals who might be in desperate need of money. |
| Types | There are 6 types of aids in total: Bilateral, multilateral, tied, project, voluntary, and military. | There are 4 types of grants in total: competitive, Continuation, Formula, and Pass-through. |
| Urgency | Aids are usually issued in the order and intensity of urgencies such as natural disasters and calamities. | Grants are usually sanctioned based on the kind of project submitted and whether the project has been approved. |
| Applications | of Aids are usually granted to build the country by improving its military forces, strengthening the economic condition, maintaining and increasing the value of cultural heritage, etc. | Grants are used in applications that improve the general condition of the public by developing non-profit entities such as health facilities, educational facilities, cultural purposes, etc. |
What is Aid?
Aid can be defined as the operation of a fund or resource transaction that takes place between any two countries, usually from a developed country to a receiving developing or under-developed country.
Types of Aids
Bilateral Aid
Bilateral aid in the operation of the government of one country transferring money and other similar assets to another country in need. Usually, this kind of help is offered by a country at a higher development level to a country with a relatively lower development level i.e., a developed country providing aid to a developing country. This can be referred to in terms of economy or just overall development rate. These aids are sanctioned as per the country's political and humanitarian interests. The end objective is to develop the economic and democratic elements of the nation to foster peace, growth, and sustainability of initiatives operating in the long run.
Multilateral Aid
Multilateral aid is when multiple nations come forward to provide funds to foreign financial bodies or organizations such as the World Bank, UN, and International Monetary Fund(IMF). These organizations will then pool up such funds to operate for delivering the aid. This is very similar to the structure of a bilateral fund where instead of one nation providing the other, multiple nations come together to provide funds. These funds go towards helping the developing nations overcome food scarcity problems in developing countries. While there might not be many governments that participate in multilateral leads, due to complex strategies involving multiple donors that lead to less overall contribution in the financial aid a country provides, they make up a huge portion of donations that all the organizations that participate in such operations receive.
Tied Aid
This is a type of foreign aid that can be categorized as a stricter form of bilateral aid. The inclusion of the term 'tie' signifies how the receiving country is tied to spending the funds only on the goods and services that are produced in the selected country. This can be either products and services from the donor country or a group of selected countries. thus, the receiving country must limit its expenditure only up to the selected products and nothing else. In contracts, untied aid makes up the rest of the bilateral aids that do not levy any geographical restrictions upon the recipient country.
Military Aid
This aid can mean both financial help or just any other resource, any country providing another country with weapons can be classified as an aid, more specifically a military aid. Thus, there is a provision of weapons, military force, or security contracts from the donating country, offered to the receiving country. This can also operate in another technique where the federal government itself makes the purchase of weaponry and also transports them to the receiving country by employing the military to do so. This makes the whole process relatively simpler. As of the year 2020, Israel was recorded as the country that received the largest military aid, or even the most aid in any form, amounting to around USD 3.3 billion.
Project Aid
As the name explains, an aid can be categorized as a project aid when the funds are provided exclusively for the development of specific projects that a country is operating on. Such service or help is tied to the capital investment in productive activity or a project that can be separable. Even though free foreign exchange can be supplied along with project aid, there are certain restrictions levied upon such operations. Usually, the recipient will analyze what projects can be considered marginal and above i.e., those projects that he cannot fund through his resources, and the donor can decide which projects he might choose to aid and the size of the fund he would donate. One such example is when the International Development Association(IDA) attempted to spot such marginal projects in the early 1960s. After careful analyses, they went forward with projects that promoted irrigation, telephone service, drainage, and locations that would require highway development.
Voluntary Aid
Voluntary aid can be defined as that form of service or help where people come forward to donate their labor to help in times of need. Services that can serve as an example of this category are doctors who are required to employ their medical expertise in times of crisis, especially when there's a shortage of medical services during wars, natural calamities, etc., or volunteers who might run initiatives and programs that boost academic facilities and educational programs in several communities.
What is Grant?
Grant is the transaction of funds that takes place between two parties, usually from financial organizations to the general public, or non-profit entities that will use the funds to benefit the public in the same areas.
Types of Grants
Competitive Grant
Competitive grant is when the funding is sanctioned through a filtering process where the proposal must be evaluated and approved by a reviewer or a panel of multiple reviewers. Funding will entirely depend upon the merits of the application and it is not necessary to determine the receiving party before the evaluation process. TThese kinds of grants are also known as 'discretionary funding' since the recipient is not pre-determined. Since there is competition involved, it is important to note the process will be as competitive as possible. One popular example of such competitive grant funding is the TIGER program operated by the U.S. Department of Transportation allows all the local, state, tribal, and other territorial governments along with other agencies such as transit agencies, metropolitan planning organizations, and port authorities to participate and compete for the grant funding that will be used as capital to support planning and projects, further helping in the development on a regional, metropolitan or a national scale. The end objective of the program is to invest in projects that will yield promising results by improving the network of communities to necessities such as education, employment, and other basic services. These results must support long-term employment and factors relevant to it, especially in economically distressed areas. Other such programs that support competitive grants are art and humanities, scientific research, miscellaneous tuition programs for students, etc.
Formula Grant
In contrast to the previous category, formula grants are provided to parties when the receiving party is already predetermined, i.e., known. Again, unlike those funds awarded in competitive grants, formula grants are non-competitive. All sorts of rules and regulations that any funding party must adhere to are set by the legislation through a formula. It is through the employment of this formula that one also decides which parties must receive the funding as only the eligible applicants who can meet the minimum stated requirements will be entitled to be awarded the funding. But what exactly is this formula? This is different for different programs and different organizations and one must research first and then apply according to the requirements stated in the application. One example of such a program was the Nutrition Services Incentive Program which allowed state and tribal governments to try for grant funding that would be awarded based on the government's performance and efficiency in feeding the elderly with nutritious meals every year.
Continuation Grant
As the name suggests, this type of grant is awarded to those recipients that choose to renew or extend their current funding program. It serves as a motivation to extend the services of their operation through extended capital. There are various kinds of grants that bear rules depending on the kind of program chosen. Some allow funds to current and new recipients whereas most of them only award it existing applicants. Oftentimes, existing applicants, sometimes also referred to as current grantees, are awarded extra credits or points owing to their early membership in the funding process while being reviewed. One example of such a grant is the Drug-free Communities Support Program which allows both current and new applicants to acquire this offer. The end objective is to minimize substance abuse and strengthen coalitions in communities that promote anti-drug initiatives.
Pass-through Grant
Pass-through grant is a fund that is provided by the federal government to the states. This will be further distributed among local governments. However, there is no certain straightforward structure as it depends upon the type of funding program as to how the funds might be disbursed i.e., through a formula or open competitions. Thus, this category is not mutually exclusive to the above categories. An example of this type of grant is the Federal Safe Routes to School program that provides federal funds through the Federal Highway Administration to other State Departments of Transportation to support and provide capital for planning, implementation, and development of projects related to road and pedestrian safety, traffic reduction, air pollution, and fuel consumption, especially in areas in proximity to schools.
Main Differences Between Aid and Grant In Points
- Aid provides funds and resources from one country to another country whereas a grant provides funds between any two parties.
- There are six types of aids whereas there are only 4 types of grants.
- The main objective of aid is to strengthen multiple aspects of a nation that will eventually lead to its overall development whereas grants are awarded for specific purposes that will benefit the general public in the end.
- Aids are usually provided based upon the urgency of the matter whereas grants are provided based on the type of project submitted and whether it gets approved or not.
- Most aids are provided to help strengthen military conditions, and economic conditions, maintain culture and heritage, damage control, and restoration after calamities or disasters. On the other hand, Grants are given to improve non-profitable entities such as educational and health facilities, cultural purposes, etc.
Conclusion
From the above discussion, we can conclude that Aids is performed in different countries whereas grants are performed between two parties. Thus, aids are performed at a higher scale whereas grants are performed at a lower scale. Nevertheless, both are efficient forms of financial aid.
References
- https://www.investopedia.com/articles/investing/082616/what-are-different-types-foreign-aid.asp
- https://charity.lovetoknow.com/Types_of_Grants
