A green loan is a form of financing that enables borrowers to use the proceeds to exclusively fund projects that make a substantial contribution to an environmental objective.

A green loan is similar to a green bond in that it raises capital for green eligible projects. However, a green loan is based on a loan that is typically smaller than a bond and done in a private operation. A green bond usually has a bigger volume, may have higher transaction costs, and could be listed on an exchange or privately placed. 

Developing countries currently account for just $1.6 billion of the estimated $33 billion in outstanding green loans. But the market is growing rapidly, outpacing the growth of the green-bond market in the near term. Green loans contribute to aligning lending and environmental objectives. Green Loans help borrowers communicate the greening of their operations and supply chain. Considering the higher transaction costs of bond issuance, the minimum bond size to be tradeable, and the fact that only bonds above a certain size are tracked by various indices, potential issuers in emerging markets with small green portfolios may feel inclined to receive a green loan instead of issuing a green bond.