Credit Tranche

DEFINITION of 'Credit Tranche'

A system used by the International Monetary Fund (IMF) to govern its lending activities to member countries. When a member nation applies for a loan to help with balance of payment difficulties, the IMF will disperse the loan in a series of credit tranches. Tranches are a portion of the loan that is released upon the member country fulfilling conditions or requirements set forth by the IMF.

BREAKING DOWN 'Credit Tranche'

An International Monetary Fund loan usually lasts between 18 months and three years. At the start of the loan, the borrowing nation must demonstrate that reasonable efforts have been taken to overcome its financial difficulties. If this requirement is met, the country will receive the first credit tranche of the loan, usually 25% of its total value. The later series of credit tranches will have various conditions, each of which the borrower must satisfy before receiving the next portion of funding.

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