Who pays for resettlement compensation?
The project pays, through the borrower or the developer. Why the source of funds matters to how quickly you are paid.
The project pays — through the government agency acquiring the land, or the company developing the scheme. Lenders finance projects and require compensation to be paid, but the obligation sits with the borrower or client, and so does the money. No affected household is ever expected to contribute to the cost of being displaced.
Who holds the obligation
On a publicly financed road, dam or transmission line, the implementing agency acquires the land under national law and pays from an appropriation — a budget line approved through the normal public finance process. On a privately developed project, the developer pays, and where the project is financed under lender standards the obligation is written into the loan documents.[1]
Under the Equator Principles, commercial banks financing a project in most countries apply the IFC Performance Standards, which means the obligation to compensate at replacement cost arrives through the financing agreement and is enforceable through it.[4]
Why the source of funds affects how fast you are paid
This is the practical part. Where compensation is funded from an annual public appropriation, payment is constrained by a budget cycle nobody in the project controls: funds are released in tranches, and a delayed release stops payments regardless of whether the valuation is complete.[2]
Where funds are held in a dedicated or escrow account secured before implementation, that risk is largely removed. Asking which arrangement applies is a reasonable question for an affected community to put to a project, and the answer predicts the payment timetable better than the plan does.
What lenders will and will not do
Lenders generally do not pay compensation directly to affected people. What they do is make the plan a condition: disbursement for construction can be withheld until compensation obligations are met, and supervision missions check it.
That is the leverage worth knowing about. A project that has taken possession without paying is in breach of a condition its financing depends on, and the lender's own accountability mechanism can be approached directly by the people affected.[3]
Costs you should never be charged
- Fees to be enumerated, or to be included in the register.
- Payments to anyone for arranging or accelerating your compensation.
- Bank or transfer charges deducted from your compensation.
- The cost of documents the project requires you to obtain in order to be paid.
The last one is worth insisting on: where a project requires identification or a succession document before it can pay, obtaining it is part of the project's assistance obligation, not the household's expense.
Sources
- [1]Performance Standard 5: Land Acquisition and Involuntary Resettlement — International Finance Corporation, 2012.
- [2]ESF Guidance Note 5: Land Acquisition, Restrictions on Land Use and Involuntary Resettlement — World Bank, 2018.
- [3]Good Practice Handbook: Land Acquisition and Involuntary Resettlement — International Finance Corporation, 2023.
- [4]The Equator Principles (EP4) — Equator Principles Association, 2020.
Olule Solomon
Lead Consultant, ValueSpace
Olule Solomon is Lead Consultant at ValueSpace, where he works on land acquisition and resettlement systems for donor-financed infrastructure in East Africa. He writes about the practical gap between what the safeguard standards require and what a project can actually evidence at completion audit.
Related reading
- Costing a RAP: why resettlement budgets are wrong before they are approvedWhat a resettlement budget must contain, the line items projects systematically omit, and why contingency is not padding.
- Who approves a RAP, and what are they checking?Usually a national authority and a lender, in that order, against different criteria. What each one is actually looking for.
- How long does compensation take to be paid?Months where the file is clean, years where it is not. What sits between a valuation and money arriving, and which delays are avoidable.
- Who prepares a Resettlement Action Plan?A consultancy team writes it, the borrower owns it, the lender reviews it — and the people who implement it are usually none of the above.
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PAP register, replacement-cost valuations, entitlements, recorded payments reconciled against disbursement files, and grievances — every change attributed and time-stamped, so a completion audit is evidenced rather than reconstructed. Offline-first in the field.