What is the Foreign Military Financing Program? 

Foreign Military Financing (FMF) provides USG assistance funds for allied foreign countries to purchase U.S.-made military equipment and training.  According to the Defense Security Cooperation Agency,

FMF helps countries meet their legitimate defense needs, promotes U.S. national security interests by strengthening coalitions with friends and allies, cements cooperative bilateral military relationships, and enhances interoperability with U.S. forces.  Because FMF monies are used to purchase U.S. military equipment and training, FMF contributes to a strong U.S. defense industrial base, which benefits both America’s armed forces and American workers.

The State Department’s Political-Military Bureau sets Foreign Military Financing policy, and the program is administered by the DOD’s Defense Security Cooperation Agency (DSCA).  Congress appropriates FMF funds as part of the annual Foreign Operations Appropriations Act (the State Department budget).

How does FMF work?

Most FMF-funded purchases are made through the Foreign Military Sales (FMS) framework.  A few countries have received exceptions to use FMF funds for Direct Commercial Sales.  Foreign Military Financing funds are budgeted three years in advance, as part of the regular State Department budget cycle.

For FY2011, the total funding for the FMF program was $5.37 billion. The FY2012 estimate was $6.31 billion.  (Source – pdf file; see p. 171)

How does an FMF-financed sale work?

For the most part, an FMF-financed sale works just like other sales under the Foreign Military Sales process.  The main difference is that funding comes from the FMF program rather than the foreign government customer.  (A sale may be fully funded through FMF, or may be partially FMF-funded and partially paid by the foreign customer.)  This has the benefit of helping allied countries buy military equipment they otherwise might not be able to afford, creating additional sales opportunities for U.S. defense companies.

For U.S. defense companies, ensuring that Foreign Military Financing funds are available and budgeted to a particular sale will probably require additional coordination during the pre-LOR stage of the FMS process.  We’ll discuss the pre-LOR process in more detail in a separate post.

FMF vs. FMS

Clients often ask me about the difference between Foreign Military Financing and Foreign Military Sales.  In reality, FMF and FMS aren’t directly comparable.  FMF provides funding for defense purchases, while FMS is the program for managing the sale and transfer of military items.  Sales funded by FMF are almost always processed through the FMS program.  (Only a few countries have exceptions to use FMF funds for Direct Commercial Sales.)  The FMS program, on the other hand, may be used for FMF-financed sales, or for sales paid for by the foreign customer.