Difference between revisions of "SPIS Toolbox - Credit Policy: Select/develop Suitable Financial Instruments"
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− | + | {{SPIS Banner}} | |
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+ | === '''<span style="color:#879637;">Credit Policy: Select/develop Suitable Financial Instruments</span>''' === | ||
+ | [[File:Automated-irrigation-S.jpg|thumb|right|300px|Automated irrigation system in Morocco – largely subsidized by the state (Source: Lennart Woltering)]] | ||
When selecting or developing a loan product for SPIS it is important to ask the following questions: | When selecting or developing a loan product for SPIS it is important to ask the following questions: | ||
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*group financing approaches for producer groups; | *group financing approaches for producer groups; | ||
*public subsidies and sponsoring; | *public subsidies and sponsoring; | ||
− | *favorable | + | *favorable refinancing options for the financial institution (e.g. subsidized interest rates offered by donors/public entities). |
In order to '''overcome the information gap '''in respect of the new technology, introduce additional activities such as: | In order to '''overcome the information gap '''in respect of the new technology, introduce additional activities such as: | ||
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*continuous dialogue with solar power sector. | *continuous dialogue with solar power sector. | ||
− | '''Note: '''SPIS clients could become future clients | + | '''Note: '''SPIS clients could become future clients for other financial products (cross selling). |
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− | == Outcome / Product | + | === '''<span style="color:#879637;">Outcome/Product</span>''' === |
*'''Guidelines and Procedures''': including assessment and decision guidelines, target key performance indicators (KPIs). | *'''Guidelines and Procedures''': including assessment and decision guidelines, target key performance indicators (KPIs). | ||
− | == Data Requirements | + | === '''<span style="color:#879637;">Data Requirements</span>''' === |
*Comparable clients liquidity pattern in current agricultural portfolio. | *Comparable clients liquidity pattern in current agricultural portfolio. | ||
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*list of eligible crops; | *list of eligible crops; | ||
*list of eligible irrigation systems and average investment cost per component; | *list of eligible irrigation systems and average investment cost per component; | ||
− | *list of eligible SPIS configurations and average investment cost per component (see '''DESIGN''' and '''GET INFORMED'''; | + | *list of eligible SPIS configurations and average investment cost per component (see '''[[SPIS_Design|DESIGN]]''' and '''[[SPIS_-_Get_Informed|GET INFORMED]]'''; |
*list of eligible types of collateral. | *list of eligible types of collateral. | ||
− | < | + | === '''<span style="color:#879637;">People/Stakeholders</span>''' === |
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*Management level of financial service providers; | *Management level of financial service providers; | ||
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*Providers of service, technology and inputs. | *Providers of service, technology and inputs. | ||
− | == Important | + | === '''<span style="color:#879637;">Important Issues</span>''' === |
*Prevent prohibitive transaction costs for borrowers; | *Prevent prohibitive transaction costs for borrowers; | ||
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*Select excellent loan staff for this segment with corresponding background and experience (train them!). | *Select excellent loan staff for this segment with corresponding background and experience (train them!). | ||
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Revision as of 16:18, 26 May 2017
Introduction
The Toolbox on Solar Powered Irrigation Systems (SPIS) is designed to enable advisors, service providers and practitioners in the field of solar irrigation to provide broad hands-on guidance to end-users, policy-makers and financiers. Risks related to system efficiency, financial viability and the unsustainable use of water resources can thus be minimized. The Toolbox comprises informative modules supplemented with user-friendly software tools (calculations sheets, checklists, guidelines). read more
Modules and tools touch upon:
- assessing the water requirements,
- comparing the financial viability,
- determining farm profitability and payback of investment in SPIS,
- sustainably design and maintain a SPIS,
- highlight critical workmanship quality aspects,
- and many more.
Credit Policy: Select/develop Suitable Financial Instruments
When selecting or developing a loan product for SPIS it is important to ask the following questions:
- who? Market oriented producers, no subsistence production, producer groups possible;
- what? Finance for energy source and pumping system used for irrigation; energy and/or water saving technology;
- how much? Establish range of loan sum; % own-contribution of producer; % subsidy;
- when? Range of loan period (years); repayment frequency (months); disbursement in tranches;
- interest rate? From..x..% p.a. to ..x..% p.a. (range);
- collateral? Equipment, mortgages, additional collateral (guarantee scheme), non-traditional collateral (future harvest, warehouse), leasing scheme with equipment providers.
Loan products for financing SPIS usually:
- have higher initial investment sums with consequently longer repayment periods and/or high installment rates;
- need alternative guarantee schemes/ unconventional collateral;
- have higher interest rate payments due to higher credit risk and long investment period;
- focus on innovative clients, usually investing in high(er) value crops;
- should be strictly oriented towards water capacity available and the farm’s specific requirements;
- use no blueprint; every farm/enterprise is unique!
In order to prevent prohibitive loan transaction costs, consider:
- guarantee funds with public support or insurance;
- leasing schemes with pumping system providers and others;
- group financing approaches for producer groups;
- public subsidies and sponsoring;
- favorable refinancing options for the financial institution (e.g. subsidized interest rates offered by donors/public entities).
In order to overcome the information gap in respect of the new technology, introduce additional activities such as:
- encouraging (potential) clients to get informed and consult technical advice;
- training and sensitization of loan staff on basics about the technology;
- monitoring loan performance closely;
- continuous dialogue with solar power sector.
Note: SPIS clients could become future clients for other financial products (cross selling).
Outcome/Product
- Guidelines and Procedures: including assessment and decision guidelines, target key performance indicators (KPIs).
Data Requirements
- Comparable clients liquidity pattern in current agricultural portfolio.
Compute, prepare
- repayment plan (with varying interest rates, repayment periods and repayment frequencies);
- profitability margins by crops and farm sizes;
- tables for evaluating types of collateral;
- list of eligible crops;
- list of eligible irrigation systems and average investment cost per component;
- list of eligible SPIS configurations and average investment cost per component (see DESIGN and GET INFORMED;
- list of eligible types of collateral.
People/Stakeholders
- Management level of financial service providers;
- Experienced credit staff (senior, agrifinance);
- Associations of producers / potential borrowers;
- Agricultural extension services;
- Research and training institutes (e.g. environmental agency);
- Providers of service, technology and inputs.
Important Issues
- Prevent prohibitive transaction costs for borrowers;
- Overcome information gap of financial operator;
- Note that standardization potential is limited.
- Select excellent loan staff for this segment with corresponding background and experience (train them!).