SPIS Toolbox - Credit Policy: Select/develop Suitable Financial Instruments

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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 re-financing 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 forother financial products (cross selling).

Automated irrigation system in Morocco – largely subsidized by the state.