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:

Note: SPIS clients could become future clients forother financial products (cross selling).

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

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