Difference between revisions of "SPIS Toolbox - Credit Policy: Select/develop Suitable Financial Instruments"
From energypedia
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| − | === '''<span style="color: | + | {{SPIS Finance}}{{Back to SPIS Toolbox}}<br/> |
| − | [[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: | + | === '''<span style="color: rgb(135, 150, 55);">Credit Policy: Select/develop Suitable Financial Instruments</span>''' === |
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| + | [[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: | ||
*'''Who? '''Market oriented producers, no subsistence production, producer groups possible; | *'''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; | *'''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; | + | *'''How much? '''Establish range of loan sum; % own-contribution of producer; % subsidy; |
| − | *''' | + | *'''When? '''Range of loan period (years); repayment frequency (months); disbursement in tranches;<br/> |
*'''Interest rate? '''From..x..% p.a. to ..x..% p.a. (range); | *'''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. | *'''Collateral? '''Equipment, mortgages, additional collateral (guarantee scheme), non-traditional collateral (future harvest, warehouse), leasing scheme with equipment providers. | ||
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'''Note: '''SPIS clients could become future clients for other financial products (cross selling). | '''Note: '''SPIS clients could become future clients for other financial products (cross selling). | ||
| − | === '''<span style="color: | + | === '''<span style="color: rgb(135, 150, 55);">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). | ||
| − | === '''<span style="color: | + | === '''<span style="color: rgb(135, 150, 55);">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 '''[[ | + | *list of eligible SPIS configurations and average investment cost per component (see '''[[SPIS Design|DESIGN]]''' and '''[[SPIS - Get Informed|GET INFORMED]]''');<br/> |
*list of eligible types of collateral. | *list of eligible types of collateral. | ||
| − | === '''<span style="color: | + | === '''<span style="color: rgb(135, 150, 55);">People/Stakeholders</span>''' === |
*Management level of financial service providers; | *Management level of financial service providers; | ||
| Line 65: | Line 66: | ||
*Providers of service, technology and inputs. | *Providers of service, technology and inputs. | ||
| − | === '''<span style="color: | + | === '''<span style="color: rgb(135, 150, 55);">Important Issues</span>''' === |
*Prevent prohibitive transaction costs for borrowers; | *Prevent prohibitive transaction costs for borrowers; | ||
| − | *Overcome information gap of financial operator; | + | *Overcome information gap of financial operator;<br/> |
| − | *Note that standardization potential is limited | + | *Note that standardization potential is limited;<br/> |
*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!). | ||
| − | + | <br/>{{SPIS Reference}} | |
| − | {{SPIS Reference}} | ||
Revision as of 08:42, 22 September 2017
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!).
