Difference between revisions of "SPIS Toolbox - Credit Policy: Select/develop Suitable Financial Instruments"
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| − | === '''<span style="color: rgb(135, 150, 55);"> | + | === '''<span style="color: rgb(135, 150, 55);">4. 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: | [[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: | ||
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*'''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/> | *'''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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*have higher initial investment sums with consequently longer repayment periods and/or high installment rates; | *have higher initial investment sums with consequently longer repayment periods and/or high installment rates; | ||
| − | *need alternative guarantee schemes/ unconventional collateral; | + | *need alternative guarantee schemes / unconventional collateral; |
*have higher interest rate payments due to higher credit risk and long investment period; | *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; | *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; | *should be strictly oriented towards water capacity available and the farm’s specific requirements; | ||
| − | *use no blueprint; every farm/enterprise is unique! | + | *use no blueprint; every farm / enterprise is unique! |
In order to '''prevent prohibitive loan transaction costs''', consider: | In order to '''prevent prohibitive loan transaction costs''', consider: | ||
Revision as of 13:43, 22 March 2018
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4. 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!).
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