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

From energypedia


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.

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!).
Retrieved from "https://energypedia.info/index.php?title=SPIS_Toolbox_-_Credit_Policy:_Select/develop_Suitable_Financial_Instruments&oldid=208316"