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SPIS Toolbox - Financing
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3.3 Financing
Uptake of SPIS is associated with substantial upfront costs which often limits their adoption, especially among low income farmers. For some, farming is the only source of livelihood and investing in SPIS equipment would take away finances from other household needs. The ability to meet the high capital cost of SPIS is therefore seen as a significant barrier to SPIS even though its lifecycle costs are lower than alternative solutions. Facilitating adoption of these systems would, therefore, require support in terms of financing.
Some governments, development agencies and the private sector have developed various mechanisms in different regions to offer this support. Financing for SPIS can be looked at from two perspectives:
a) End-users financial ability
b) Availability of financial institutional support
End-users financial ability
This parameter assesses the purchasing capacity of the end-users as a key indicator of the market potential of SPIS within a region. It helps determine the amount of capital available and/or accessible to an end-user, including options for external market based financing. This informs their financial empowerment and consequently, ability to purchase SPIS.
A population’s general financial ability and access to financial services may be inferred from factors such as incidence of poverty, income and employment indices and the prevalence of financial institutions within an area. Other factors could include number of individual accounts in financial institutions, value of customer savings and borrowing rates at financial institutions, and ease of access to loans. The Gross National Income (GNI) may also be used.
Availability of institutional support
Institutional support can either be from government, development agencies, or private sector. These influence the rate at which an end-user can raise external finance. Government financial support may be in terms of subsidies, tax incentives, rebates, customs and duty incentives. Typically, government support is most effective at the early stages of market development and is phased out as markets mature. Development agencies may also offer subsidies, result based financing (RBF), grants and soft loans. The more the mechanisms available in a country or region the better for the market potential.
It is also critical to evaluate financing mechanisms towards competing sources of power for irrigation. For instance, government support may, directly or indirectly, promote the use of competing sources of fuel such as diesel or electricity. For instance, a rural electrification subsidy or subsidizing of butane gas for cooking may negate adoption of SPIS in a country or region if the recurrent costs of energy are insignificant compared to the upfront cost of SPIS.
Outcome/Product
- Assessment of the financial landscape of the region
Data Requirement
- Incidence of poverty among the rural population
- Ratio of formal bank accounts to population in rural areas
- Value of savings and access to loans among the rural population
- GNI per capita
- Employment figures
- Government fiscal policy on solar and irrigation
- Development agency that finance irrigation and SPIS
People/Stakeholders
- Government
- Civil society organizations
- Research institutions
- Bilateral organizations
- Multilateral organizations
- Financial institutions
Important Issues
- Evaluation of the financial landscape should go beyond the financial empowerment levels of end users (individual financial ability and available institutional support) to include financing options for competing sources of power for irrigation.
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