SPIS Toolbox - Loan Assessment: Assess Credit Risk and Collateral
Introduction
The Toolbox on Solar Powered Irrigation Systems (SPIS) is designed to enable advisors, service providers and practitioners in the field of solar irrigation to provide broad hands-on guidance to end-users, policy-makers and financiers. Risks related to system efficiency, financial viability and the unsustainable use of water resources can thus be minimized. The Toolbox comprises informative modules supplemented with user-friendly software tools (calculations sheets, checklists, guidelines). read more
Modules and tools touch upon:
- assessing the water requirements,
- comparing the financial viability,
- determining farm profitability and payback of investment in SPIS,
- sustainably design and maintain a SPIS,
- highlight critical workmanship quality aspects,
- and many more.
Loan Assessment: Assess Credit Risk and Collateral
Apart from “normal” credit risks applying to agricultural loans, such as variations related to external shocks and an irregular cash flow based on seasonality, financing SPIS brings additional challenges. These are mainly related to technological risks or risks in respect to operation and maintenance. Also, high initial investment costs increase the overall financial risk. Finally oversizing of the pumping system can be an issue.
When valuing assets for collateral, the view should broaden by considering the whole farm as well as the overall family situation, and not only specifically the planned investment.The borrower should be encouraged to contribute with own capital and alternative collateral should be accepted more broadly by the financial operator. PV-Panels can be used as collateral, if there is a market for second hand panels.
Since solar power is considered an environmental friendly technology, given that water is used adequately (SAFEGUARD WATER module), there is a scope for external public or donor funded guarantee schemes and subsidies where producers can adhere to. These opportunities should be actively explored and assessed.
Outcome/Product
- Family/farm balance sheet;
- Total value of collateral and/or types of guarantees;
- General risk analysis;
Data Requirements
Research, collect, analyze
- market for respective crops, inputs, etc.;
- availability of risk guarantee options / opportunities or insurance.
Compute, prepare
- valuation of farm (and family) assets and liabilities;
- borrower’s own (capital) contribution;
- revue of collateral or/and guarantee schemes;
- assessment of technology and O&M risk (DESIGN, SETUP, MAINTAIN).
People/Stakeholders
- Loan officers financing or planning to finance SPIS;
- Producer(s) / potential borrower(s);
- Management of Financial Service Providers (operational level);
- Public entities promoting or/and subsidizing SPIS initiatives;
- Sponsors.
Important Issues
- Look for alternative types of collateral (e.g. guarantee schemes) and assess if PV panels could be a guarantee.
- Minimize risk of theft or damage of the collateral (e.g. fencing of panels, guards, insurance).
