SPIS Toolbox - Loan Assessment: Assess Credit Risk and Collateral
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5. 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.
- Family/farm balance sheet;
- Total value of collateral and/or types of guarantees;
- General risk analysis;
Research, collect, analyze
- market for respective crops, inputs, etc.;
- availability of risk guarantee options / opportunities or insurance.
- 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, SET UP, MAINTAIN).
- 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;
- 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).