SPIS Toolbox - Loan assessment: Adjust Repayment Plan to Cash Flow

Loan Assessment: Adjust Repayment Plan to Cash Flow

SPIS, being based on agricultural activities, follows specific liquidity patterns, such as:

• irregularity, seasonality;
• farming-household mix;
• several cash generating activities (agricultural, non-agricultural);
• external shocks (climate, weather, pest, disease, prices).

Determining specific loan features (disbursement pattern, repayment rate, collateral, repayment frequency) should be based on cash flow projections of a particular case.

This means for the loan analysis process:

• in depth understanding of the farm and family economics;
• strong interaction with the potential borrower;
• networking with other sources of information in the sector and region;
• thorough understanding of the market and market trends;
• excellent staff with innovative attitudes.

SPIS goes along with high initial investment sums. These result in:

• long repayment periods (15-20 years);
• a need for high profitability of the SPIS;
• a need for a grace period at the beginning of the repayment plan.

Note: High installments resulting from very short loan repayment periods can create a threatening liquidity shortage – especially in the first years.

Outcome / Product

• Cash flow statement (current, projected);
• Tailor-made disbursement and repayment plan;
• Financial risk analysis/adjustment;
• Summarized risk analysis;
• Tailor-made loan details for decision.

Data Requirements

Collect, compute, prepare:

• total farm liquidity analysis (including household liquidity analysis (current + projected with SPIS));
• borrower’s own capital contribution;
• repayment potential;
• repayment plan;
• loan details.

People / Stakeholders

• Loan officers financing or planning to financeSPIS;
• Producer(s) / potential borrower;
• Management of financial service providers (operational level);
• Public entities promoting or/and subsidizing SPIS;
• Sponsors.

Important Issues

• Specific liquidity patterns need to be identified for every single case.
• Data collection process is challenging due tointermingled family-farm economy.

High initial investment costs should ideally not lead to prohibitive transaction costs (consider bank-external subsidies);

• High initial investment costs should ideally not lead to liquidity shortages of the client due to high or very early installments (be flexible when defining installment plans).

0,5 ha solar powered drip irrigation system used by a woman’s group in rural Northern Benin for production of lettuce and other vegetables.