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

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4. Credit Policy: Select/develop Suitable Financial Instruments

Automated irrigation system in Morocco – largely subsidized by the state (Source: Lennart Woltering)

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 (Solar Pumpset), 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 and progressive borrowers, 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 refinancing options for the financial institutions (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 through site visits and case studies of existing installations;
  • Training and sensitization of loan staff on basics about the technology;
  • Monitoring loan performance closely;
  • Continuous dialogue with solar pump suppliers.

Note: SPIS clients could become future clients for other financial products (cross selling).

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 of financial service providers;
  • Experienced credit staff (senior, agri-finance);
  • Associations of producers / potential borrowers;
  • Agricultural extension services;
  • Research and training institutes (e.g. environmental agencies);
  • Providers of service, technology and inputs.

Important Issues

  • Prevent prohibitive transaction costs for borrowers;
  • Overcome information gap of financial operators;
  • Note that standardization potential is limited;
  • Select capable loan staff for this segment with corresponding background and experience (provide training if required).


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