Solar lending Workshop

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Solar lending Workshop
ELIMENTS OF PRODUCT DESIGN FOR SOLAR LENDING
Saliya J. Ranasinghe
30th August 2006
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The Product design process

• Demand Assessment
• Product Design
• Product Implementation
• Product Evaluation
• Product Adjustment

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Affordability

• Capacity to pay
• Cost of Solar Home System
• Loan terms

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IMPORTANT PRODUCT FEATURES

• DOWN PAYMENT
• 10 or 15 or 20
• (Decision is with the MFI)

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Why Down Payment

• Demonstrate customer commitment
• To reduce the lending risk.
• Ease the liquidity of the MFI

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IMPORTANT PRODUCT FEATURES

• Loan repayment Period
• (Generally 2-3 years if not the installment will
  be too high for the client)

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IMPORTANT PRODUCT FEATURES

• PRICING (Good Practice)
• Flat Rate Interest (10 or 15 PA)
• Equal Installments
• Recommended to charge higher interest from Solar
  lending portfolio to accommodate the risk.

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IMPORTANT PRODUCT FEATURES

• PRICING ( Good Practice)
• Example- Peso 20,000 solar loan _at_ 15 PA flat
  interest to be paid in 36 equal installments.
  Down payment 10 upfront.
• Loan amount to calculate interest 20,000 less
  2000 ( Down Payment) 18,000
• Interests for 36 Months (3 years) 18,000153
  8,100

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IMPORTANT PRODUCT FEATURES

• PRICING ( Good Practice)
• Interest and Capital recoverable 18,0008,100
  26,100
• Monthly Installment 26,100/36725

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IMPORTANT PRODUCT FEATURES

• LOAN SECURITY
• Absolute ownership with MFI ( Lease product)
• Cosigners/ Guarantors (As a peer group to apply
  pressure for repayment)

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IMPORTANT PRODUCT FEATURES

• INCENTIVES FOR CLIENTS
• Rebates for early payments
• Penalties for late payments

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LENDING MODEL

• Financing at the users door step- Reduces costs-
  
• 
  TIME MONEY
• Service at door step Built users
  confidence on technology
• Application level Suppliers sales rep. acts as
  a facilitator for the borrower and does initial
  negotiations with the MFI
• Credit evaluation / Security documentation is
  done by the field officer of the MFI at the
  borrowers house
• Equipment delivered to the house and fixed at no
  extra cost
• Collection of loan installments Home visited in
  many cases
• After sales - confirmed arrangement. Follow up
  by the MFI
• TOTALLY CUSTOMER ORIENTED AND
• THIS MODEL IS PROVED TO BE SUCCESSFUL

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SPECIAL REQUIREMENTS

• Loans to be considered only for permanent
  residence of the household should be either the
  legal owner of the house or the next of kin
• Should be a person whose income is sufficient to
  pay the loan installment monthly or bi annually
• An attempt should always made to match the loan
  installment or part of it to the spending for
  energy

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MFI strategy to introduce Solar Lending

• Link Solar lending Product- Eligibility for solar
  lending based on prior participation of savings
  or lending activities
• Stand-alone solar lending product No prior
  relationship with the client

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KEY FACTORS FOR SUCESS

• PRICING
• LOAN MATURITY
• AFFORDABILITY ANANLYSIS
• PRE-LOAN DUE DELIGENCE
• POST LOAN FOLLOW UP
• ENSURE GOOD AFTERSALES SERVICE.