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

The Product design process Demand Assessment Product Design Product Implementation Product Evaluation Product Adjustment

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

IMPORTANT PRODUCT FEATURES DOWN PAYMENT 10% or 15% or 20% (Decision is with the MFI)

Why Down Payment 1. Demonstrate customer commitment 2. To reduce the lending risk. 3. Ease the liquidity of the MFI

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

IMPORTANT PRODUCT FEATURES PRICING (Good Practice) 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.

IMPORTANT PRODUCT FEATURES PRICING ( Good Practice) Example- Peso 20,000 solar 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)= 18,000*15*3 =8,100

IMPORTANT PRODUCT FEATURES PRICING ( Good Practice) Interest and Capital recoverable= 18,000+8,100= 26,100 Monthly Installment= 26,100/36=725

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

IMPORTANT PRODUCT FEATURES INCENTIVES FOR CLIENTS Rebates for early payments Penalties for late payments

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

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 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 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 An attempt should always made to match the loan installment or part of it to the spending for energy SPECIAL REQUIREMENTS

MFI strategy to introduce Solar Lending Link Solar lending Product- Eligibility for solar lending based on prior participation of savings or lending activities 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 Stand-alone solar lending product –No prior relationship with the client

KEY FACTORS FOR SUCESS PRICING PRICING LOAN MATURITY LOAN MATURITY AFFORDABILITY ANANLYSIS AFFORDABILITY ANANLYSIS PRE-LOAN DUE DELIGENCE PRE-LOAN DUE DELIGENCE POST LOAN FOLLOW UP POST LOAN FOLLOW UP ENSURE GOOD AFTERSALES SERVICE. ENSURE GOOD AFTERSALES SERVICE.