Farmers facing challenges in accessing finances despite achievements in agric sector – Governor Addison

Notwithstanding the achievements in the agric sector, the participants in the agricultural value chain continue to face challenges in accessing finance, Governor of the Bank of Ghana (Bo) Dr Ernest Addison has said.

First, he said, interest rates on loan to actors in agricultural value chain continue to be prohibitive due to the high perception of risks, combined with collateral requirements that are almost impossible to meet.

The sector is also beset with risks that are beyond the control of actors in the value chain requiring some form of insurance schemes which may be inaccessible in most cases, he added.

“These risks manifest in the form of climate variability, which makes eatherdependent crop producers increasingly vulnerable, as well as market risks, which reflect fluctuations in crop prices and market demand, affecting the ability of the actors to service their credit. On top of these risks, the low level of financial literacy affects the ability of actors to manage finances effectively, impacting their ability to either access credit or repay loans,” Dr Addison said said on Tuesday September 17 during the Ghana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL) 5th Anniversary Launch and Rubber Value Chain Conference.

He further stated that in the face of these challenges, significant innovation would be required to revolutionise the agricultural financing landscape to expand access beyond the traditional financing sources.

“Financing models would have to be modified, expanded, and adapted to meet the peculiar needs of the sector. This would mean fully activating and adapting the Digital Finance and Insurance Pillars of GIRSAL – which are two key strategic areas of focus underpinning the GIRSAL strategy. The digital finance services would leverage on mobile banking technologies and other digital platforms to enhance financial inclusion, while innovative insurance products would use mobile technologies to offer coverage for crop failure and adverse weather conditions. It would also mean expanding value chain financing by promoting the use of contract farming schemes such as the warehouse receipt systems and outgrower schemes,” he said.

Dr Ernest Addison has said that agricultural financing is a critical aspect of Ghana’s development strategy due to the important role agriculture plays in the economy, particularly, in employment and food security.

From a macroeconomic perspective, he said, agriculture contributes about 24 percent of the Gross Domestic Product (GDP) and employs an estimated 40 percent of the workforce.

Dr Addison noted that developments within the agricultural sector are critical for the economy, given that the weight of the food items in the consumer basket which accounts for 43.7 percent, hence a major driver of headline inflation.

It is also instructive to note that, on average, food import accounts for nearly 10 percent of total imports, which translates to about US$1.4 billion in import value.

“The agriculture sector also holds a huge potential to help boost the country’s foreign exchange reserves. First, as an import substitution strategy, sufficient food production locally will reduce the food import bill to preserve hard-earned foreign exchange reserves. Second, through the export promotion strategy, Ghana could become a major food exporter which will improve the sector’s foreign exchange earning capacity. Clearly, promoting a resilient and thriving agricultural sector will be transformational with broader implications on the economy, including price stability,” he said.

Impact of GIRSAL

Dr Addisons aid that having recognised the inherent economic potential of a strong agricultural sector and value chain, the Bank of Ghana was part of the team that established the “Ghana Incentive-based Risk-sharing System for Agricultural Lending” (GIRSAL), as a holistic and integrated system of instruments to de-risk the agricultural sector and incentivize banks to lend to the sector to help accelerate growth. The primary objective of GIRSAL was to establish a credit guarantee scheme to leverage bank lending to agriculture as well as address the imbalance between the significant contribution of agriculture to GDP and the constrained security of bank credit to agriculture.

Since its inception, GIRSAL has made significant impact by leveraging various strategies and programmes to de-risk agricultural financing, stimulated increased lending to the agricultural sector, and improved lending conditions around agricultural lending. And this is a good time for us to commend the Board, Management and Staff for successfully operationalizing GIRSAL. Let me briefly highlight a few of these achievements.

Over the past five years, GIRSAL has issued credit guarantees valued at over GH¢604.53 million to 17 financial institutions, covering up to 70 percent of credit default risks. Under the credit guarantee scheme, GIRSAL has channelled GH¢1.18 billion worth of loans, at relatively lower interest rates to about 137 agribusinesses located in 72 districts across 15 regions.

In its operations, GIRSAL recognized the untapped potential in the rubber sector and stepped in to facilitate the entry of indigenous processors. In doing so, GIRSAL provided essential financing incentives to mitigate perceived risks thereby inducing local participation and growth in the sector. Through this intervention, the rubber sector has created permanent employment, generating some GH¢3.5 million per year in income to rural households. GIRSAL also empowered 451 local smallholder rubber farmers and service providers, contributing a total of GH¢30 million per annum in incomes to 12,616 individuals. These interventions in the rubber sector generated US$8 million in export proceeds.

“GIRSAL’s Technical and Advisory Services have also delivered training and capacity building programmes to mid-level staff, executives, and Board members of financial institutions. The direct technical support includes loan application assessments, loan facility restructuring and monitoring, strengthening of internal systems for agricultural lending, and the management of agricultural portfolios. These have been complemented by support from consultants and third-party organisations. GIRSAL has also extended business advisory services to develop and manage projects for its clients. The feedback on the Technical and Advisory Services has been positive and encouraging. This has shown that GIRSAL has made significant impact in demystifying agricultural finance by financial institutions. These achievements attest to the fact that GIRSAL holds a huge potential to transform agricultural financing, given the necessary support,” Addison indicated.

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