AfDB provides Ghana US$10m to guarantee agric loans

Parliament has approved a US$10 million loan facility made available by the African Development Bank (AfDB) to begin the implementation of a project aimed at lowering credit risk in the agriculture sector.

In the 2019 budget of the Agriculture Ministry, an amount of US$410 million was voted to de-risk the sector through agricultural insurance cover for farmers and their produce. AfDB subsequently committed to provide a loan facility to support this initiative.

Government’s original request was for US$50 million from the bank for the project. However, under the current circumstances, government will have to raise the remaining US$400 million from its own resources to implement the project in full. Under the programme, the Bank of Ghana is expected to provide guarantees to cover 75 percent of commercial, bank lending to smallholder farmers in the country.

This is part of a wider project – the Ghana Incentive-based Risk Sharing System for Agriculture Lending (GIRSAL) programme – which was designed by the Bank of Ghana (BoG) in collaboration with the Ministry of Food and Agriculture (MoFA) and the Alliance for Green Revolution in Africa (AGRA) in 2017.

The GIRSAL project is designed to improve financing and lower its costs, for smallholder farmers nationwide, by reducing credit risk. It has six major pillars namely: digital finance, agricultural insurance, risk sharing, bank incentives mechanisms, bank rating schemes and technical assistance.

Insurance cover and other technical support for farmers will significantly improve their creditworthiness, by providing some level of guaranteed income, whatever their production levels. This would, in turn, give them better access to commercial credit.

Inadequate loan financing has been identified as a major constraint to agricultural production particularly by small scale farmers. With the initial funds now available, government is set to establish an institution that will work together with the central bank, Finance Ministry and the Food and Agriculture Ministry to manage disbursement of the fund.

Speaking with the Goldstreet Business, the Chairman for the Food, Agriculture and Cocoa Affairs Committee of Parliament Kwame Asafu-Adjei said smallholder farmers are expected to liaise with the banks for them to access the loans without going through the normal processes of providing collateral, which he asserted was not favourable to farmers.

“I don’t want the BoG and the Ministry of Finance to manage farmers money. They should rather play the supervisory role while allowing MoFA to do the greater participation”, he reiterated.