The central bank is confident a GH¢100 million guarantee it is providing will court commercial banks into agriculture financing, a venture the banks have kept away from due to its perceived risks.
Known as theGhana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL), the fund is aimed at addressing the challenges faced by agricultural value chain actors in accessing finance.
At its launch in Accra on Thursday, Governor of BoG, Dr. Abdul Nasiru Issahaku said the initiative is part of efforts to stimulate the desire of banks to finance agriculture and agribusiness in Ghana.
The objective of GIRSAL, he said, is to reduce overall risks in agricultural financing to boost agricultural production, productivity and export, with the aim of increasing foreign exchange earnings, supporting import substitution and promoting economic growth.
Despite contributing about 22 percent to GDP, lending to the agriculture sector averages about 4 percent.
“If we are to succeed in transforming agriculture and promoting agribusiness in Ghana then we must scale-up financing to the sector. Yet, the perception of lending risk is too high to motivate this kind of financing by the private financial sector. This is why the central bank wants to facilitate the process of private financial sector financing of the full agricultural value chain,” the governor said.
GIRSAL, which comes with technical guidance and support from the Ministry of Food and Agriculture (MOFA) and the Alliance for a Green Revolution in Africa (AGRA), is a strategic way of diversifying the economy away from over reliance on oil.
“… Expanding agricultural production is one sure way of doing this, but it crucially depends on availability of more financing. It is in this regard that using the value chain approach to financing agriculture constitutes an important innovation especially in this modern era,” Dr. Issahaku added.
The programme, which will commence in the second quarter of next year, has six pillars that will ultimately see to it that both the potential and real risks associated with lending to agriculture and agribusiness are minimised.
The pillars include a risk sharing fund in which the central bank has made available a hundred million cedis seed capital to guarantee for farmers and agribusiness owners. There’s a technical assistance fund, insurance facility for potential borrowers, a bank rating system, rewarding systems for banks and a digital platform to facilitate quicker and cheaper credit delivery services.
“We want you the operators of private financial institutions to begin to recognise agriculture and agribusiness as viable ventures so that you can optimize your share of expected benefits in the sector.
You must begin to realign your short, medium and long-term strategies to take full advantage of what GIRSAL holds for you. The target of GIRSAL is to double private sector lending to the agricultural sector from the average 4 percent to 8 percent in 5 years or even better,” the governor said.
The central bank itself, he said, stands to benefit from anticipated increases in food production, as “lower domestic food prices and increased foreign exchange earnings will directly contribute to our price stability function.”