Financial Institutions in Ghana Require Guarantee Fund to Finance Farmers

Ghanaian Farmers on a Rice Farm

Financing is key to unlocking growth bottlenecks in Ghana’s agricultural sector. Financial institutions and agri-lenders have onerous responsibility ( and opportunity) to provide the much needed financing to help in the sector’s expansion.

Current approaches to unlocking smallholder farmer financing in Ghana is weak. Associated Government subsidies in the agricultural sector is unsustainable with political changes and change in policies of external institutional financiers.

The reluctance of most Ghanaian financial institutions to commit to agricultural value chain financing, particularly, smallholder farmer financing is sometimes attributed to potential overheads to be incurred. It can be very expensive to service loans and other financing facilities for rural smallholder farmers. Additionally, limited partnerships and derisking facilities in the industry could increase lending risks to rural farmers.

There is therefore the need for more collaborative approaches to get this huge smallholder farming financing gap addressed. Government of Ghana could fast-track the planned Guarantee Fund (GIRSAL) provision for commercial financial institutions. Additionally, banks and other agri-lenders should partner with financial technology service providers and agritechs with robust derisking technologies. Partnerships should not be about acquisitions but detailed risk and revenue-sharing arrangements.

Ghana’s agricultural sector is dominated by large swath of rural farming across the various agro ecological zones, thus the potential cost implication in farmer customer acquisition, loan servicing, and monitoring is very high.

Rural farmer making yam mounds. Image Credit: info@mfarmpay.com

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News Source: Agricinghana Media | Email: media@agricinghana.com