Governor of the Bank of Ghana (BoG), 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 on Tuesday September 17 during the Ghana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL) 5th Anniversary Launch and Rubber Value Chain Conference.
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.
