With the recent evolving economic landscapes and changing environmental conditions, the future of agricultural financing is set to be shaped by a blend of technological advancements, Governor of the Bank of Ghana (BoG) Dr Ernest Addison has said.
Dr Addison highlighted some key trends and factors that would influence agricultural financing in the coming years.
These include Technological Innovations.
Digital Platforms and Fintech Companies are revolutionizing business financing by providing more accessible and flexible funding options, he explained.
“Therefore, digital platforms could be leveraged to connect farmers with investors, offer microloans, and streamline the application process. Advances in data analytics and artificial intelligence would also help lenders assess creditworthiness more accurately by analysing data from various sources—such as credit reference bureaux, weather patterns, and historical yields—AI can be deployed to provide precise risk assessments and tailor financing solutions to individual needs. As precision agriculture technologies become more widespread, they could also influence financing by demonstrating the potential for increased productivity and lower risks. Farmers who adopt these technologies might have better access to capital due to their ability to produce more reliable returns,” he said.
On the Environmental and Climate Considerations, Dr Addison stated that with climate change posing significant risks to agriculture, there is growing interest in financing projects that enhance climate resilience. This includes funding for sustainable practices, such as agroforestry and water-saving technologies. The rise of green bonds and sustainability-focused investments means that there will be more opportunities for financing projects with positive environmental impacts.
Investors are increasingly looking to support agriculture that aligns with sustainable and climate-friendly practices.
Regarding economic and Market Dynamics, he said the development of advanced risk management tools, such as weather derivatives and crop insurance products, will become more integral to agricultural financing. These tools can help farmers manage volatility in weather and commodity prices, making them more attractive to lenders. Fluctuations in commodity prices can affect agricultural financing. Lenders may need to develop more sophisticated models to account for price volatility and its impact on farmers’ ability to repay loans. Traditional financing sources, such as banks, are becoming more competitive with nontraditional sources. Crowdfunding, peer-to-peer lending, and venture capital are gaining traction, providing diverse options for farmers seeking capital.
On Globalization and Market Integration, he stated that tThe integration of global supply chains and trade agreements will also influence agricultural financing. Access to international markets can provide new opportunities for funding but also introduces exposure to global market risks. International investors may increasingly seek opportunities in agricultural sectors in developing countries which could lead to increased capital flows; however, this requires careful management of cross-border financial risks and regulations.
Regulatory and Policy Changes – Government policies and support programmes will have to continue to play a crucial role in agricultural financing. Subsidies, grants, and low-interest loans can provide significant support, particularly for farmers. Changes in regulatory frameworks, particularly those related to financial inclusion, environmental standards and sustainability, could also impact financing. Lenders and investors will need to stay informed about regulations affecting agricultural practices and financing.
In this regard, Dr Addisons said that the Bank of Ghana in 2021 granted dispensation for the Credit Risk Guarantee (CRG) product of GIRSAL to be given a zero percent (0%) risk weighted for CAR computation purposes. This means that credit exposures of the Partnering Financial Institutions (PFIs) secured by GIRSAL’s guarantee may receive a lower risk weighting in the computation of CAR, leading to a growth in lending to the agriculture and agribusinesses sectors. I am informed that banks have taken advantage of this initiative to advance credit to the agricultural sector.
In addition, the Credit Risk Guarantee of GIRSAL has been recognised as acceptable collateral for computation of Single Obligor Limit (SOL) under Section 62(9) of Act 930, in December 2022. This means that Partnering Financial Institutions (PFIs) can use the Credit Risk Guarantee of GIRSAL as eligible collateral to secure loans, making these financial exposures to the agricultural sector secured. In this regard, the Single Obligor Limit of the Partnering Financial Institutions will be extended to 25% instead of 10%. This has further allowed the PFIs to expands their loan books on the back of lending to the agricultural sector.
