The Food and Agriculture Ministry (MoFA) is considering the prospect of recommending to the Cabinet, the need to introduce an agriculture finance law to pursue banks to invest in the sector.

There is currently a huge demand for agriculture credit in the country with a resultant lack of response from financial institutions due to the potential high default risks.

The sector minister, Dr. Owusu Afriyie Akoto, who was speaking to the B&FT at the launch of the agriculture stakeholder convening and advocacy platform by the Ghana Incentive-Based Risk-Sharing System for Agricultural Lending (GIRSAL), said, “lack of credit and response from commercial banks towards agribusiness finance remains bleak despite numerous appeals by the government”.

“Due to the lack of response to finance the sector by banks, I am preparing a memo for Cabinet to consider a legislation for mandatory agriculture credit by all banks,” he said, adding “if persuasion fails, then we have to legislate as a government”.

The minister maintains that without banks’ credit, agriculture sector growth will face challenges despite all the support government is offering.

Data from MoFA indicates that more than 90 percent of banks have defunct agriculture finance departments, making it difficult for sector players to access credit from these institutions.

Currently, GIRSAL provides financial institutions with guarantees on loans to agribusinesses in the country, but the scheme only has a seed capital of US$300 million compared to the US$2 billion in the case of Nigeria.

GIRSAL has also allocated some GH¢2 billion to disburse through 22 financial institutions for agriculture finance in the next five years.

But Dr. Akoto said it is still inadequate considering the potential available, as he called for deepened partnership by commercial banks to complement the efforts of GIRSAL and the government.

Current numbers of loan trajectory to the sector

Though the risk of lending to the agriculture sector, according to data from the Bank of Ghana (BoG), is drastically reducing, banks are still cautious about extending finance to farmers and agribusiness leaders.

The BoG says the NPLs rate in agriculture, forestry and fisheries sectors dropped from 8.8 percent in June 2020 to 5.4 percent in June 2021.

Despite the relative reduction in NPLs between 2020 and 2021, the Central Bank indicates that the agriculture sector still remains the most underserved sector as far as credit disbursement is concerned, as it received only 3.4 percent of credit as of June 2021 declining from 5.2 percent in June 2020.

Stakeholders have, however, said finance alone would not transform the sector, calling for the right policies, policy coherence and an enabling regulatory environment to make agribusinesses profitable.

It is expected that without the right policies, banks and private investors would continue to be reluctant to put their money in the sector.

Source: Business and Financial Times