The partnership between the Ghana Incentive-Based Risk Sharing for Agricultural Lending (GIRSAL) and Development Bank of Ghana (DBG) under the latter’s Emergency Economic Programme (DEEP) is set to provide a boost to the agriculture sector with the availability of GH¢300million for 2023.

According to the Chief Executive Officer of GIRSAL, Kwesi Korboe, GH¢500million has been made available for participating banks to lend to agric value chain actors at preferential rates to improve their work for the next five years. The funds will target four key value chains including rice, maize, soya bean and poultry.

“This year, we are targeting GH¢300million of loanable funds to participating banks for on-lending to their clients. The interest rate is far lower, and that is a way to encourage businesses,” the GIRSAL CEO said in an exclusive interview with the B&FT.

The move forms part of public-private partnership efforts geared toward medium-term development of the sector which employs over 50 percent of the active workforce, he added.

Funding woes

The sector however contributes only about 20 percent to the Gross Domestic Product (GDP), in part due to low direct funding – often at high-interest rates – and over-perceived associated risks; a phenomenon GIRSAL seeks to remedy.

Last year, data from the Bank of Ghana revealed that direct lending from universal banks to the sector stood at only 4 percent. This is expected to be exacerbated by the ongoing Domestic Debt Exchange Programme (DDEP), as it is anticipated to have a material impact on the profitability of banks and their ability to extend credit.

Already, official figures show that provisions across the industry also increased by 184 percent in December 2022 compared to a contraction of 4.7 percent at the end of 2021. This was attributed to the strong uptick in credit growth, as well as elevated credit risks and impairments on investments.

Furthermore, the central bank’s indicative policy rate and Ghana Reference Rate (GRR) currently stand at 28 percent and 33.25 percent respectively, with average commercial lending rates at around 35 percent.

Despite the marginal slowdown in rate of increase for prices, the recent utility tariff adjustments and fuel price hikes are expected to drive inflationary pressure – keeping the aforementioned rates high and compounding woes of the sector across the board, as there will be reduced access to competitively-priced funds.

Enabling environment

While some have called for more direct interventions by the state – for instance, with the recent announcement by the Ministry of Food & Agriculture that it is pursuing legislation that will mandate Financial Institutions to allocate a minimum 20 percent of their loan offerings to the agriculture industry – Mr. Korboe believes the biggest contribution the state can make to the sector is the provision of an enabling environment, and not to pursue such policies; which in his view are not realistic or practicable.

He emphasised the public sector’s need to listen to the private sector and converge in order to meet their requirements. He also stressed the importance of the Agric Ministry creating a conducive environment and taking the necessary measures to make the sector more competitive and attractive.

He stated: “For me, that is the way we are going to ensure banks are in a position to lend money to clients in agribusiness who want funds to expand their business”.

This comes as growth in the sector is projected at 2.6 percent in the year, and is expected to average 4 percent over the medium-term (2023-2026) following the marginal 0.7 percent growth expected for 2022.

The GIRSAL and DBG partnership is focused on three main objectives: including building the capacity of DBG in agriculture and agribusiness through training programmes; supporting DBG’s efforts to assess agribusiness project submissions from commercial banks; and providing participating financial institutions with a better understanding of the agricultural sector.

Source: Business and Financial Times