Rural banking and agriculture financing in Ghana – FAGRO as a catalyst

Inadequate access to finance in agricultural development and agribusiness is undoubtedly one of the major challenges affecting agricultural innovation systems in Africa. In Ghana like many sub-Saharan countries, inadequate access to credit has remained a central concern to farmers and a key constraint to the modernization and diversification of their activities.

Though agriculture still remains the mainstay of the country’s economy, accounting for forty (40%) of (GDP) and sixty (60%) of the labour force employment and (57%) of the country’s foreign exchange earnings, many financial institutions still find it difficult to invest their resources in the sector because of the high risks involved.

Though agriculture is important in reducing poverty by safeguarding income, employment and food supply, the limitation of commercial banks’ participation in agricultural financing and the hard terms for obtaining individual loans such as high interest rates have penalized smallholders and small traders. Since the majority of these have little or no access to financial services, their productivity, income, investment and overall quality of life is limited.

To help address these problems, several institutional and non-institutional sources of rural credit have been made available in Ghana. In 1976, the Ghanaian government, through the Bank of Ghana, established Rural Banks to channel credit to productive rural ventures and promote rural development. This strategy was intended to improve the economic and social life of the rural poor. It is expected that, in the long term, credit will enable the poor to invest in agricultural and non-agricultural productive assets, as well as adopt new technologies and farming methods among others.

Currently, there are over 125 rural banks operating in the ten (10) regions of Ghana with over two million account holders. A mandatory allocation of rural banks’ loans have been developed by the Bank of Ghana to ensure that the bulk of the resources go into agriculture, the priority sector in rural bank lending. Loan repayment conditions are determined with reference to the borrower’s capacity to repay. A grace period is allowed between the loan approval date and the time the borrower is expected to generate sufficient income to repay the loan.

To prevent the diversion of funds for purposes other than those for which they were granted, the banks arrange for inputs to be made available in the form of raw materials, machinery, seeds, fertilizers and equipment. However studies have shown that majority of the people in rural occupations such as farming and fishing have no access to rural bank credit because of lack of securities.

This development hamstrings the achievement of the country’s Millennium Development Goal (MDG’s) one which seeks to end hunger and half poverty by 2015. It is also a distraction to the national goal of achieving a middle income status by 2015 as it is believed that this goal could only be achieved through a modernized, vibrant and competitive agricultural industry thereby making agriculture the engine of growth under the Growth and Poverty Reduction Strategy.

The role of FAGRO

The National Food and Agric Show (FAGRO) is the only Public-Private Partnership (PPP) in agriculture.  It focuses solely on the development and revolution of the agricultural sector to increase productivity, job creation and poverty reduction in line with the goals of Ghana’s agricultural policy. It will serve as a good platform for farmers, scientists, agri-businesses and financial institutions to converge to deliberate on how to bridge the financing gap as a major challenge in the country’s agriculture.

The theme for last year’s show focused on technology as the only avenue through which the agriculture sector could be sustained. This offered a great opportunity for rural banks whose priority is to empower the rural poor to invest in agriculture. FAGRO therefore sets the stage for rural banks to meet and showcase their micro finance products and services (in agriculture and allied agri-business such as poultry, fishing, Livestock etc) to a large number of smallholder farmers and groups which ordinarily would have been difficult. Microfinance products, such as savings accounts, insurance products, and loans, will help to ensure food security all year round as they provide a safety net to farmers living in poverty, by helping them make ends meet until they can earn income from their harvest.

Effective and strategized seminars on agricultural credit delivery and financing during the one-week show enabled rural banks to put across to prospective clients, mechanisms and structures available to all scale of operators in the agriculture sector, to enable them acquire critical equipment such as combine harvesters, tractors, power tillers, out-board motors and cold storage equipment to mechanize and modernize their work.

FAGRO 2010 set the stage for younger entrepreneurs, who are involved in horticulture, outsourcing, and private educational services to have access wide range of financial products. This was an opportunity to introduce the youth to agriculture, which is attractive and less expensive.

As a move to boost the country’s agricultural sector and attract foreign investments, FAGRO 2010 attracted over ten investors from China, Spain and Portugal through a partnership with FBX Global Exhibitions as well as some African countries. This served as a good opportunity for financial institutions to share in the knowledge of technological transfer and position themselves strategically, in order to improve upon their service delivery and also attract foreign investments to better the community in which they operates.

Finally, over 500 people took part in FAGRO 2010, either as exhibitors or visitors. The event therefore provided the opportunity for rural banks to also attract clients, both from the formal and informal sectors who are not into agricultural production. This will not only improve upon the target market of rural banks but also increase their clientele base both in and out of their communities they operate.

Though Ghana’s agricultural sector has recorded impressive performance over the last five to seven years, its sustainability has become a critical issue on the agenda of government. With limited access to new technologies and agricultural financing still being a major challenge impeding the progress of the sector, financial institutions particularly rural banks have a crucial role to play to ensure that they invest in smallholders who form the majority in the sector. Therefore the FOOD AND AGRIC SHOW (FAGRO) is the appropriate platform for such partnership since it links farmers and agric-businesses directly to financial institutions and vice versa.

By Alberta Nana Akyaa Akosa