Financial institutions to be trained on agricultural credit risk management

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Bank of Ghana building in Accra

Banks and other financial institutions in Ghana will soon be equipped with the practical knowledge and skills needed to enable them to increase financial access to agriculture and agribusiness organisations.

The Ghana Incentive-based Risk System for Agricultural Lending (GIRSAL), with assistance from the National Banking College, will also build the capacities of the staff of the beneficiary institutions to appropriately appraise agricultural projects that require funding to reduce the issue of non-performing loans.

Speaking at the launch in Accra, the Second Deputy Governor of the Bank of Ghana, Elsie Addo Awadzi, admitted that the financial perception of agriculture is a high-risk venture.

She therefore encouraged financial institutions to adopt strategic mechanisms to change the narrative, given the enormous contribution of the sector to the country’s gross domestic product (GDP).

Available data from the BoG indicate that as of January 2019, the agric sector’s contribution to non-performing loans in the banking sector stood at 9.44 per cent. Also, 22 per cent of loans to the agric sector stood at non-performing.

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“This feeds into the perception that lending to the sector is very risky. But we must not be deterred by these numbers. There is a lot that can be done to recover these loans because access to credit remains a critical factor for sustainable growth in the agric sector in Ghana,” she noted.

Enterprise credit scheme

Mrs Awadzi announced that the central bank has established an enterprise credit scheme aimed at supporting small and medium enterprises (SMEs), particularly those in the agricultural value chain, to assist them get funding from local banks.

According to her, an amount of about GHC2 billion has been projected to implement the initiative, which will be accumulated from a 2. 0 per cent of the primary reserve kept by the banks.

“The Bank of Ghana has decided to set up an enterprise credit scheme by March. This is a scheme that will be funded by a 2.0 percentage of the primary reserve that is kept by the banks.

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“At our current estimate, there is a pool of about GHS 2 billon that will be available to enable the banks to tap into, to allow the banks to lend to SMEs which will include agricultural businesses. We are working on modalities to ensure that this scheme is operationalised very soon,” she indicated.

Who to train

Participants for the training will be drawn from banks and other financial institutions, and they will be trained in commercial modules, including introduction to agriculture and agribusiness, agribusiness appraisal techniques and managing agribusiness loan portfolio.

The executive director for GIRSAL, Kwesi Korboe, underscored the need for financial firms to identify appraisal techniques and innovative financing models that will inure to the benefits of individuals within the agriculture and agric business value chain.

“The first thing for us is to find ways to build the capacities of banks to access agricultural projects more effectively to ensure that we reduce non-performing loans,” he said.

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Challenges and solutions

Some farmers at the programme raised concerns about the high-interest rate on loans from local banks, saying the situation adversely affects their operations.

A representative of the National Banking College, Abena Kessewaa Brown, expressed the college’s commitment to using education and training to leverage on risk mitigation tools in a bid to encourage financing to the agriculture sector.

Beneficiaries will enhance their lending activities through lectures, case studies, videos, graphics and field visits with seasoned experts in finance and agriculture to enable them to apply the concepts of appraisals and analysis in the context of agricultural lending.

The training, which is in three modules, will take three or four days, and it is expected to commence from a period between April and November 2020.

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