By G.D. Zaney


The statistics indicate that even though, on average, the agricultural sector accounts for about 22 per cent of Gross Domestic Product (GDP), the sector receives an average of only 4.0 per cent of bank lending, due to the perception that lending risk is too high to motivate financing by the private financial sector.


The realization has, however, dawned that the successful transformation of agriculture and the promotion of agribusiness in Ghana would require increased financing to the sector. In other words, expansion in agricultural production can only become possible with the availability of more financing— and using the value chain approach to financing agriculture is regarded as an important innovation.


The Bank of Ghana (BoG), with technical guidance and support from the Ministry of Food and Agriculture (MOFA) and the Alliance for a Green Revolution in Africa (AGRA), has, therefore, initiated a vehicle to leverage lending for agriculture and agribusiness through a risk-sharing scheme.


The initiative, an innovative model of financing dubbed: “Ghana Incentive-Based Risk-Sharing System for Agricultural Lending” (GIRSAL) was designed by AGRA, and has been successfully implemented by the Central Bank of Nigeria.


Under the scheme, BoG will facilitate the process of encouraging private financial sector financing of the full agricultural value chain by stimulating the desire of banks to finance agriculture and agribusiness in Ghana.


The GIRSAL model has six pillars that, together, seek to reduce both the potential and real risks associated with lending to agriculture and agribusiness.


These pillars are the Risk-sharing Facility, Technical Assistance Facility, Agri-business insurance, Bank Rating Scheme, Bank Incentive Mechanism and Digital Finance.


Under the Risk-sharing Facility, appropriate risk-sharing instruments will be developed to reduce the lending risk of banks and to leverage their balance sheets into strategically selected agriculture. BoG is providing one hundred million cedis as seed capital under the facility.


The second pillar, the Technical Assistance Facility, involves strengthening the capacity of commercial banks and other financial intermediaries in the area of risk assessment and pricing in the agriculture value chain, and the development of new platforms for loan recovery to financially-excluded agricultural business communities, as well as the provision of technical assistance to farmer groups and agribusinesses.


Pillar three of the GIRSAL model is the Agribusiness Insurance Facility, whereby appropriate insurance products for agriculture and agribusiness will be developed and deployed as a means of lowering the risks faced by smallholder farmers and agriculture entrepreneurs.


The fourth pillar of the GIRSAL model is the Bank Rating Scheme. The scheme will rate banks in terms of volume and effectiveness of lending delivery to the actors in the agriculture value chain, with the goal of creating additional incentives for banks that are achieving impact in agricultural lending.


The next pillar of the model is the Bank Incentive Mechanism under which appropriate incentives will be developed to reward banks that excel in the GIRSAL agriculture rating scheme.


The last pillar—Digital Finance— is designed to scale-up low-cost delivery of financial services, particularly in the rural areas and other financially-excluded areas of the country, through the development and adoption of innovative digital technology such as mobile phone banking and other digital service platforms to facilitate quicker and cheaper credit delivery services.


Among the expected benefits of the GIRSAL initiative are increased foreign exchange earnings through export and import substitution, food security, increased employment to reduce inequality and poverty, increased income for farmers and a wider tax base, and micro-economic stability.


It is expected that GIRSAL will facilitate enhanced agricultural productivity and production for export, reduce the food import bill, as a result,  through strategic import substitution and guarantee substantial savings of foreign exchange.


Again, increased domestic food production, resulting from enhanced financing of agriculture, will, no doubt, help eliminate malnutrition, empower the growing young labour force and, ultimately, increase life expectancy.


Furthermore, expansion in agriculture production means increased employment opportunities which could help reduce, if not reverse, rural-urban migration, leading to poverty reduction. In other words, a modernized agricultural system, with well-planned value chains, will create jobs, increase national income and widen the tax net.


One other most important benefit of the GIRSAL initiative or scheme is that it will ensure macro-economic stability. This is because food and beverage prices account for more than 43 per cent of the items in the Consumer Price Index (CPI) and are, therefore, critical determinants of inflation rates. On the other hand, increased earnings from exports will boost the local currency to guarantee macro-economic stability.


The genesis of GIRSAL can be traced to a workshop organized by BoG in April 2015 to discuss strategies to reduce pressure on Ghana’s foreign reserves by promoting import substitution and the exports of non-traditional products.


One of the key issues identified at the workshop as requiring urgent attention was the need to address access to finance by agribusiness and value chain actors within the agricultural economy, and, through innovation, reduce the cost of financing by commercial banks in the agricultural sector. 


Consequently, BoG and MoFA decided to meet and explore ways of addressing that need, resulting in the GIRSAL initiative.


Meanwhile, it is expected that the design of the project will be completed by January 2017, GIRSAL  will become functional by the end of the first quarter of 2017 as a company limited by liability —GIRSAL Plc Ltd., while project implementation will begin by the second quarter of 2017.


It is important to note that BoG owns the project, finances its preparation, designs, implements and houses the GIRSAL Secretariat as well as provides the start-up capital, organizes and leads all stakeholders until a Limited Liability Company is established to implement the six pillars of the model.


It is equally important to recognize the essential role of stakeholders— banks, farmers associations, agribusinesses, insurance and telecommunication companies, development partners and private investors — on which the successful implementation of the project hinges.


It is for this reason that Dr Kwesi Botchwey, Chairman of the National Development Planning Commission (NDPC), at the launch of GIRSAL on October 13, 2016, underscored the importance of collaboration  between the technical team and the all stakeholders, in order to ensure that the initiative reflected their concerns and addressed the issues militating against access to finance by the agribusiness sector as well as in the assessment and management of risks in the entire value chain of agriculture.


Equally relevant is the call by BoG Governor, Dr Abdul-Nashiru Issahaku, on operators of private financial institutions to begin to recognize agriculture and agribusiness as viable ventures, and to realign their short, medium and long-term strategies to take full advantage of GIRSAL, and optimize their share of expected benefits in the sector.


The academia, according to Dr Issahaku, cannot stand aloof if GIRSAL is to succeed and is, therefore, required to support GIRSAL through research and teaching towards developing innovative methods in agriculture and agribusiness, including improved varieties of seeds. 


Furthermore, while Ghana’s Development Partners are required to provide both technical and financial support to assist GIRSAL to achieve its set objectives, government will have to create the necessary infrastructure such as feeder roads and irrigation schemes as well as promote improved seeds to support agriculture and agribusiness in the country.


The writer is an officer of the Information Services Department.

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