Banks and other financial institutions to be trained on agricultural credit risk management

Banks and other financial institutions in the country will soon be trained with the requisite practical knowledge and skills needed to enable them increase financial access to agriculture and agribusiness organizations.

The program, spearheaded by 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, Second Deputy Governor of the Bank of Ghana, Elsie Addo Awadzi, who admitted the financial perception of agric being a high risk venture encouraged banks and other financial institutions to adopt strategic mechanisms to change the narrative given the enormous contribution of the agric sector to the country’s Gross Domestic Product (GDP).

Data available to the Bank of Ghana indicates that as of January 2019, the agric sector’s contribution to non-performing loans in the banking sector stood at 9.44 percent. 22 percent of loans to the agric sector also stood at non-performing. This is quite high. 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

To this end, the Deputy Governor also announced that the Central Bank has established an enterprise credit scheme aimed at supporting Small Medium and Enterprise (SMEs) particularly those in the agricultural value chain to assist them get funding from local banks.

According to her, an amount of about GHS 2 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. 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 lend to SMEs which will include agricultural businesses. We are working on modalities to ensure that this scheme is operationalized very soon.”

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

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.”

Challenges and solutions

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

On her part, a representative of the National Banking College (NBC), Ms. Abena Kessewaa Brown, expressed the College’s commitment to use 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 apply the concepts of appraisals and analysis in the context of agricultural lending.

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