Ghana’s frustrated farmers face lending crisis

Mistrust towards smallholder farmers runs deep among Ghana’s banks. What can be done to help the country's farmers grow their way out of poverty?



Ghanaian farmer Emmanuel Darkey, who runs a sweet-potato production and processing business, is increasingly frustrated with the difficulty of persuading the banks to stump up finance. Over the years, he says, he has faced many “bitter experiences” in trying to extract funding from lenders for his enterprise.

“The banks are not helping. I sent applications to a few banks and the process can take three years in addition to the documents they will be asking for. It is too much,” he says.

“They prefer funding someone who brings toothpicks from China than to fund someone here to produce because they know their money is intact.”

An industry in decline

Agriculture remains an important but declining sector of the Ghanaian economy. A 2019 estimate by the World Bank put its contribution to the labour force at 30%, down from 51% in 2009.

Its contribution to GDP is similarly declining. An Oxford Business Group report which examined the sector in 2020 said that over the last decade, the sector’s contribution to national growth more than halved. In 2009, it amounted to 32% of nominal GDP but went down to 15% as of the second quarter of 2019. 

The sector has great potential for growth, given Ghana’s growing population for domestic consumption and the establishment of the African Continental Free Trade Area for exports, experts say, but limited access to finance to buy modern equipment, chemicals and seedlings have all held back sector growth.

That is particularly taxing for poor smallholder farmers, who are unable to get finance for much needed inputs. Those who go to the banks for funding, like Emmanuel Darkey, have found their applications rejected again and again.

Lack of trust

Fundamentally, banks don’t trust local farmers, according to a 2021 research paper by Evans Teye, a development specialist with Solidaridad, an international network that campaigns to create fair and sustainable supply chains, and Philip Quarshie, a PhD candidate in Geography at the University of Guelph, Ontario, Canada. 

“The study noted that issues of mistrust for smallholder farmers by financial institutions act as barriers to facilitating their access to loans and credits,” says the summary. 

“Banks and financial institutions relay their mistrust through actions such as requesting outrageous collateral, guarantors, a high sum of savings capital, and a high-interest rate for agriculture loans, delays, and bureaucratic processes in accessing loans.” 

The study says that an enabling policy environment and frameworks with a supportive rural infrastructure such as warehouse receipt systems can significantly increase farmers’ access to credit to invest in modern technology. 

Slow processing methods for the loans are deployed to dissuade the farmers, Teye and Quarshie say. In 2017, the Bank of Ghana set the interest rate at about 30%. Though it has been reduced to 14.5%, some of the banks, including village savings and loan groups, microfinance companies, or rural banks set their rates above the threshold – far too high for many. 

Experts say the mistrust of farmers stems from a failure by farmers to pay back loans when they suffer harvest failures or post-harvest losses in an unpredictable sector.

Ghana’s post-harvest losses in 2018 amounted to $141m and the figure could rise to more than $200m in 2022, according to the Africa Post-Harvest Losses Information System (APHLIS), a private sector initiative that gathers data on post-harvest losses in West Africa.

Granting farmers access to finance based on their ability to pay back is still possible even in the face of post-harvest loss danger, argue Teye and Quarshie. Indeed, one of the best ways to reduce post-harvest losses and introduce predictability into the agricultural sector is to invest in the sort of modern technologies and climate-smart farming methods that smallholders are demanding.

Struggling schemes

Some schemes have been established – with limited success – to support farmers. The Ghana Incentive-Based Risk Sharing Agricultural Lending (GIRSAL) project was set up in 2018 to de-risk agricultural financing and stimulate increased lending to the agricultural sector by financial institutions.

The ambitious non-bank financial institution was expected to provide credit risk guarantees to financial institutions lending to farmers and support them with technical assistance to improve their knowledge and understanding of the sector, strengthening their capacity to assess and structure loan applications.

To make it happen, the Bank of Ghana, the Ministry of Finance, Agricultural Development Bank (ADB), and Africa Development Bank partnered to pool resources and commit to making the system work. Since its launch, there has been progress, according to the managing director of the ADB, John Kofi Mensah, who says his own institution has returned to its primary role of providing credit to agribusinesses.

The organisation has also been savvy about promoting its work among the farming community, he adds. The initiative has actively used social media like Facebook and Twitter to alert the public to its activities. On its website, GIRSAL says that it has helped farmers in the horticulture, cereals, tree crops, roots and tubers, legumes, poultry, fisheries and livestock value chains.

But the fact that GIRSAL is in existence does not mean its activities and interventions are widespread, Philip Quarshie tells African Business

“Not many smallholders are aware of GIRSAL or how it operates and mistrust issues between banks and smallholders are still there,” he says.

Without more resources and a renewed publicity drive on behalf of GIRSAL – not to mention a total overhaul of banking practices – smallholder farmers are once again likely to return empty handed from their next visit to the bank.

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