How rural banks are accelerating the growth of agriculture

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Farming in Ghana

Agriculture plays a pivotal role in the socio-economic development of Ghana as it contributes to ensuring food security, provides raw materials for local industries, generates foreign exchange and provides employment and income for the greater number of the population.

The share of agriculture to the country G.D.P for 2018 was 19.7%. (Source: 2020 Mid-year Fiscal Policy Review and Supplementary Estimate)

The contribution of agriculture to the G.D.P as mentioned above underscore the importance of the sector to Ghana’s economy.

According to the Bank of Ghana Bulletin for the first quarter of 2020, earnings from cocoa beans amounted to US$723.01 million. The figure shows the significant role that the agricultural sector plays in terms of foreign exchange earning.

The agricultural sector in Ghana is made up of four subsectors which are; the crop subsector, fishery, livestock, forestry, and logging. The crop subsector consists of food crop and cash crop.

The sector is faced with challenges such as post-harvest losses, lack of motorable roads leading to some farming areas, lack of mechanization, climate change and its effect on the weather pattern, the problem of accessing credit from banks among others.

In order to address the myriad problems that had beset the agricultural sector and accounted for its low performance over the years, the government launched the Planting for Food and Jobs (PFJ) programme in 2017.

The objectives of the programme are to ensure timely and adequate availability of selected food crops through improved productivity, provide job opportunities for the teeming unemployed youth and create a general awareness of the importance of agriculture.

The programme currently has 5 modules which are: – Food Crop Development, Planting for Export and Rural Development (PERD) Mechanization. Rearing for Food and Jobs (RFJ) and Greenhouse Capacity Development. (Source: Mid-year Review of the Budget Statement and Economic Policy of the Government of Ghana for the 2020 Financial year).

It is also worth mentioning that, the government has come out with other initiatives meant to improve the agricultural value chain.

Notable examples are; National Buffer Stock Company, Ghana Commodity Exchange and Ghana Incentive-Based Risk-Sharing System for Agricultural Lending (GIRSAL).

It is significant to note that the rural banking subsector of the financial sector has been making a significant contribution to the agricultural sector in Ghana, especially in rural areas.

The sector loan portfolio for the first quarter of 2020 stood at GH₵ 1,499.2 billion (Source: Bank of Ghana Bulletin for the first quarter of 2020). It is important to highlight that the agricultural sector had its fair share of the loan portfolio stated above.

It is also worth noting that some individual RCBs are making a significant contribution to the growth of the agricultural sector in diverse ways and this article will consider that.

  1. Access to flexible credit

It has been observed that access to credit/finance is one of the biggest challenges confronting farmers in the agricultural sector in Ghana. Why?

First, the majority of commercial banks do not have a branch network in rural communities and this denies smallholder farmers who constitute a large chunk of people in the agricultural sector the opportunity to access credit.

Second, smallholder farmers have difficulty accessing credit because they are unable to meet the rigid collateral requirement of commercial banks.

Third, most Banks and Specialized Deposit-Taking institutions perceived the agricultural sector to be risky when it comes to lending.

Amenfiman Rural Bank at Wassa Akropong in the Wassa Amenfi East District in the Western Region is doing extremely well in agricultural financing.

Currently, it remains the largest Rural Bank in Ghana by asset size. The Bank total assets as of August, 2020 stood at GH₵ 333 million. It must also be noted that Amenfiman Rural Bank is a market leader in the rural banking subsector in terms of deposit mobilization.

The Bank recorded a total deposit of GH₵ 259 million as of August, 2020

In 2019, the Bank disbursed farmers’ loan amounting to GH₵ 22,658,533 to 7,828 farmers in its catchment areas who are predominantly cocoa farmers.

Within the year 2020, the Bank disburse farmers’ loan over GH₵ 32 million to 10,368 farmers to enable them to clear their land and purchase farm inputs.

It must be noted that from 2017 up to date, the Bank total loan disbursement to 27,524 farmers in the agricultural sector stood at approximately GH₵ 82 million.

It must be emphasized that, through the farmers’ loan scheme, farmers in the Bank catchment areas have been able to increase cocoa yield and also improve their incomes.

According to the Head of Finance and Operations (Mr. Evans Aikins), the Bank farmers’ loan has impacted on farmers in a significant way in that they can access loan at a reasonable interest rate as opposed to relying on informal lenders who usually charge an exorbitant interest rate.

Mr. Aikins added: “farmers are able to pay their children school fees and also absorb financial shocks during the lean season”.

The Board and Management of Amenfiman Rural Bank led by Dr. Alexander Asmah strongly believe that access to institutional credit remains a critical factor for sustainable growth in the agriculture sector and therefore, have resolved to make funding easier and accessible to hardworking farmers, especially Cocoa Farmers in its catchment areas.

Fiaseman Rural Bank in the Western Region is one of the leading rural banks in Ghana. Over the years, the Bank has been performing exceedingly well leading to several prestigious awards.

The Bank is strongly committed to supporting and growing the agricultural sector. In this regard, it has been extending flexible credit to cocoa farmers in its catchment areas to assist them to purchase high-quality farm inputs and also maintain their farms in order to support government transformation agenda of agriculture modernization.

In 2019, the Bank supported 6,655 smallholder cocoa farmers with a loan portfolio of GH₵ 18 million.

The Bank also disbursed over GH₵ 27 million to farmers for the first quarter of 2020.

According to the General Manager (Mr. Kaedabi Donkoh), the Bank lending intervention has significantly increased the yield of cocoa farmers in its operating areas. Furthermore, most of the farmers have increased their incomes.

Adansi Rural Bank in the Ashanti Region is also one of the leading rural banks in Ghana.

The Bank has consistently been featured in Ghana club 100 ranking due to its outstanding performance. The Board and management of the Bank appreciate the fact that agriculture is the backbone of Ghana’s economy.

To that end, the Bank launched a new loan product called ‘COCOA AKUAFO YIEDI’ (farmers’ prosperity) in 2019.

The primary objective of this loan product is to empower smallholder cocoa farmers in the Bank catchment areas to boost cocoa yield. The total funds disbursed in 2019 stood at GH₵ 1,438 million.

According to the General Manager, Mr. Akwasi Osei Nkrumah, the new loan product has started to impact positively on farmers in terms of their yields and income.

Ahantaman Rural Bank in the Western Region cannot be ignored when it comes to Rural Banks which are accelerating the growth of agriculture.

The Bank is currently one of the top-performing rural banks in Ghana.

The Bank stated capital as of June 2020 stood at GH₵ 5,654,126 which is far higher than the regulated minimum capital requirement of GH₵1 million.

This is a demonstration that, the Bank is well-capitalized and resilient.

In the field of Agricultural Finance, the Bank has a special credit product termed ‘AKOAFO BOAFO’ (farmers’ helper) which support Cocoa, Oil Palm, and Rice farmers.

The Bank under this product ensured the provision of inputs such as fertilizers, agrochemicals and equipment to farmers.

Under the SOLIDARIDAD Project, the Bank financed the West Africa Oil Palm Project by supporting over one thousand (1,000) smallholder farmers to rehabilitate their farms by providing credit for farm maintenance and acquisition of farm inputs.

In the Cocoa sector, the Bank teamed up with COCOBOD and input suppliers such as RMG, Huge Ltd and YARA to provide spraying machines, fertilizers, insecticides and fungicides for farmers.

The Bank has also assisted a number of rubber farmers to expand their farms and acquire vehicles to cart their produce. It also provides financing to private rubber purchasing companies.

Kwahu Praso Rural Bank in the Eastern Region is one of the RCBs that continue to make progress in agricultural financing.

The Management team is under the leadership of the Supervising Manager, Mrs. Lucy Opoku-Arthur, who is an astute and result oriented Banker.

The Bank disbursed loans amounting to GH₵ 2.5 million to farmers in the year 2019. This year, it was increased to GH₵ 4 million.

According to Mrs. Lucy Opoku-Arthur, “the Bank recognized the fact that agriculture is the backbone of the rural economy and the country at large and hence the need to support the sector”. She added that “the flexible farmers’ loan of the Bank has transformed the fortunes of farmers”.

It is important to mention that the Bank farmers’ loan recovery rate for last year was over 90%. This implies that robust credit administration practices can help to mitigate risk in agricultural financing.

  1. Capacity building programme

It has been observed that access to finance alone is insufficient for promoting agriculture growth and development.

Farmers need adequate and accurate knowledge of agriculture best practices in order to improve their yields. They also need financial literacy training so as to manage their funds prudently.

It is interesting to note that some RCBs that engage in agricultural finance have been supporting farmers to be equipped with agricultural best practices such as how to apply insecticides, erosion control, among others.

For example, Fiaseman Rural Bank has been providing education to farmers on agricultural best practices and prudent use of funds.

According to the General Manager of the Bank, the education component of the farmers’ loan product has resulted in an improved yield of cocoa and loan repayment.

Adansi Rural Bank is currently using group lending methodology for its cocoa farmers’ loan. Through this method, farmers are educated on how to use funds prudently.

Further, farmers are educated to observe best agriculture practices to increase productivity.

Conclusion

Rural Banks should accelerate their efforts, to de-risk agricultural financing in order to support farmers in their catchment areas.

The government should also give the needed attention to the RCB rural banking sector as it has the potential to support rural economic growth and development.

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