- Aims to reduce risk, NPLs
The Incentive-based Risk-sharing System for Agricultural Lending (GIRSAL) has set a target to guarantee GH¢260million worth of credit to players in the agricultural sector by financial institutions this year.
GIRSAL works by de-risking agricultural financing of financial institutions, and its Chief Operating Officer, Takyi Sraha, said the goal is to use the scheme to build up the banks’ confidence to give credit to players in the sector by providing risk cover for them. “For 2022, our target is GH¢260million of loans that we want to guarantee, and we want to increase this by 10 percent yearly,” he revealed.
“One of our targets is to double the level of lending to the agricultural sector in 10 years. The second target is to use credit guarantee to reduce lending rates – the interest margin – and the third is using it to reduce the non-performing loans portfolio within the sector,” Mr. Sraha told the B&FT in Accra.
Admittedly, he said, cost of credit is beyond the control of GIRSA;, but through the guarantee scheme, his outfit has successfully reduced interest rates from 35 percent to 20 percent for some of the loan applications brought before it by banks.
“We have no control over the cost of credit, it is the interest margin component that we are able to push with the banks because, if we are providing 50 percent of the risk and the risk is part of the calculations of the interest, then you should be able to reduce it.
“So, if the risk component is 5 percent of the interest – for example, with our guarantee – then you should be able to bring it down; and we have been able to reduce the risk component by 2 percent in some cases. So, interest on most of the loans we guarantee averages 20 percent – though this is still high,” he explained.
July this year will mark three years of GIRSAL’s operations, and over the past two and half years it has received loan applications from the financial institutions worth GH¢1.4 billion, out of which more than a third were approved for guarantees amounting to about GH¢400million and benefitted 81 agribusinesses.
On why only a fraction of the applications have been approved for guarantee, Mr. Sraha said themajority of applications failed to meet the technical feasibility and financial viability requirements – a problem he revealed his outfit is working with the financial institutions and relevant stakeholders to address.
GIRSAL covers up to 70 percent of the loan value, excluding interest, that its 19 partner financial institutions give to agribusinesses.
“It means that if we guarantee a loan of GH¢1million and at the time the loan was declared bad, the outstanding is GH¢500,000; in that case, the bank can make a claim and we will pay 70 percent of the GH¢500,000. Thereafter, the bank will take its time to pursue the client to recover the money, depending on what the client used as collateral, and then give us back our money,” Mr. Sraha added.