Governor’s Keynote Address at the Launch of GIRSAL
Source: bank_of_ghana
Date: 2016-10-13

KEYNOTE ADDRESS DELIVERED AT THE LAUNCH OF THE “GHANA INCENTIVE-BASED RISK-SHARING SYSTEM FOR AGRICULTURAL LENDING” (GIRSAL) BY DR ABDUL-NASHIRU ISSAHAKU GOVERNOR, BANK OF GHANA AT LA PALM ROYAL BEACH HOTEL His Excellency, the President of the Republic of Ghana, Mr. John Dramani Mahama; The Chairman, Dr. Kwesi Botchwey, Chairman of NDPC; Honorable Ministers; Captains of the Financial Sector & Industry; Captains of the Agricultural Value Chain; The Diplomatic Community; Distinguished Guests; Ladies and Gentlemen. 1. Permit me to take the opportunity to welcome His Excellency, The President of the Republic of Ghana, Mr. John Dramani Mahama, who has graciously taken time off his busy schedule to lend support to this program. 2. I also warmly welcome you all for taking time to join us here this morning. Your presence at this launch indicates the importance and high level of commitment you attach to this innovative effort at making agriculture and agribusiness an important vehicle for improving foreign exchange earnings in the country and for supporting domestic price stability. Mr. Chairman, Exactly two years and two months ago at this same Hall, the seed of finding innovative ways to shore up Ghana’s exports and foreign exchange resources through agriculture and agribusinesses was sown. The Bank of Ghana, in collaboration with the Ministry of Finance, Ministry of Food and Agriculture as well as the Ministry of Trade and Industry organized a “National Stakeholders’ Dialogue under the theme: “ Boosting Exports to Increase Ghana’s Foreign Exchange Resources.” The dialogue examined four main sub-themes, namely: (i) Increasing Food Production; (ii) Boosting Exports; (iii) The Role of the Financial Sector; and (iv) Issues of Land Acquisition. Mr. Chairman, 3. Among the various conclusions under the financial sector were two critical issues. The first was a recommendation to set up an Exim Bank. The second was a recommendation to the Bank of Ghana to support the agriculture value chain through innovation to reduce the cost of financing by commercial banks in the agricultural sector. 4. As I speak today, the Ministry of Finance, with the support of Bank of Ghana and other stakeholders, has set up an Exim Bank which has been endorsed by Parliament, with modalities under way to start operation soon. 5. Furthermore, the Bank of Ghana, in April 2015, with technical guidance and support from the Ministry of Food and Agriculture (MOFA) and the Alliance for a Green Revolution in Africa (AGRA) initiated a vehicle to leverage lending for Agriculture and agribusiness through a risk-sharing scheme we have named the “Ghana Incentive-Based Risk-Sharing System for Agricultural Lending” (GIRSAL). Our technical partner, AGRA, designed this innovative model of financing which has been successfully implemented by the Central Bank of Nigeria; and which other countries such as Kenya, Uganda and Liberia have begun to show interest. A technical team made up of officials from the Bank of Ghana, Ministry of Food and Agriculture and AGRA are working tirelessly to support the set-up of GIRSAL. The launch of GIRSAL is the reason we are here today. Mr. Chairman 6. My colleagues and I have on some few platforms this year partially mentioned what the Bank of Ghana wants to do to stimulate the desire of banks to finance agriculture and agribusiness in Ghana. Today’s platform offers us an opportunity to officially make it known to our various stakeholders assembled here and to seek your support to make this dream a reality. 7. Let me put things into context by stating some facts about Agriculture. The statistics we all know show that on average, Agricultural Sector accounts for about 22 Percent of GDP. However, the sector receives an average of 4.0 percent of bank lending. If we are to succeed in transforming agriculture and promoting agribusiness in Ghana then we must scale up financing to the sector. Yet, the perception of lending risk is too high to motivate this kind of financing by the private financial sector. This is why the central bank wants to facilitate the process of private financial sector financing of the full agricultural value chain. 8. Importantly, this strategy could be seen as a way of diversifying the economy away from over reliance on oil. Indeed, several prominent Ghanaians (including most of you here) have proposed on different platforms the need to avoid the oil resource curse through a conscious diversification strategy. Expanding agricultural production is one sure way of doing this, but it crucially depends on availability of more financing. It is in this regard that using the value chain approach to financing agriculture constitutes an important innovation especially in this modern era. 9. Of course, the Central Bank stands to benefit from anticipated increase in food production. Lower domestic food prices and increased foreign exchange earnings will directly contribute to our price stability function. 10. To the banks, there is a great opportunity out there for you to increase investments. Piloted agricultural projects by AGRA and other development partners indicate a leveraging factor of up to ten times the initial capital invested in Agriculture within 5 years. Thus, the perception that agriculture is risky and non profitable is not aligned to recent reality. Mr Chairman, My colleagues in the financial sector 11. Notwithstanding, I acknowledge the main concerns of you captains of the financial sector; we are aware of the difficulties in lending to Agriculture. And this is why the Bank of Ghana with technical support from MOFA and AGRA is adopting this value chain financing model to mitigate lending risks in the agricultural sector. 12. The model has six pillars that together seek to reduce both the potential and real risks associated with lending to agriculture and agribusiness. The pillars are: • Risk-Sharing Fund: Under this pillar, the Bank of Ghana pledges an initial amount of one hundred million cedis seed capital; • Technical Assistance Fund; • Insurance Facility for potential borrowers; • Bank Rating System; • Rewarding Systems for banks; and • Digital platform to facilitate quicker and cheaper credit delivery services. 13. We want you the operators of private financial institutions to begin to recognize agriculture and agribusiness as viable ventures so that you can optimize your share of expected benefits in the sector. You must begin to realign your short, medium & long term strategies to take full advantage of what GIRSAL holds for you. The target of GIRSAL is to double private sector lending to the agricultural sector from the average 4 percent to 8 percent in 5 years or even better. Mr. Chairman, 14. I wish to say that the project will initially focus on few selected value chain crops that have foreign exchange earning potentials and/or can support an import substitution strategy. 15. I also urge farmers and agribusinesses and all value chain actors who are stakeholders of the GIRSAL initiative to position yourselves to take advantage of what GIRSAL offers to you. You need to assure the banks that you can do business together to grow your portfolios. I urge you to embrace innovation, improve productivity and expand production. You must improve your creditworthiness by adopting formal and modern management strategies and by honouring all lending requirements under GIRSAL. This way, we can together achieve our collective objective through GIRSAL. 16. And to you, our friends in academia, your contributions through research and teaching towards developing innovative methods in agriculture and agribusiness, including improved varieties of seeds to support the activities of GIRSAL will be deeply appreciated. Mr. Chairman, 17. We very much recognize the role that our Development Partners play in our country’s development initiatives. It is my wish that our development partners will provide both technical and financial support to assist GIRSAL to achieve the set objectives. 18. Finally, we will continue to count on the Government 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. In particular, we applaud MOFA’s initiative to establish farmer service centres at strategic locations around the country. This among other such initiatives should enhance conditions for GIRSAL to flourish. We also intend to collaborate further with a private sector partner and the Ministry of Agriculture and other relevant stakeholders to develop a commodities exchange market that will complement the efforts of GIRSAL at the upper end of the agricultural value chain. The Way Forward Mr. Chairman, Ladies and Gentlemen, 19. As I conclude, may I stress that the Bank of Ghana and its collaborators will continue to build on the efforts made so far. The administrative and operational modalities of GIRSAL shall be completed soon and support deployed immediately after to qualified beneficiaries. 20. I shall crave the support of all of you - Banks, Farmers Associations, Agribusinesses, Development Partners, Private Investors and all stakeholders - in any meaningful way to push GIRSAL to its full benefits in terms of foreign exchange earnings and food security. Surely, we all stand to benefit, and it will be in our collective interest to support GIRSAL to succeed. I thank you all for your attention.