Governor’s Remarks – GIRSAL’s 5th Anniversary Launch and Rubber Value Chain Conference
Source: bank_of_ghana
Date: 2024-09-17

GIRSAL’s 5th Anniversary Launch and Rubber Value Chain Conference Dr Ernest Addison Governor, Bank of Ghana Accra Marriott Hotel September 17, 2024 1 | P a g e The Hon. Minister of Finance – Dr Mohammed Amin Adam Hon. Minister for Food and Agriculture – Dr Bryan Acheampong The Chairman of Board of GIRSAL and Members of the Board The Chief Executive Officer – GIRSAL The CEO, Development Bank Ghana Members of the Press Distinguished Guests Ladies and Gentlemen 1. Good morning Distinguished Guests. Let me first extend my profound appreciation to the Board and Management of GIRSAL for the kind invitation to deliver brief remarks on GIRSAL’s impact and the future of agricultural financing in Ghana. 2. Five years ago, the Bank of Ghana conceptualised and operationalised the Ghana Incentive-Based Risk-Sharing System for Agricultural Lending Project (GIRSAL) as an innovative strategy to drive agribusiness development in the economy . Since then, GIRSAL has made giant strides in providing credit risk guarantees and related services to financial institutions to boost agricultural lending . Today, we have gathered here to celebrate the 5th Anniversary of GIRSAL under the theme: Cultivating Growth – Five Years of Empowering Ghana’s Agriculture through Innovative Finance and Technical Support. 2 | P a g e Importance of Agriculture in Ghana 3. Ladies and Gentlemen, a gricultural financing is a critical aspect of Ghana’s development strategy due to the important role agriculture plays in the economy, particularly, on employment and food security. From a macroeconomic perspective, agriculture contributes about 24 percent of GDP and employs an estimated 40 percent of the workforce. Developments within the agricultural sector is critical for the economy, given that the weight of the food items in the consumer basket which accounts for 43.7 percent , hence a major driver of headline inflation. It is also instructive to note that, on average, food import accounts for nearly 10 percent of total imports, which translates to about US$1.4 billion in import value. 4. Ladies and Gentlemen, the agriculture sector also holds a huge potential to help boost the country’s foreign exchange reserves. First, as an import substitution strategy , sufficient food production locally will reduce the food import bill to preserve hard - earned foreign exchange reserves. Second, through the export promotion strategy, Ghana could become a major food exporter which will improve the sector’s foreign exchange earning capacity. Clearly, promoti ng a resilient and thriving agricultural sector will be transformational with broader implications on the economy, including price stability. 3 | P a g e Impact of GIRSAL 5. Having recognised the inherent economic potential of a strong agricultural sector and value chain, the Bank of Ghana was part of the team that established the “Ghana Incentive-based Risk-sharing System for Agricultural Lending” (GIRSAL), as a holistic and integrated system of instruments to de-risk the agricultural sector and incentivize banks to lend to the sector to help accelerate growth. The primary objective of GIRSAL was to establish a credit guarantee scheme to leverage bank lending to agriculture as well as address the imbalance between the significant contribution of agriculture to GDP and the constrained security of bank credit to agriculture. 6. Since its inception, GIRSAL has made significant impact by leveraging various strategies and programmes to de -risk agricultural financing, stimulate d increased lending to the agricultural sector, and improved lending conditions around agricultural lending. And this is a good time for us to commend the Board, Management and Staff for successfully operationalizing GIRSAL. Let me briefly highlight a few of these achievements. 7. Over the past five years, GIRSAL has issued credit guarantees valued at over GH¢604.53 million to 17 financial institutions, covering up to 70 percent of credit default risks. Under the credit guarantee scheme, GIRSAL has channelled GH¢1.18 billion worth of loans, at relatively lower interest rates to about 137 agribusinesses located in 72 districts across 15 regions. 4 | P a g e 8. In its operations, GIRSAL recognized the untapped potential in the rubber sector and stepped in to facilitate the entry of indigenous processors. In doing so, GIRSAL provided essential financing incentives to mitigate perceived risks thereby inducing local participation and growth in the sector. Through this intervention, the rubber sector has created permanent employment, generating some GH¢3.5 million per year in income to rural households. GIRSAL also empowered 451 local smallholder rubber farmers and service providers, contributing a total of GH¢30 million per annum in incomes to 12,616 individuals. These interventions in the rubber sec tor generated US$8 million in export proceeds. 9. GIRSAL’s Technical and Advisory Services have also delivered training and capacity building programmes to mid -level staff, executives, and Board members of financial institutions. The direct technical support includes loan application assessments, loan facility restructuring and monitoring, strengthening of internal systems for agricultural lending, and the management of agricultural portfolios. These have been complemented by support from consultants and third-party organisations. GIRSAL has also extended business advisory services to develop and manage projects for its clients. The feedback on the Technical and Advisory Services has been positive and encouraging. This has shown that GIRSAL has made significant impact in demystifying agricultural finance by financial institutions. These achievements attest to the fact that 5 | P a g e GIRSAL holds a huge potential to transform agricultural financing, given the necessary support. Challenges in Agricultural Financing 10. Notwithstanding these achievements, the participants in the agricultural value chain continue to face challenges in accessing finance. First, interest rates on loan to actors in agricultural value chain continue to be prohibitive due to the high perception of risks, combined with collateral requirements that are almost impossible to meet. The sector is also beset with risks that are beyond the control of actors in the value chain requiring some form of insurance schemes which may be inaccessible in most cases. These risks manifest in the form of climate variability, which makes weather - dependent crop producers inc reasingly vulnerable, a s well as market risks, which reflect fluctuations in crop prices and market demand, affecting the ability of the actors to service their credit. On top of these risks, the low level of financial literacy affects the ability of actor s to manage finances effectively, impacting their ability to either access credit or repay loans. 11. Distinguished Guests, in the face of these challenges, significant innovation would be required to revolutionise the agricultural financing landscape to expand access beyond the traditional financing sources. Financing models would have to be modified, expanded, and adapted to meet the peculiar needs of the sector. This would mean fully activating and adapting the Digital Finance and Insurance Pillars of GIRSAL – 6 | P a g e which are two key strategic areas of focus underpinning the GIRSAL strategy. The digital finance services would leverage on mobile banking technologies and other digital platforms to enhance financial inclusion, while innovative insurance products would use mobile technologies to offer coverage for crop failure and adverse weather conditions. It would also mean expanding value chain financing by promoting the use of contract farming schemes such as the warehouse receipt systems and outgrower schemes. Future of Agricultural Financing 12. With the recent evolving economic landscapes and changing environmental conditions, the future of agricultural financing is set to be shaped by a blend of technological advancements. Some key trends and factors that would influence agricultural financing in the coming years include the following: a. Technological Innovations – Digital Platforms and Fintech Companies are revolutionizing business financing by providing more accessible and flexible funding options. Therefore, d igital platforms could be leveraged to connect farmers with investors, offer microloans, and streamline the application process. Advances in data analytics and artificial intelligence would also help lenders assess creditworthiness more accurately by analysing data from various sources—such as credit reference bureaux, weather patterns, and historical yields—AI can be deployed to provide precise risk assessments an d tailor 7 | P a g e financing solutions to individual needs. As precision agriculture technologies become more widespread, they could also influence financing by demonstrating the potential for increased productivity and lower risks. Farmers who adopt these technologies might have better access to capital due to their ability to produce more reliable returns. b. Environmental and Climate Considerations – With climate change posing significant risks to agriculture, there is growing interest in financing projects that enhance climate resilience. This includes funding for sustainable practices, such as agroforestry and water -saving technologies. The rise of green bonds and sustainability -focused investments means that there will be more opportunities for financing projects with positive environmental impacts. Investors are increasingly looking to support agriculture t hat aligns with sustainable and climate-friendly practices. c. Economic and Market Dynamics – The development of advanced risk management tools, such as weather derivatives and crop insurance products, will become more integral to agricultural financing. These tools can help farmers manage volatility in weather and commodity prices, making them more attractive to lenders. Fluctuations in commodit y prices can affect agricultural financing. Lenders may need to develop more sophisticated models to account for price volatility and its impact on farmers’ ability to repay loans. Traditional 8 | P a g e financing sources, such as banks, are becoming more competitive with non - traditional sources. Crowdfunding, peer -to-peer lending, and venture capital are gaining traction, providing diverse options for farmers seeking capital. d. Globalization and Market Integration – The integration of global supply chains and trade agreements will also influence agricultural financing. Access to international markets can provide new opportunities for funding but also introduces exposure to global market risks. International investors may increasingly seek opportunities in agricultural sectors in developi ng countries which c ould lead to increased capital flows ; however, this requires careful management of cross-border financial risks and regulations. e. Regulatory and Policy Changes – Government policies and support programmes will have to continue to play a crucial role in agricultural financing. Subsidies, grants, and low -interest loans can provide significant support, particularly for farmers. Changes in regulatory frameworks, particularly those related to financial inclusion, environmental standards and sustainability, could also impact financing. Lenders and investors will need to stay informed about regulations affecting agricultural practices and financing. In this regard, the Bank of Ghana in 2021 granted dispensation for the Credit Risk Guarantee (CRG) product of GIRSAL to be given a zero percent (0%) risk 9 | P a g e weighted for CAR computation purposes. This means that credit exposures of the Partnering Financial Institutions (PFIs) secured by GIRSAL’s guarantee may receive a lower risk weighting in the computation of CAR, leading to a growth in lending to the agriculture and agribusinesses sectors . I am informed that banks have taken advantage of this initiative to advance credit to the agricultural sector. In addition, the Credit Risk Guarantee of GIRSAL has been recognised as acceptable collateral for computation of Single Obligor Limit (SOL) under Section 62(9) of Act 930, in December 2022. This means that Partnering Financial Institutions (PFIs) can use t he Credit Risk Guarantee of GIRSAL as eligible collateral to secure loans, making these financial exposures to the agricultural sector secured. In this regard, the Single Obligor Limit of the Partnering Financial Institutions will be extended to 25% instead of 10%. This has further allowed the PFIs to expands their loan books on the back of lending to the agricultural sector Conclusion 13. Distinguished Guests, a gricultural financing in Ghana is evolving with a mix of traditional and innovative approaches aimed at overcoming the sector's inherent challenges. The future of agricultural finance will likely hinge on continued reforms, 10 | P a g e technological advancements and collaborative efforts between the government, private sector, and international partners. These will be characterised by technological innovation, focus on sustainability, evolving economic conditions, and changing social dynamics. Stakeholders in the agricultural sector will need to stay adaptive, leveraging new technologies and financial instruments to navigate an increasi ngly complex landscape. Balancing risk management with sustainable practices and tapping into diverse sources of capital will therefore be key to driving growth and resilience in Ghana’s agriculture sector. 14. As I conclude these remarks, I would like to extend my congratulations and that of Bank of Ghana to GIRSAL ahead of its 5 th Anniversary Celebration. As a founding shareholder, the Bank of Ghana pledges its strong support for GIRSAL’s activities in anticipation that GIRSAL would continue to drive the policy discourse on agricultural financing and develop innovative solutions to boost productivity and growth in the agricultural sector. The Bank is confident in the operations and long-term viability of GIRSAL, and we wish you great success as you work to become the catalyst for increased agricultural lending in Ghana. Thank you.