Towards establishment of a comprehensive credit system for rural development: a case study of Dangme West District

Rural credit programmes in Ghana have been perceived as an instrument of achieving economic growth, through providing capital for agricultural production. The biasness of the agriculture sector is due to the fact that Agriculture is the most predominant occupation in the rural areas of Ghana, and employs over 60 percent of the working population. The rural banks, the agricultural Development Bank and the Irrigation Development Authority, which are the main sources of institutional credit in the rural areas, are all skewed to finance the agriculture sector. However, most of the small-scale farmers undertake other activities to supplement the low incomes earned from agricultural activities. These include small-scale industries, trade, fishing and livestock keeping. Furthermore the capacity of other rural producers in these sectors cannot be under-estimated. The main problem of rural producers in Ghana is lack of capital which brings about low productivity, low incomes, low savings and consequently low capital. This problem is popularly known as the vicious circle of poverty. The study, therefore, set out to analyse the characteristics of the financial constraints facing rural producers in the Dangme West district, and the reaction of the financial institutions in solving their problems. It was revealed from the study that most of the rural producers are literates, and fall within the active labour force. However, they undertake their production activities on small-scales due to lack of capital. The characteristics of the existing sources of finance also revealed that t he financial institutions provide very little financial assistance to the rural produces, mainly for crop farming. Other producers engaged in email-scale industries, trading, fishing and livestock farming receive insignificant credit from these institutions. The major problem facing these financial institutions in financing the other producers is the fact that they are not grouped into co-operatives or associations. The financial institutions normally demand collateral for individual applicants. Most of these individual producers have no collateral and therefore do not qualify for credit from the financial institutions. Non-institutional financial sources such as money—lenders, friends, relatives and traders though provide credit to many rural producers, they provide insignificant amounts for both production and consumption. It was also revealed that the non-institutional sources charge high interest rates, which means that, after repayment of the loan most producers cannot have enough to meet their family living expenses and remain with sufficient money to re-invest in their production activities, It is against this background that recommendations have been offered to help the rural producers get out of their financial problems. These recommendations include, re-organisation of rural producers into co—operatives, associations and savings and credit societies; re—organisation of the rural banks, opening of an additional rural bank and one Agricultural Development Bank and integration of non—institutional and ins titutiona1sources of finance. It is hoped that these recommendations could help in solving the financial constraints by providing a comprehensive credit system for rural development. The comprehensiveness is two-fold. In terms of the coverage of all sectors and accessibility, majority are of the rural producers.

Source: KNUST