GIRSAL to Make Financing Affordable and Accessible to Farmers

Rufai Issifu

In the wake of global efforts to improve financing for agriculture, the Bank of Ghana in collaboration with the Ministry of Food and Agriculture, and the Alliance for Green Revolution in Africa – AGRA is designing the Ghana Incentive-based Risk Sharing System for Agricultural Lending (GIRSAL) programme. The goal of this instrument is to reduce the perceived risk of agriculture financing and to crowd in private finance to support smallholder farmers across the country. This was made known by officials of the Bank of Ghana during the CTA Blending4Ag Conference in Brussels, Belgium held on the 7-8 November 2016. The Conference brought stakeholders together to discuss the strategies that could be deployed to attract capital to the agricultural sector in developing countries.

The Deputy Governor of the Bank of Ghana, Mr. Millison Narh in addressing the panel on the need for guarantee schemes to support agriculture financing noted that public finance alone is inadequate in financing agriculture and that it is imperative for public finance to be leveraged to attract more private finance to support the sector. He observed that Ghana’s Central Bank finds it necessary to attract private finance to the agricultural sector for many reasons such as increased food production, improved smallholder livelihoods, food security, stable currency and economy, and enhanced regional trade. He recounted the many challenges agriculture in Africa is facing and called for more investment in the sector. For him, food security is like national security, which he added should be taken seriously. He again called for African countries to leverage private finance to support agriculture.

In shedding light on the GIRSAL instrument, Mr. Thomas T. Essel, Chief Manager at the Governors Department stated that food affordability and achieving a stable currency is at the heart of the central bank’s risk guarantee programme.  The GIRSAL instrument has six major pillars which are; risk sharing, digital finance, insurance, technical assistance, bank incentive mechanisms and a bank rating scheme. In all these, the Central bank may provide 75% risk guarantee to commercial banks which lend to smallholder farmers in Ghana. Also, the digital finance aspect is intended to serve farmers in rural communities where banking services are not available. Every farmer under the instrument is required to subscribe to agricultural insurance as a way to reduce investment risk and boost investor confidence.

The officials of the Bank of Ghana were confident that the Ghana Commodity Exchange (GCX) will supplement the GIRSAL initiative to make financing affordable and accessible to farmers. The GCX which is scheduled to commence operations in 2017 has the objective of creating a market platform for agricultural products as a way to improve agricultural value chain and to guarantee better prices for smallholder products.  The GCX’s warehousing system will guarantee financial assistance for smallholder farmers who ordinarily will sell their products at ridiculously low prices in the market. The GCX initiative is already a public-private financing arrangement which should be encouraged in all developing countries.

As a way to encourage stakeholder support for the financial instrument, the Bank of Ghana has effectively engaged all the relevant stakeholders especially commercial banks, rural banks and cooperative societies among others. Mr. Thomas T. Essel stated that the instrument will provide guarantees for farmers who cultivate crops with good value in the international market. In this regard, he noted, commercial banks have been given the opportunity to come out with the top six crops they will want to invest their monies in. The Deputy Governor of the Bank of Ghana, Mr. Millison Narh in his closing remarks was optimistic of the success of the instrument because of Ghana’s robust banking system and strong institutions.

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Copyright © 2016, CTA. Technical Centre for Rural and Agricultural Cooperation

CTA is a joint international institution of the African, Caribbean and Pacific (ACP) Group of States and the European Union (EU). CTA operates under the framework of the Cotonou Agreement and is funded by the EU.