Gov’t challenged to regulate agric financing

Professor of Finance and Dean of the University of Ghana Business School, Joshua Abor, has challenged government to take a serious look at the regulatory and legal framework for agricultural financing in the country.

Government, he said, can create an enabling environment for agriculture financing by improving the efficiency of the judiciary and the courts, and by consolidating land and property rights, and investing in infrastructure such as transport, telecommunications, electricity and water.

Speaking under the topic: ‘Improving Agricultural Financing and Insurance,’ at the 68th Annual New Year School, Prof. Abor made a strong case for an integrated approach to financing agriculture, as against the piecemeal approach that pertains.

Such an approach, he said, must encompass the agriculture value chain, non-farm enterprise and the household. “This integrated approach is necessitated by the fungible nature of money. It would not be enough to make funding available to farmers only for production purposes.”

Consumption needs of farmers, he said, are linked to their production needs as well as their nonfarm activities.

“If farmers know that they can only get funding for farming and not for their health, educational and other needs, they will still go for loans for farming purposes, but divert them to meet their most pressing and survival needs. Thus, a holistic approach to funding agriculture is the way to go.

Financial inclusion and financial innovation are critical channels by which financial products and services can be brought to the door steps of the rural population. Mobile banking, mobile payments and branchless banking services should be pursued by financial institutions and financial sector actors in this regard.”

Prof. Abor mentioned poor extension services, poor market accessibility, inadequate infrastructure, low productivity and low technology uptake, as challenges that are together stifling the growth of the agriculture the sector.

Available data from the Ghana Statistical Service (GSS), indicate that agriculture remains the leading employer, employing 44.7% of the workforce compared to 40.9% for the services sector and 14.4% for industry.

The sector’s contribution to GDP declined from 21.5% in 2014 to 20.2% in 2015. However, it inched up to 24.8 in third quarter of 2016.

Again, growth in the agricultural sector shrunk from 4.6% in 2014 to 2.5% in 2015. Prof. Abor observed that the sector, though beset by a lot of risks, has a lot of financing opportunities that make business sense.

Leveraging these opportunities, he said, will take a collaborative effort between government, financial institutions, development finance institutions and actors in the agriculture value chain.

“There is the need for capacity building programmes to strengthen the capacities of agricultural financial institutions and imbue farmers and agric entrepreneurs with the requisite knowledge to make the right financing decisions,” he said.

Agric Insurance

General Manager of the Ghana Agricultural Insurance Pool (GAIP), Alhaji Ali Muhammad Kato, said: “The future is bright for agricultural insurance; what we need now is for farmers to embrace it. That is why we are working towards that, because we have financial institutions who have expressed interest to partner with us and whatever they lend to farmers would have an insurance component, so that in the bad years the farmers would be comfortable and the financial institutions would be comfortable.” 

He indicated that since 2011, smallholder farmers in the northern parts of the country have been introduced to the drought index insurance scheme, a weather-related insurance product of GAIP.

He added that GAIP, which provides multiple crop insurance policies for large-scale farmers and poultry farmers, is also working to pilot a cattle insurance policy for smallholder farmers.

Dr. Betty Annan, the Country Manager of the Agribusiness Systems International (ASI), speaking under the topic, “Digital Finance: A promising trend in Financing Agricultural Value Chain,” explained how mobile finance is being used to solve the challenge of financial exclusion among smallholder rural farmers.

She said her company, in collaboration with Tigo Cash, is rolling out a “small bio-money” platform, where farmers would supply their produce to agribusinesses and get paid via mobile money.

She added that two other innovative projects: Rice Mobile Finance project (RiMFin), and another for oil palm producers, were ongoing, where payments of about GH¢4million have already been made to farmers as of January 18, through convenient and secure electronic payment platforms.