BoG extends banks’ lending limit to agric sector

THE Bank of Ghana has increased the limit in the maximum amount banks working with Ghana Incentive-based Risk Sharing System for Agricultural Lending Project (GIRSAL) can lend to players in the agricultural sector from 10 per cent to 15 per cent.

This will enable the banks to increase their loan books and exposure to the agricultural sector.

The Governor of the Bank of Ghana, Dr Ernest Addison, announced the single obligor limit at the 5th anniversary launch of GIRSAL in Accra last Tuesday. It was on the theme: “Cultivating Growth: Five years of empowering Ghana’s agriculture through innovative finance and technical support”. 

The move, he added, would incentivise banks to deepen their partnerships with GIRSAL's Agricultural Credit Risk Guarantee and increase lending to priority agricultural value chains in Ghana.

A single obligor limit is the maximum amount a bank can lend to one customer. At 25 per cent, it means the total amount of loans a bank can give to one customer should not exceed 25 per cent of the bank's total capital.

Agriculture financing

Dr Addison said the agriculture sector held a huge potential to boost the country’s foreign exchange reserves, adding that through import substitution strategy and export promotion strategy, the country could become a major food exporter. 

He added that agricultural financing in Ghana was evolving with a mix of traditional and innovative approaches aimed at overcoming the sector's inherent challenges. 

The future of agricultural finance, he said, would likely hinge on continued reforms, technological advancements and collaborative efforts between the government, private sector, and international partners characterised by technological innovation, focus on sustainability, evolving economic conditions, and changing social dynamics. 

In line with that, he urged stakeholders in the agricultural sector to stay adaptive by leveraging new technologies and financial instruments to navigate an increasingly 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,” he said. 

GIRSAL

Commencing its operation as a non-banking financial institution in 2019, GIRSAL’s core objective is to de-risk agribusiness financing by Ghanaian financial institutions, and thereby increase lending to the agricultural sector and help accelerate financing and interconnectedness of the agriculture sector to ensure increased capital inflows into critical value chains across the sector’s key components.

It has so far, facilitated over GH¢ 1.2 billion in agricultural loans through its credit guarantee scheme to benefit 137 agribusinesses and impacting over 67,000 farmers. 

The Board Chair, Dr Yaw Ansu, who disclosed this, explained that this had created nearly 3,000 jobs and generated over $25 million in export revenues for the country.

“Today, we celebrate the progress made during these five years, we reflect not only on GIRSAL’s accomplishments but also on the progress we have made together in advancing agricultural financing and enhancing agricultural lending support initiatives in Ghana,” he said. 

GIRSAL’s Agricultural Credit Risk Guarantee (CRG), which was granted a zero-risk weighting, was a green light by the BoG to be accepted as collateral for lending to agribusinesses.

In addition to this, financial institutions that have signed on with GIRSAL and are using its CRG are required to apply to the Bank of Ghana to use GIRSAL Credit Guarantees as collateral for the computation of the single obligor limit.

Banks

The Chief Executive Officer of GIRSAL, Kwasi Duah, said when GIRSAL started operations in 2019, it signed up only three banks in the first year.

However, as of September this year, his outfit had signed 35 banks, adding: “That tells you that the demand is there”. 

He disclosed that five banks incorporated GIRSAL’s workflow into their workflow, in a manner that when the banks received applications from agribusinesses, “they bring it for us to work on it together before they proceed”.

“The banks have accepted us as a reliable and trusted partner that can provide them the technical information to be able to release the loans,” he added. 

Sharing GIRSAL’s success story in the rubber value chain, the CEO said the firms his outfit had supported had earned export revenues in millions of dollars and created hundreds of jobs, and are supporting the jobs of other rubber farmers and rubber tappers.