The Bank of Ghana (BoG) in collaboration with the Ministry of Food and Agriculture (MoFA) and Alliance for a Green Revolution in Africa (AGRA) have been working tirelessly to design and implement Ghana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL).
The scheme was originally developed by AGRA and has already been piloted successfully in Kenya and Nigeria.
The Governor of BoG, Dr Abdul-Nashiru Issahaku disclosed this at the maiden SME Fair held in Accra yesterday.
The GIRSAL, according to him would have a number of strategic pillars based on risk sharing, technical assistance, insurance, bank incentive mechanism, bank rating, digital financing and non-financial services.
“The broad aim is to leverage substantial flows of investment funds in support of agriculture across the value chain. The modalities towards implementation are currently being designed within a framework of consultations with stakeholders such as AGRA, Ministry of Food and Agriculture (MoFA), Ministry of Finance (MoF), Ministry of Agriculture, FINGAP, APSP etc”.
It is expected that GIRSAL will have several benefits such as increased agricultural productivity and production thus reducing the food import bill and save foreign exchange, increased exports of agricultural products thus generating additional foreign exchange, reduction in poverty and ensuring food security, increased incomes of farmers and other value chain actors, Dr Issahuku stated.
Touching on the theme- SME Financing in Ghana — Enhancing Access and Reducing Costs’, he noted that SMEs continue to play a critical role in promoting economic growth and sustaining economies globally.
They stimulate domestic demand through job creation, innovation, and competition; thus, they are often a driving force behind any resilient national economy. Prioritizing SME development therefore, is critical for promoting inclusive economic growth, and that is why we continually urge banks to revise and develop new banking solutions and models to serve this market segment to engender greater financial inclusion.
On the specific issue about the cost of SME financing, there are two broad types of factors that often influence these. The first includes macroeconomic conditions such as rising inflation and depreciation of the cedi. The second include microeconomic factors such as high non-performing loans and risks associated with financing SMEs in general.
This Dr Issahaku said underscored the BoG’s commitment to stabilize the economy, which would have a direct effect on lowering the cost of financing.
“The Bank’s emphasis over the years has been to build an appropriate credit infrastructure to support credit delivery, which would in turn help lower the ratio of impaired loans and address the risks in lending to SMEs. These include, the establishment of the collateral registry, licensing of Credit Reference Bureaus and the establishment of Commercial Courts”, he told the participants at the fair.
Dr Issahaku further noted: “The Bank of Ghana has equally been involved in a number of direct initiatives for SMEs in collaboration with the Ministry of Finance. These include the provision of subsidized lending schemes for SMEs and the establishment of investment funds to be accessed by SMEs”.
On how to reduce the cost of financing, he revealed that the uniform base rate model that was earlier introduced as a guide to all banks in a bid to improve the framework within which they set their lending rates, was currently being reviewed.
“The revised framework should result in more transparency and uniformity in the way base rates of banks are quoted. We will also resume the monthly publication of the annual percentage rate (or APR) of banks, to provide more information to the borrowing public”.
As they work to restore macroeconomic stability with fiscal consolidation, government borrowing rates would continue to decline and this would help drive down the high lending rates among banks.
The Central Bank, on its part will continue to implement measures to promote healthy competition in the banking system, driven by appropriate business models that could address the financing needs of the banking public, especially SMEs, he maintained.
Going forward, the Bank of Ghana remains committed to promoting and scaling up real sector lending to boost growth. While focusing on ensuring stability of the economy, the Bank would continue to pursue policies that will contribute to growth by working with the banks to provide incentives and encourage lending to productive sectors of the economy, and most importantly for banks to lend at reasonable rates, especially to SMEs.
Dr Issahaku emphasized the important role SMEs play in promoting inclusive growth and providing both direct and indirect employment.
Given the dynamic business environment in which they operate therefore, it should be a matter of priority for them to respond creatively by facilitating new financing modalities or special windows, to complement the traditional financing options, he advised.