Ghana Incentive-based Risk-sharing System for Agricultural Lending Project

Developing funding tools for rural producers in Ghana to improve economic resources of rural communities

Towards a Solution

The Ghana Incentive-based Risk-sharing System for Agricultural Lending (GIRSAL) is designed to provide an effective framework for the Bank of Ghana to collaborate with commercial banks to lend at competitive interest rates to players in the agricultural value chain. With access to cash and credit, local farmers may be able to build on existing activities, increasing overall productivity while diversifying crops and livestock, increasing overall resilience. the System is set to be undertaken while giving banks and financial institutions their necessary assurance through a risk-sharing system that minimizes potential setbacks.

The Alliance for a Green Revolution in Africa (AGRA)[1] and the Government of Ghana designed an agriculture finance mechanism that operates in better conditions, uniting public investments and private capital to promote agricultural activities. With the intervention of the African Development Bank (AfDB), the GIRSAL project was developed, connecting both small and large producers with sources of capital that enable the boosting of production. This represents the advancement of a project led by an African NGO, an African Government and an African bank, with significant impacts on the improvement of the entire Ghanaian value chain. The GIRSAL instrument has six major pillars: (a) risk-sharing; (b) digital finance; (c) insurance; (d) technical assistance; (e) bank incentive mechanisms; and (f) a bank rating scheme.

AGRA has already implemented a similar mechanism in Nigeria that has been very instrumental in the development of the agriculture sector in that country. As part of a South-South effort to exchange experiences and apply sustainable solutions to common challenges, this successful endeavour is now being applied in Ghana as well. With a focus on a set of specific value chains – horticulture, cereals, tree crops, poultry, roots and tubers, fisheries and livestock – the aim of the initiative is to use de-risking instruments and incentives/enablers to catalyse, through finance, producers, processors and marketers in agricultural activities. In its early stages of implementation, the outcomes, in specific terms, have not yet been shared with the public; what may be inferred, however, is that access to economic resources has facilitated the struggle of local communities against poor infrastructure and services.

The ownership and sustainability of the project are enhanced by the roles that various stakeholders played during the formulation and preparation of the initiative. The Bank of Ghana chaired a systematic review, consultation and design process that has since resulted in the formation of the company running the initiative. It is anticipated that within three to five years of launch, GIRSAL will be able to fund itself using a combination of its fee income and drawdowns from its investment portfolio. This is a Southern-based practice that takes lessons from African countries that are more advanced and sophisticated in agriculture, such as Kenya, and in the finance and credit realms, such as Nigeria, and, with the help of a large-scale banking institution that has a Southern-led agenda, such as AfDB, applies them in the mitigation of economic risks for smallholder producers in a specific reality.