Criticisms have started pouring in at the recently launched GH¢100 million guarantee fund the central bank and other stakeholders launched to attract banks into lending more to agriculture.
Known as the Ghana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL), the initiative is aimed at courting commercial banks into agriculture financing to address the challenges faced by agricultural value chain actors in accessing finance.
Ironically, criticism of the initiative has been ignited by proponents in the non-bank financial sector who believe that they are well-placed to execute such an incentivised initiative to a successful end than the commercial banks.
Mr. Ken Thompson, Managing Director of Dalex Finance, a non bank financial institution, is unmoved by the initiative’s power to alter banks stance towards agric financing because of their conservative posture.
He noted that banks in the country are reluctant to lend to the agric sector as their (banks) current lending modules will not allow them to be able to make proper assessment of the risks in agriculture.
“I can’t see how banks, whose main operations are focused in urban centres, will start a programme whereby they are lending to farmers in the field. I do not see how feasible it is and it doesn’t make sense to me,” he said.
Even though the central bank said the initiative will also be targeted at special deposit taking financial institutions, the main attention is to get banks to increase their lending to agric. This focus, is what Mr. Thompson, believes makes the whole scheme unsustainable.
“Banks in Ghana have been used to doing big transactions and Treasury Bills and the financial institutions that lend to agric and work with small businesses are the Non Bank Financial Institutions (NBFIs) and for me if this thing will be successful, more emphasis should be placed on how to get these NBFIs to participate in the programme,” he said.
Mr. Thompson added that for this project to work it needs to be driven by the private-sector and the focus should be on rural banks and savings and loans companies, since they are the ones closer to the people.
“Anything that is public sector led will fail and we shouldn’t pretend as though we do not have good examples. I do not think the Bank of Ghana should lead this and everyone should be on board,” he said.
Group CEO of Groupe Ideal, Dr. Nii Kotei Dzani, who has two non bank financial institutions, also believes that the central bank has been misguided in setting up a fund to lure banks to increase their lending to agriculture.
“I do not think the central bank needs to set up a fund to lure banks to agriculture. To me, this is unsustainable and also GH¢100million is a drop in the ocean for the agric sector,” he said.
He added that the NBFIs are closer to the people or informal sector more than the universal banks and it is rather unfortunate that the central bank supports universal banks to the detriment of non banks. “About 80percent of universal bank lending go to multinationals and large corporate clients. Non banks lend to the agric sector much more than universal banks do,” he said.
He rather urged the BoG to initiate a policy that will push banks to set aside a specific percentage of their loans to the agric sector in order to receive support and incentives from the central bank.
“Though it is a good initiative I will rather urge the central bank to do this by policy. The central bank can insist that no bank can come to it for support if its lending to agric is below a certain threshold. If you do not do it and you need support you won’t get it,” he said.
To him, this is more sustainable because banks do go to the central bank for support from time to time and will therefore force commercial banks to ensure that they lend to agric, a critical sector in the economy.
“After the GH¢100million is exhausted what happens next? I think a direct policy intervention will be better rather than motivation. We should not treat banks with such incentives.”
Despite contributing about 22 percent to GDP, lending to the agriculture sector averages about 4 percent.
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