Overview of the agriculture sector
Ghana cultivates a rich array of staples and cash crops and is the second largest producer of cocoa in the world. The top quantity of the commodity produced in 2012 was cassava and in terms of export value it was cocoa and cashew in the same year (FAO, 2012). The northern savannah zone is a host to the largest agriculture zone. A chunk of the nation’s supply of rice, millet, sorghum, yam, tomatoes, cattle, sheep, goat and cotton is grown in the region. In recent times, mango and ostrich commercial farms have also gained popularity in the northern zone (FAO, 2012). The coastal savannah is notable for rice, maize, cassava, vegetables, sugar cane, mangos and coconut, as well as livestock. Sweet potato and soybean crops are viable in this agro-ecological
Poverty alleviation through Islamic social finance 141 zone, under irrigation. The lower part of this zone is drained by River Volta. Together with other streams and lagoons, these water resources present opportunities for fish farming or aquaculture (FAO, 2012)
Financing modes and challenges
The banking sector consists of 23 banks with 1,225 branches spread across the 16 regions of the country as in June 2019 (BOG, 2019). Over the years formal financial institutions have shown a lack of interest in agriculture finance and several reasons account for this (IFPRI, 2010). One of the reasons is that many agricultural households are located in remote parts of the country and were often widely dispersed which financial institutions find challenging to provide cost-effective and affordable services. Second, a chunk of the agricultural population was subject to adversaries of the weather and climate risks, making it hard for providers of financial services to hedge risks. Third, service providers, mainly urban based, simply did not know enough about the business of agriculture to devise profitable financial products. Fourth, most small agricultural producers in developing countries had little education and little knowledge of how modern banking institutions work. As a result of these difficulties, some innovations have been adopted in recent times — namely, index-based insurance schemes, microfinance, community banking — using modern communication technology to enhance payment system and financial institutions try to bundle financial services with non-financial services as some of the innovations in agricultural financing (IFPRI, 2010).
The reasons mentioned above in part contribute to the perceived high risk of the agriculture sector which constrained the attractiveness of the sector to bankers. Semi-formal and informal sectors are the largest sources of financial access by the rural poor. It is estimated that about 74% of Ghanaians do not own formal bank account and over 60% money supply in Ghana is outside the commercial banking and other regulated financial product system (AfDB, 2013). The role of the semi-formal and informal sector — comprising rural banks, savings and loans companies, and semi-formal and informal financial systems in financing agriculture — becomes even more important in such an environment.
These developments have led the BoG to initiate a national stakeholders’ dialogue in 2014 to seek consensus on how to effectively finance agriculture under the topic “Boosting Ghana’s Foreign Exchange Resources”. The outcome saw the collaboration with the Ministry of Agriculture, with technical support from AGRA to adopt the “Ghana Incentive-based Risk Sharing System for Agricultural Lending” (G1RSAL) as a vehicle for leveraging financial institutions’ lending to agriculture in Ghana. GIRSAL aims to minimize lending risks in the full cycle of the agriculture value chain in Ghana and is envisioned to be based on six pillars: (1) risk sharing fund; (2) technical assistance programme, for banks and all involved in the agriculture value chain;
(3) integrated insurance policy, for farmers and agribusiness operators; (4) financial institutions’ rating system; (5) bank incentive/reward mechanism; (6) digital financing.
Commodity Exchange (GCE) was designed to address the significant losses in farm produce. This is seen to boost the BOG-initiated GIRSAL in addressing post-harvest losses. This is done by the ready market with professional market institutions that will strengthen the activities of value chain actors. GCE key goal is to link Ghanaian smallholder farmers to agricultural and financial markets in Ghana and across the West Africa region to ensure Ghana farmers secure competitive prices for their commodities, as well as supply good quality commodities which meet the nutritional needs of the Ghanaian people.