Name: GHANA INCENTIVE-BASED RISK SHARING FOR AGRICULTURE LENDING
Status: Approved
Country: Ghana
Sector: Agriculture
Approval date: 26-Sep-2018
Task Manager: SULEIMAN Farida Akello, RDGW2
Total cost: 10000000 Currency: UAC
Source(s) of financing ADF: 10000000
Implementing Agency: BANK OF GHANA
Location: Country wide
Description
The GIRSAL facility will support management of downstream risks in agricultural finance by: i.Providing credit guarantees to reduce risks for Financial Intermediaries;ii.Using innovative financing instruments to align FVCs with AVCs.Examples of instruments that may be deployed include: warehousing receipt financing, lease financing, asset-based lending complementary weather-based and production insurance etc.;iii.Deploying technical assistance instruments for developing bankable agribusiness financing proposals;iv.Capacity development for agric desks in Financial Intermediaries so as to enable them to objectively assess and manage agribusiness risks;v.Creating enabling environment for leveraging excess liquidity into the Agriculture sector and;vi.Using ICT platforms and applications to reduce distribution costs for finance and increase Banks' outreach in rural areas;
Benefits
The GIRSAL would develop systems for objectively assessing risks along agricultural value chains. The facility's additionality would be demonstrated by increased private sector investment in Agribusiness that results from improved access to commercial financing for the sector. Key outputs/outcomes include: i.Use of new risk management instruments to manage risks along Agricultural Value Chains;ii.Defining co-financing opportunities between AfDB and other donors so as to maximize leveraging effect of AfDB resources;iii.Increased commercial lending to Agribusinesses as a result of deployment of instruments (i) and (ii);iv.Reduced transaction costs as a result of use and integrated IT platforms and virtual payment systems;v.Improved capacity of Financial Intermediaries to manage agriculture portfolios (i.e. improved credit assessment, appraisal, risk management and loan supervision);vi.Improved Financial Management capacity of AVC actors;vii.Transition from seasonal towards term financing.viii.Directing excess liquidity into Agricultural investments. LIRSAL credit guarantees are estimated to leverage up to 10 times of additional commercial lending into agriculture;ix.Increased the number of new agribusiness borrowers (% of whom are women/youth owned businesses);x.Reduced rate of Agribusiness loans at risk (Non-Performing Loans)
Rational
The proposed GIRSAL Project is aligned with both the country and the Bank's strategic priorities to strengthen Ghana's Balance of Trade position and to increase access to Agricultural financing respectively.Ghana's Medium-Term National Development Policy Framework (2014-2017) identifies agricultural finance as critical for enabling transformation within the sector. The current Food and Agriculture Sector Development Policy and the Financial Sector Strategic Plan both identify the need to facilitate the environment for development financing to support SMEs in agriculture and agribusiness.The GIRSAL is therefore integral to plugging the financing gaps that impede growth of the Agricultural Sector in Ghana.
