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March 20, 2008

Ghanaian banks wary of agricultural lending

Ghana's agricultural sector for the past one year has failed to elicit the support of financial institutions by way of credit.

The Monetary Policy Committee (MPC) report released on Monday showed that for the one year period to January this year, the agricultural sector's share in the GH¢3,336.9 million total credit to the private sector stood at 3.4 percent, a drop from the 4.4 percent share (GH¢182.8 . million) in December last year.

Economists have warned that government must take agriculture serious because of food inflation. Latest inflation numbers released by the Ghana Statistical Service showed that much of the rise in inflation has been the result of pass through effect of the rising food prices.

Available statistics show that the trend has persisted in the past six years as the sector's share in banks' total credit halved from 10.4 percent in 2003 to 5.4 percent in December 2006.

Sector players have begun raising serious concerns about the trend, asking for interventions from authorities to reverse it.

Just couple of weeks ago, pineapple farmers indicated their frustration in accessing credit by questioning the Millennium Development Authority's (MiDA) policy of allowing the financial institutions disbursing the Millennium Challenge Account (MCA) agricultural credit to charge market rates.

Even though the sector's credit challenges have been an age long phenomenon, the Ghana Trades Union Congress (TUC) in its comment on the 2008 budget submitted to the government, decried the fast dwindling pace of credit to the agricultural sector.

It is the reason why the TUC is vehemently opposing the proposed sale of the Agricultural Development Bank (ADB) to any private partner that may lead to the neglect of the agriculture focus of the bank currently has.

The TUC believes that even with the new minimum requirement directive from the Bank of Ghana, government, the 100 percent shareholder should ensure that ADB meets this obligation without any change in its traditional focus.

Banks shy away from lending to the agricultural sector because of the perception that the sector has a very high systemic risk. They therefore prefer to lend to the services and the commerce sectors that are perceived less risky.

Of the total credit in the one-year period to January 2008, the services sector accounted for the highest share at 32.1 percent, followed by commerce at 19.0 percent.

Construction received 10.6 percent while transport, storage and communication together took 5.4 percent.

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