20.07.2006 Business & Finance

Don't Deny Farmers Credit, Banks Told

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Mr Ernest Debrah, Minister for Food and Agriculture, yesterday deplored the negative attitude of financial institutions towards the financing of agriculture, saying it had placed the sector's development at the crossroads.

Speaking at the opening of a three-day forum of the African Rural and Agricultural Credit Association (AFRACA), Mr Debrah said while farmers were crying for funds to increase production, banks that should make available such credit were running away from the sector because of the relatively risky nature of the industry.

"The situation is untenable as the agriculture sector is the greatest employer in all the countries of the Continent and any lack of support for the sector has a direct bearing on the fight against poverty," he told participants at the opening session.

"We cannot allow the situation where about 60 per cent of our population employed in the sector are made poor because they lack the finance to enhance production and, therefore, unable to patronise the goods and services produced in the country leading to weak internal markets and stifling economic development in the process," Mr Debrah said.

Although the Minister admitted that financing agriculture was without doubt a financially risky and expensive venture with attendant high levels of default rates, he said that reason alone was not enough for the financial institutions to shy away from the sector.

According to him the major problem in financing agriculture was the inability to accurately manage the risks and costs. "Managing risk in agriculture does not involve avoiding risk, but choosing among alternatives to reduce the effects of the various types of risk," he said.

It also involved finding the best available combination of risks and returns and the evaluation of trade-offs between changes in risk and expected returns, among other things.

It is in this direction that the Government was implementing a rural Financial Services Project, jointly with the African Development Bank to improve the rural financial system in terms of outreach and sustainability.

Mr Debrah explained that the aim of the project was to strengthen the capacities of Rural Banks and their umbrella body, the ARB Apex Bank. He expressed the hope that the conference would come out with prescriptions to enhance the facilitation of financial services to the agricultural sector.

Mr Lionel Van Lare Dosoo, Deputy Governor of the Bank of Ghana, said although new financial institutions had emerged, substantial gaps still persisted in many rural financial markets, especially those relating to credit to the agriculture sector. He said agriculture could not be modernised without the support of a strong financial system.

"Agriculture requires access to working capital and seasonal loans along with medium-and-long term credit for on-farm investments," Mr Dosoo emphasised.

Mr Rasmane Ouedraogo, Secretary General of AFRACA, said the conference would enable the Association to take stock of activities and look at ways to reach small crop producers with financial assistance on a profitable basis and also secure views of donor partners on their agenda for speeding up the development of the sector.

Representatives of commercial banks, agricultural banks, micro-finance institutions and central banks from 27 member countries of AFRACA are attending the conference on the theme: "Enhancing the Role and Effect of Financial Service Providers in Agricultural Finance in Africa."

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