In Accra this Monday, the Ministry of Food and Agriculture brought together financial institutions to discuss agribusiness financing. President Akufo-Addo, who was the Special Guest, sat through to observe and listen to the panel discussion which revealed the challenges banks faced in lending to farmers.
The lawful remedy of relying on the courts for recovery has been cumbersome, with unpleasant delays, coupled with huge litigation costs. The banks say a commercial lawsuit could last over a year. During this period, the funds loaned are in limbo and unavailable for the next potential lendee.
We share in the concern of the financial institutions that lending to the next farmer would be extremely difficult if the earlier ones have not been paid, and even the courts cannot salvage the situation as early as possible.
More worrying is the fact that these financial institutions lose about 10 to 20 percent of the value of the loans in such situations by the time the money is paid back after the legal tussle.
Among others, the banks lamented over the difficulty in debt recovery from farmers, as some intentionally change their addresses and contact information after landing the loan. This situation has contributed to the low interest of the financial institutions to lend.
The Ghana Commercial Bank and the Agricultural Development Bank, for instance, allocate less than 30% of their portfolios to agribusiness.
This rather worrying but justifiable trend is on the back of the government’s flagship programme, Planting for Food and Jobs, which seeks to promote agribusiness.
President Akufo-Addo, who appeared sober, observed that some institutional arrangements could be made for the courts to expedite cases involving banks and their loan defaulters.
The President saw the poor loans given to farmers by banks as not forward-looking, considering that the nation aspires to grow in agriculture to feed itself and export, but farmers seldom acquire loans to work with.
The situation got the President more worried, considering that the percentage of loans to farmers in Ghana was the lowest in West Africa. Against that background, he encouraged the financial institutions, based on the statistics of how much of their portfolios go to farmers, to lend more to people in the agricultural business.
We agree with the President on the need for farmers to be supported financially to maximise their industry. However, we cannot close our eyes to the concerns raised by the banks and pretend they are immaterial.
We ask the same question as the banks: if lendees fail to pay back, how will the banks get money for the next person, be it a farmer or other business individual or group?
It is for this reason that we applaud the government for meeting with the financial institutions to have a heart-to-heart discussion about financing agribusiness and, more importantly, for the president’s statement that institutional arrangements could be made to expedite cases involving banks and their loan defaulters.
Meanwhile, we, at The Chronicle, anticipated the discussion to touch on the collateral system. Our reason is that interest on loans is high, with stiff requirements and payment terms in most cases.
In the context of the meeting last Monday, we expected that the government and the banks would discuss modalities to lower the collateral as a means for farmers to acquire loans to farm. We do not dispute the fact that some farmers may have the means to meet any collateral. But it is also the case that the majority of them cannot and tend to work within their little means without being able to expend, as envisioned by the government.
Subsequent to the Monday encounter, the Minister for Food and Agriculture said that the issues agreed on at the meeting would be made public. It is our hope that this issue is addressed, as well as the concerns of the banks, to have a win-win situation.
If the government can protect the financial institutions in debt recovery, they will lend more, and if the banks can be more flexible in terms of collateral and interest on loans to farmers, it will attract more people into the agribusiness.
