The Ghana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL) is pressuring banks to reduce interest rates on agricultural loans after the Bank of Ghana (BoG) approved its guarantees as acceptable collateral, potentially transforming financing for the country’s flagship 24-Hour Economy initiative.
GIRSAL’s credit guarantees now carry zero percent risk rating from BoG, providing banks with cash-backed protection against agricultural loan defaults up to 70 percent coverage. The policy change removes the most significant financial barrier facing Ghana’s agriculture sector, which has struggled with prohibitively high lending rates.
At Thursday’s Banking Roundtable on financing the 24-Hour Economy, GIRSAL officials argued that banks should eliminate default risk premiums from agricultural loan pricing since guarantees provide comprehensive indemnification against losses.
“We are saying our guarantee can be used as collateral to support funding to the agriculture sector. In the event of defaults, GIRSAL will be ready to indemnify you or pay back the outstanding portion,” the institution stated, emphasizing that 22 financial institutions including rural community banks have signed master agreements.
The intervention comes as government targets eight to 12 percent interest rates for small-medium enterprises, particularly agribusinesses expanding for export markets under the 24-Hour Economy program. Current agricultural lending rates often exceed 30 percent due to perceived sector risks.
GIRSAL’s justification centers on loan pricing methodology, where rates combine the Ghana Reference Rate (GRR) plus margins including default risk components. Since guarantees directly cushion lenders against defaults, the institution argues this risk premium should no longer influence agricultural loan calculations.
Presidential Advisor Augustus Goosie Tanoh warned at the banking roundtable that systemic financial challenges could undermine the economic transformation program, calling for comprehensive banking sector reforms to support round-the-clock production financing.
The timing proves critical as government seeks banking sector buy-in for the ambitious 24-Hour Economy requiring substantial credit expansion. The initiative demands sustainable financing mechanisms to enable continuous agricultural production and processing operations.
GIRSAL has guaranteed GH¢1.2 billion in agricultural loans since inception five years ago, successfully de-risking financing for a sector traditionally considered high-risk by financial institutions. The organization provides technical assistance and capacity building for fund providers including Ghana Infrastructure Investment Fund (GIIF) and Ghana EXIM Bank.
Beyond risk-sharing, GIRSAL offers training programs for financial institutions to appraise agribusiness projects while preparing borrowers to meet lending standards. This comprehensive approach aims to boost confidence in agricultural lending beyond guarantee mechanisms.
The BoG policy change positions Ghana’s agricultural sector for unprecedented financing access, potentially unlocking growth in cocoa, palm oil, and emerging crops targeted for 24-hour processing cycles. Reduced borrowing costs could enable farmers to invest in irrigation, mechanization, and value-added processing.
Banking sector response remains cautious despite government pressure for credit expansion. Industry executives acknowledge guarantee benefits but emphasize broader risk management considerations including commodity price volatility and climate change impacts.
The 24-Hour Economy initiative faces testing ground in banks’ risk appetite, with policymakers acknowledging heavy dependence on financial sector willingness to expand credit while managing exposure. Government plans to mobilize $4 billion through blended finance, pension funds, and diaspora capital.
GIRSAL’s guarantee scheme covers diverse agricultural value chains from primary production through processing and marketing. The organization’s zero percent risk rating from BoG provides unprecedented security for lenders venturing into agricultural financing.
Market analysts suggest successful rate reductions could trigger agricultural lending surge, supporting government objectives to transform Ghana into food processing hub operating continuous production cycles. The policy alignment between GIRSAL guarantees and 24-Hour Economy financing needs creates optimal conditions for sectoral transformation.
As banking executives evaluate GIRSAL’s rate reduction demands, the agricultural sector awaits concrete interest rate adjustments that could determine the 24-Hour Economy’s success in unlocking Ghana’s agricultural potential through accessible, affordable financing mechanisms.