GIRSAL pushes banks to cut agric loan rates

The Ghana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL) is urging banks to slash interest rates on agricultural loans, stressing that its credit guarantees now offer sufficient protection against default risks.

With the Bank of Ghana’s recent approval for commercial banks to accept GIRSAL guarantees as collateral, the risk of lending to the agriculture sector has been significantly reduced, removing a key justification for the historically high cost of agribusiness credit.

Announcing the milestone at a Banking Roundtable on financing Ghana’s flagship 24-Hour Economy, GIRSAL highlighted that its guarantees are now effectively equivalent to traditional collateral.

“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 lenders or pay back the guaranteed portion,” a GIRSAL representative said.

This new policy direction forms part of the government’s broader agenda to de-risk agriculture, a sector long viewed as high-risk due to unpredictable weather, market volatility, and the capital-intensive nature of farming.

Historically, these risks have driven up interest rates on agric loans, often placing them well above the Ghana Reference Rate (GRR).

Lenders typically add a margin to the GRR that includes a default-risk component, making financing expensive for farmers and agribusinesses.

GIRSAL argues that, since its guarantee now shields banks from the threat of non-repayment, the default-risk premium embedded in lending margins should be reduced.

“We believe our guarantee can also be used as a tool to reduce interest rates. Interest computation is made up of the GRR plus the margin, and one key component of the margin is the default policy. If our guarantee protects you against defaults, we encourage banks to lower the margin and, consequently, the lending rate,” the institution noted.

Beyond risk-sharing, GIRSAL emphasised its technical assistance and de-risking facilities as added incentives for banks to scale up agric lending.

The organisation offers training for fund providers, such as the Ghana Infrastructure Investment Fund (GIIF) and Ghana EXIM Bank, on appraising agribusiness projects and preparing enterprises to meet lending standards.

Sector analysts say this policy could be a game-changer for Ghana’s agricultural economy, where farmers and processors often struggle to secure affordable credit despite agriculture’s pivotal role in GDP and employment.

Lower borrowing costs would help agribusinesses expand production, invest in modern equipment, and hire more workers, while positioning banks to capitalise on financing opportunities within the government’s 24-Hour Economy initiative.