Food Security and Increased Income Are Addressed by Stimulating Agricultural Finance
Input credit and guaranteed buyers are two results of USAID-FinGAP’s Pay-for-Performance Incentive Grant Program
Thousands of smallholder farmers in the Northern Region of Ghana work hard cultivating their land. Yet every harvest the results are discouraging. Some farmers end up with small yields, barely enough to feed their own families, hindered by the lack of quality inputs and farming tools. Others are challenged at market to find paying customers to buy what little extra produce they have leftover. To meet those challenges, USAID Financing Ghanaian Agriculture Project (USAID-FinGAP) introduced select financial institutions to its pay-for-performance incentive grant program to attract financing into the maize, rice, and soy (MRS) value chains.
The pay-for-performance grant incentive program, launched in December 2014, has stimulated private investment into the agriculture sector, paving the way for increased production and inclusive economic growth. Under the first window of the grant program, which ended in April 2016, 14 participating financial institutions (PFIs) collectively pledged to invest $46.2 million into the MRS value chains. The PFIs exceeded their promised investments by $27.8 million.
“We work very hard on our farms, but our yields are not enough to feed our families throughout the year,” Zakaria Abdul-Karim, leader of a smallholder farmers group outside Tamale, the capital of the Northern Region, said. “Our yield will improve when we are able to access improved seeds, fertilizer, and tractor services.”
For Abdul-Karim’s group and 6,614 smallholder MRS farmers like them, one PFI grantee reached out with a much-needed solution. The Center for Agricultural and Rural Development Financial NGO (CARD-FNGO) implemented an input credit scheme in which smallholder farmers received input credit in the form of farm inputs and tractor services at the start of the 2015 farming season to support increased production. Payment for the input credit was done in-kind at harvest time with bags of produce. Smallholder farmers were now able to increase the number of farm lands cultivated and increase their production levels.
“The input credit and tractor services encouraged us to plough more land,” Abdul-Karim said. “We had good yields and were able to repay our loans. We also have enough grain to feed our families till the next season.”
Another PFI grantee was enticed by the program to offer financing to a different segment of the targeted value chains. After working with Tradeline Consult, a business advisory services (BAS) provider in USAID-FinGAP’s network, SAVBAN Processing and Marketing accessed financing from Ecobank Ghana. The financing allowed SAVBAN to contract with over 6,000 smallholder farmers in the Northern Region to increase their production of soy for aggregation to meet a large order from a processor in the south of Ghana. This opportunity provided the farmers with a ready and reliable market for their produce and increased their earning by over 20%.
“I did not have any challenges marketing my produce this year. Selling to SAVBAN was easy. They picked up my produce from my doorstep, and I received payment at the spot.”
-Issah Shaibu, a SAVBAN outgrower
The USAID-FinGAP grants incentive program continues to stimulate PFIs to increase lending to the MRS value chains so that smallholder farmers in the north of Ghana can increase production for improved food security and increased income. To date, the grantees have earned over $1.8 million in grant payments for the financing disbursed. For every $1 invested by USAID-FinGAP, $41 of new, incremental financing was invested into agriculture to build infrastructure and bring food security to the region.
Additionally, the PFIs invested the grant money back into their agribusiness lending programs, laying the foundation for sustainable financing after the program ends. Grant payments received by PFIs have been used to procure motorbikes, computers, and other office equipment for improved loan administration and monitoring to ensure efficient operations and timely repayment. Ecobank Ghana hired an expert in the field of agriculture loans assessment for training of both staff and small to medium, including large enterprises (SMiLEs) in topical issues relating to agribusiness financing.
“As a result of the grants, Ecobank Ghana has developed a bigger appetite for agriculture related loans and has become more competitive in seeking good deals from SMiLEs for financing,” Abdulai Abdul-Rahman, Head of SME Banking at Ecobank Ghana, said. “Ecobank has become more alert to agribusiness finance opportunities.”
With its pay-for-performance incentive grant program, USAID-GAP is showing financial institutions the benefits in financing agricultural actors in the MRS value chains, laying the foundation for long-term agribusiness financing in Northern Ghana. A second pay-for-performance incentive grant window positioned to encourage PFIs to reduce interest rates on loans opened in June with 33 participating financial institutions.