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Smart subsidies to expand rural agribusiness finance in Ghana

Through a combination of “smart subsidy” incentives as well as risk mitigation tools including partial guarantees and indexed linked insurance products to financial institutions and capacity building of Business Advisory Services providers, the CARANA-managed USAID Financing Ghanaian Agriculture Project (USAID-FinGAP) is transforming the financial landscape for Ghanaian agribusinesses. Earlier this year, USAID-FinGAP made a $500,000 grant to Eximguaranty Company Ghana Ltd. (Exim Ghana) to expand financing for small and medium agribusiness enterprises (SMEs) in the rice, maize and soy value chains.

Ghanaian banks see agribusiness lending as highly risky, and require significant levels of collateral from borrowers to mitigate the perceived risk in making loans to this sector. Exim Ghana, a second tier institution that provides credit guarantees to banks and non-bank financial institutions, was created precisely to mitigate this risk, using a wide range of underwriting tools that remain under-utilized by the actors they were designed to support.

USAID-FinGAP recognizing this disconnect (availability of a risk mitigating product and under-use by the intended population), devised a grant to increase utilization of Exim Ghana collateral tools to benefit Feed the Future’s target population in Northern Ghana. While Exim Ghana is able to guarantee up to 75% of a loan's amount, USAID-FinGAP's grant will be used to cover 50% of the credit guarantee premiums required from agribusinesses by the financial institutions, with the other half paid for by either the financial institution or the agribusiness, and to reduce premiums charged on loans to agribusiness from 5.5% to 4.5%. Zac Bentum, Managing Director of Exim Ghana, the partnership with USAID-FinGAP "offers a platform to realize our mission of ensuring the flow of credit from financial institutions to SMEs especially in the agricultural sector through credit guarantees.”

Published March 2015