Banks’ lending to the agriculture sector is very low as compared to the services sector, according to a survey conducted by Institute of Economic Affairs (IEA).
According to the survey, banks are reluctant to lend to the agric sector because of the high risk in the sector and the low market potential of the produce owing to reliance on the weather.
It said the services sector dominates with 65 percent, followed by industry with 31 percent and agriculture with a mere four percent.
The survey indicated that banks prefer to lend to the services sector because of the low risk, low loan default rates and good business prospects.
Dr. John. K. Kwakye, a Senior Economist of IEA, who highlighted the survey at a conference in Accra recently, called for safety nets to reduce lending risks through effective Credit Reference Bureaus and Borrower Identification Systems.
He said the survey also showed that banks consider interest payments as the most important determinant of their costs followed by loan default rates.
He added that banks consider the Treasury Bill as the most important determinant of the cost credit in the country.
This, Dr. Kwakye said, confirms the widely-held view that government borrowing plays a major role in driving up the cost of borrowing in addition to crowding out the private sector.
“When it comes to their own high lending rates, however, the banks say the cost of funds is the most important determinant, he said.
Dr. Kwakye said banks’ sectoral lending preferences and the low access to credit by the private sector and the agricultural sector in particular represent a market failure in the financial sector in the context of liberalization.
He called for remedial measures to address the problems, stating that “there is a need to ensure availability of affordable credit for small-scale and the informal private enterprises and for agricultural sector.”
This, according to him, could be done by creating a special bank or fund. He also revealed that steps must be taken to limit potential government contingent liabilities.
Source: Daily Guide
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