Micro Credit and Agricultural Transformation

July 13, 2017

By John Kojo Osei

What happens when smallholder farmers have access to credit, improved packaged seeds, fertilizer, improved farmer knowledge and improved agricultural extension services?

The answer from many experts, policy makers and advisers is that productivity will increase remarkably. This assertion is also supported by the African Center for Economic Transformation’s Index insurance for agricultural transformation in Africa’, a background paper to the African Transformation Report 2. However, the hard truth staring in the face of African agriculture and, particularly, agriculture in Ghana is the lack of access to credit by smallholder farmers.

Agriculture contributed about 23 percent of Ghana’s $37.54 billion GDP in 2015. The agricultural sector employs more than half of the country’s labor force with smallholder farming forming the greater percentage. These intriguing facts about agriculture should prompt us to focus on this all-important sector. One of the sure ways to increase agricultural production is to make credit available to farmers.

However, I have observed through my work with smallholder farmers that their major challenge is securing credit from financial institutions for their farms. Most financial institutions are more comfortable providing trade credit than agricultural credit to smallholder farmers. Also, there are very few tailored financial products for smallholder farmers provided by financial institutions in Ghana. In this light, how do we make credit available to farmers?

The lack of access to micro-credit by smallholder farmers is an obstacle to farmer adoption of new technology, acquisition of seeds and extension services. This slows down the rate at which Ghana’s agriculture is transformed. Without credit, it is basically impossible for smallholder farmers to expand their farms even if new technology and improved seeds are made free. In any case, farmers will have to either pay for labor or land.

This challenge can be resolved through the formation of financial cooperatives by smallholder farmers to satisfy their need for micro-credit. The continuing dependence on traditional banks and other non-bank financial institutions for provision of credit to smallholder farmers may yield no better results than we currently have. Rather, cooperatives with a common bond will understand their own needs and the most efficient way to satisfy those needs. The power of cooperatives in providing micro-credit to smallholder farmers for agricultural transformation will be explored further in my next blog.

John Kojo Osei is an ACET  Communications Officer. He is the Co-founder of a credit union drawing its membership from smallholder farmers and traders.

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