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Monday, September 1, 2014

Cultivating lending to boost farming in the Upper East Region of Ghana

TradeAID Integrated not only focuses only supporting the craft sector of the Upper East, but also the farming industry which is the main livelihood of the region. Dave has been using his knowledge of economics to assist TradeAID in a microfinance scheme set up to give farmers access to much needed funds. Read below to find out more about the situation for farmers in the Upper East and the support he has given to the Farmer's Credit Fund. 


Farmers planting groundnuts

Here in the Upper East Region, farmers and other small-scale producers have a fantastic energy and enthusiasm to see their businesses grow. During our cohort, we’ve been really lucky to have had the chance to meet and spend time with many of the small business owners and crafts groups from the region. The Upper East Region maintains a fantastic GDP growth rate and is definitely on a path away from poverty. However, sometimes small enterprises need support to branch out and continue to flourish. For example, some SMEs can fall foul of volatile prices (the region has experienced 18% inflation since we arrived at the beginning of July) and unpredictable rain, and in a poor, rural region such as the Upper East, this may slow down their growth away from poverty.

Often access to a small amount of finance can have a major impact, allowing SMEs to invest in capital or labour and kick-start their businesses and/or make more goods, increasing their profits and putting them onto a new growth trajectory. Occasionally, though, a dilemma can exist; increased income will come through purchasing new capital or labour, but without the access to money to pay for this, the business grows too slowly to gain access to such increased but needed funds.

So, some of the small businesses of the Upper East need access to finance. If they need finance, why can’t they just get a bank loan? Unfortunately, it’s not that simple. The trouble is, with little collateral and sporadic agriculture revenues as their source of income, banks are hesitant to lend to them; without charging exorbitant rates of interest, there is no way to guarantee they will get their loans back. Whilst this is understandable from the banks’ perspective, it leads to what economists call market failure. Due to the banks not having full information about what will happen in the future regarding repayment, they cannot serve a portion of the market.


Microfinance, first set up in Bangladesh, is an economist’s and TradeAID’s solution to this problem. The Farmer’s Credit Fund (FCF) has been established as a result of TradeAID’s observation of this dilemma for the poor of the Upper East Region. Operating separately to TradeAID, FCF’s mission is to “provide specialised and personalised business and financial services and products to farmers and other informal sector operators so as to maintain their livelihoods and living standards.”

FCF does this by loaning a small amount (around £100) to small-scale producers or small, registered groups. Crucially, a prominent member of the local community must vouch for the person making the loan, such as a Pastor; this gets around the issue of unknown information about the borrower. A strict, short-term repayment period of 6 months is established, and each month, the person must meet with FCF to repay part of the loan. By having support from the community through the prominent community member, the person is encouraged to repay and make the changes needed to improve their businesses. Despite what in the UK may seem a high rate of interest, microfinance has a high repayment rate because the small loan these producers do receive has a revolutionary effect on their businesses.

Training before the first Business Booster Loans were given

I was very lucky recently to help McDavies, a representative of FCF, give out the first Business Booster Loans (BBLs) to FCF’s first customers, a collection of small business owners based in Bolgatanga. With each person receiving a loan worth just under £100, the 6 month loan will go a long way to growing their businesses and raising their incomes. However, I was definitely thrown in at the deep end.


Having been asked to help by McDavies, I went upstairs to where the new borrowers were gathered. All 15 borrowers, 2 of whom could speak English, were sitting in rows of chairs facing a desk. Upon entering the room and greeting the customers with my best “Bulika!”, McDavies pointed to the desk which everyone in the room was facing and said, “You will be sitting here for the day and administering the loans”. Bearing in mind I had thought I’d be helping in the background, my reaction was one of alarm; not only did I probably know the least about the registration process in the room at the time, but I can hardly speak a word of the local language (Frafra)!

Luckily I managed to find my feet and help McDavies agree the repayment terms with each customer, sign the contracts and distribute the loans. Overall, the day was a great success, with each customer going away with a loan that will surely change their lives for the better. I even managed to learn a bit of Fra Fra:

Aya tia, te san toae ligelila te foosey la te yo.” (Please pay back this money so we can work with you again in the future!)

By Dave Baker


Follow Farmers Credit Fund on Facebook (which was set up by Dave): www.facebook.com/pages/Farmers-Credit-Fund/949819495044384?fref=ts

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