Smallholder farming still ‘no-go area’ for financial institutions

Village Savings and Loan Associations (VSLAs) and family and friends remain the dominant sources of credit for financing production activities of smallholder farmers in northern parts of the country, says a study.

This is despite several years of advocacy and calls for the banking sector to increase funding support for the agriculture sector, particularly the country’s large smallholder farmer population.

The study – conducted by the Institute of Climate and Environmental Governance (ICEG) and titled ‘Effects of environmental degradation on agricultural production, livelihoods, welfare and climate change in the northern region of Ghana’ – revealed that for the majority of farmers other sources of credit, rather than the banking sector, are the most preferred.

Consequently, about 62 to 67 percent of those surveyed in the North’s five regions mentioned that VSLAs and friends and relatives account for their main source of credit, while the least frequent source of credit are financial institutions due to high collateral demands and unbearable interest rates.

VSLAs are groups that pool their resources to lend money to one another at low-interest rates. For those without access to banking sector credit, this is a useful choice since it is a more official and reliable source of money for agricultural activities.

Finance is essential in helping farmers maintain and expand their operations by helping them to acquire much-needed inputs for farming and other expenses including labour.

Farmers’ ability to get loans on time without collateral demands, get grace periods to pay back after harvest – and without extra charges or fees in case of default, makes VSLAs and family borrowing the most preferred source of credit, the study further noted.

As large-scale farming requires huge capital investment for land acquisition, preparation, procurement of improved technology and advanced inputs like high-yielding seeds, farmers’ inability to access larger funds for investment from the banking sector has crippled their ability to embark on large-scale farming.

“A safety net that helps make households or individuals shock-resistant is access to a production credit…This outcome is not unexpected, given that these organisations frequently have severe terms and conditions which may not be advantageous for local farmers – whose output is frequently modest,” indicated the report.

Crucial role of finance

For farmers, having access to finance is crucial because it gives them the funds needed to make investments in their farms. Credit enables farmers to buy necessary inputs like seeds, fertiliser and equipment, boosting agricultural production and crop yields.

Additionally, credit makes it easier to implement cutting-edge techniques and technology that can boost productivity and cut expenses. It can also be used by farmers to lessen risks from changing weather, pests and illnesses, and erratic market prices.

Credit also encourages investments in farm infrastructure, such as irrigation systems and storage facilities which help with efficient farm management.

Support for VSLA

Research Lead at ICEG, Yahaya Abdulai (PhD), recommended that based on smallholder farmers’ high dependence on VSLA for critical funding assistance, it is important for the initiative to be supported in delivering larger loan sums for large-scale farming.


Executive Director-ICEG, Hamza Suhuyini Sayibu, speaking at the report launch in Accra cited the World Bank’s ‘Poverty and Equity Brief’ report in 2023 for sub-Saharan Africa on Ghana, which indicates a decline in poverty elasticity with an accompanying widening of inequality across regions in the country.

The report shows that poverty largely declined in the four wealthiest regions – Greater Accra, Eastern, Central and Ashanti, while it increased in the poorest four regions – Northern, Upper East, Upper West and Volta.

According to him, the poorest regions are said to also experience more increased inequality than the wealthiest. He added that in some areas of the north, land degradation and its related climate change effects – as well as lack of access to banking sector funds – remain a challenge to poverty reduction and closing the equality gap.

He therefore called for initiatives that make lending to farmers more flexible, with less collateral demands.