Armed with produce collateral, Ghana farmers widen Africa’s lending pool

By David Njagi

For the first time in Africa, farmers in Ghana are using farm produce as collateral to get loans from lenders. But exploitative brokers are fighting back.

After harvesting, the farmers store their produce in a licensed warehouse, where they are then issued with a receipt by the Ghana Grains Council (GGC) as proof of ownership.

A warehouse receipt is a document in electronic form certifying the quantity and quality of produce like maize, rice, or soya, placed by the farmer in the facility as the depositor.

It is this receipt that they then use as collateral to obtain loans, according to Isaac Okyere, the agriculture project manager at Sinapi Aba, a social enterprise working in rural Ghana.

“The stored produce is sold at a later date when prices favor farmers instead of them selling immediately after harvesting. They then use the proceeds to pay back the loans,” says Okyere.

Smallholder farmers in rural Ghana have for long battled brokers in the agriculture value chain who trick them to sell their produce immediately after harvesting, often at prices below the market value.

Farmers may be tempted to sell their produce if they are in need of quick cash or if there has been a production glut, as a way of protecting their produce from wasting away, according to Okyere.

With warehouse receipting however, the farmers are able to avoid the pressures of production gluts, low produce, as well as defy exploitative brokers.

For instance, a bag of rice fetches about four Ghana cedis (about 65 US cents) immediately after harvesting, but when the same is stored in a warehouse, it appreciates in value and could fetch the farmer as much as eight Ghana cedis (about one dollar and 30 US cents).

“With the loan I get through my produce as collateral I am able to buy quality seeds and hire more land for farming,” says Mbalicho Nalori, a smallholder farmer from northern Ghana.

Nalori has been a farmer for about 12 years, and has been doing warehouse receipting for the past three years. After every harvest at her seven acre farm, she sends as much as seven bags of produce to the warehouse. The rest, which is about three bags is kept at her home for her family to consume.

But exploitative brokers are fighting back, according to Kusaku Anane a nucleus farmer from northern Ghana. A nucleus farmer is an agent around whom smallholder farmers are organized. They provide farmers with technical support and information about, credit, seed, chemicals and transport for farmers, among others.

Among the tricks that brokers use to lure farmers to side sell their produce at low prices include colluding with market actors at both rural and urban markets to manipulate prices.

They also form welfare associations which control transportation, market information flow, as well as the supply of produce in city markets. This tilts market power in favour of brokers and traders, says Anane.

“With warehouse receipting, farmers are able to sell their produce as groups and so they are able to take control of pricing from brokers,” he says.

Brokers known to the Ghana agriculture value chain declined to comment on allegations that they distort market prices and exploit smallholder farmers.

The warehouse receipt system is a Ghana Commodity Exchange (GCX) project which was established in 2013, and aims to provide credit and loans to farmers, based on their produce deposits.

Lenders offer a marketing season loan of 75 percent of the value of the grain stored in the warehouse at 10 percent interest, and charges four Ghana cedis (about 65 US cents) per bag as collateral management fees.

Sinapi Aba and the Agriculture Development Bank are some of the lending institutions offering credit to farmers using farm produce as collateral.

Charities like Opportunity International under its Roots of Change program are also working with about 12,000 farmers in Ghana and DRC to provide financial solutions to poor households through innovations like warehouse receipting.

“These financial solutions are breaking intergenerational poverty. Struggling families are now able to buy more land for farming and even build modern houses when they are financially empowered,” says Lydia Baffour Awuah, the Roots of Change senior program manager for Ghana.

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