MICROFINANCE AND AGRICULTURAL OCCUPATION

Microfinance is often defined as financial services such as credit services, money transfers and insurance for poor and low-income clients (Plamondon, 2001). Also Microfinance is the provision of a broad range of financial services such as deposits, loans, savings, payment services, money transfers, and insurance to the poor and low-income households and their micro-enterprises who are excluded from the formal financial systems.

According to a 1995 World Bank estimate, in most developing countries the formal financial system reaches only the top 25% of the economically active population, the bottom 75% have no access to financial services apart from moneylenders. This is partly because of avoiding losses and high transaction costs of lending to the poor. In view of this lending to agriculture occupation becomes a very difficult venture especially in situations where crop yield or livestock survival is unpredictable.

Farmers and rural folks form part of this “low-income households” for Agriculture occupation, micro-finance can provide a range of benefits that poor households highly value including long-term increases in income and consumption.

Microfinance activities in Ghana as in other developing countries can be grouped into three areas such as financial services (loans, deposits, leasing etc); non–financial services (literacy classes, nutrition, health, etc); and business development or advisory services. Microfinance services in the financial sector have spread all over the nation (Ghana) to serve the needs of the poor and the community as a whole.

Low productivity and poorly functioning markets for agricultural outputs are among the causes of finance being a problem for agriculture activities. Small scale farmers rely on rudimentary methods and technology and they have limited skills and inputs such as improved seeds that would increase yields. Poverty is deepest among food crop farmers, who are mainly traditional small scale producers. About six out of ten small-scale farmers are poor and many of them are women (IFAD, 2009)

Many studies have shown that microfinance is an effective tool in socio-economic development. Microfinance increased households’ assets. Micro-credit helps the poor to smooth cash flows and avoid periods where access to food, clothing, shelter or education is lost. Credit can make it easier to manage shocks such as a wage earner’s illness, or natural disasters. The poor use credit to build assets such as buying land which they use for farming, giving them future security and ensuring food security. Women participants in micro-credit programs often experience important self-empowerment (ADB, 2007)

As microfinance institutions have increased rapidly in Ghana’s rural areas, many households have used micro-credit for different purposes in daily living especially for agriculture purposes. It can however be stated that agricultural microfinance remains a challenge. While microfinance loans are often already used for agricultural activities, microfinance products are often a poor fit with agricultural cash flows and as a result can be more risky for lenders and borrowers alike.

In the last few decades, the government of Ghana has implemented many programmes to reduce poverty, including the Livelihood Employment against Poverty (LEAP), Programme of Action to Mitigate the Social Cost of Adjustment (PAMSCAD) and Microfinance and Small Loan Scheme (MASLOC). Of the various tools used in poverty reduction, microfinance has become the most popular in recent times across developing countries as a whole. This is because access to credit has been recognized as one of the many strategies that could be used to combat poverty.

However, one of the major constraints in achieving this goal has been growing imbalances in credit demand and supply, among the majority smallholder farmers.

In handling farming and microfinance, it is important to note that credit alone cannot serve the farmers and take them out of poverty. As Parker and Pearce (2001) have noted, it is only one of many elements on a menu of possible interventions to generate income and possibly alleviate poverty. In the case of Africa in particular, it is asserted that there are more important constraints that face the small agricultural households such as individual product prices, land tenure, technology, and market access. These problems place a lot of responsibility on government to create the enabling environment as well as the framework conducive not only for rural finance but also in market development. Microfinance for example can play a huge role in alleviating poverty if it helps to find ways through the market to get new opportunities to earn income by the investments in both farm and nonfarm activities. Therefore lack of market for produce contributes to the inability of most farmers to pay off their debt and further access other loans.

A second issue is infrastructure. It could be noted  that not only is microfinance not enough in alleviating poverty but that it cannot be a substitute for jobs or markets that are not available or inaccessible. Buckley (1997) has argued that the extensive donor interest in microfinance only offers the illusion of a quick fix and suggests that the problem is the lack of infrastructure rather than just injecting capital.

Again it may be noted that in most poor rural communities, investments in infrastructure might be preferred to microfinance, because the factors needed for the microfinance program to be sustainable are absent .Apart from the physical infrastructure, it is also important for the governance infrastructure to be developed in terms of promoting pro poor policies and possibly a comprehensive strategy that seeks to optimize the use of resources in identifying the best option in reducing poverty including grants, employment programmes, and other non-financial services (literacy classes, and training programmes, community development, market based business development services.

Like most Sub-Saharan Africa, Ghana depends to a great extent on the growth of the rural sector, where over 60% of the population lives, with agriculture as their mainstay.

Agricultural sector contributes the country’s Gross Domestic Product (GDP), with exports, employment opportunities and provides 80% of industrial raw materials. In support of desired growth the country must envision an agro-development policy which emphasizes the transformation of the country into a newly industrialized nation through linkages between agriculture and financial sectors as twin engines for achieving that vision.

In dealing with the concept of finance there is the need to ensure the sustainability of the funds. Are farmers able to raise income from their produce and make them less dependent on microfinance with time? Do farmers become self-sufficient in funding? The minister of Agriculture stated during the National Farmers forum stated the need for farmers to gradually wean themselves off subsidies on farming inputs and agro-chemical products. With the provision of microfinance and knowledge in management of funds farmers will treat their farming activities as business entities. Farmers also need to take the advice of agriculture extension officers and observe good agricultural practices to increase yields and maximize profit.

"the Best Culture is Agriculture"

Written and compiled by

Akwasi A. Tagoe