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Publication date: 13 October 2023

Raymond K. Dziwornu, Eric B. Yiadom and Sampson B. Narteh-yoe

The cost of agricultural loans is a major constraint to the growth of the agriculture sector. This paper examines agricultural loan pricing by banks in Ghana using panel data…

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Abstract

Purpose

The cost of agricultural loans is a major constraint to the growth of the agriculture sector. This paper examines agricultural loan pricing by banks in Ghana using panel data analysis.

Design/methodology/approach

Data were obtained from audited financial reports of 15 agricultural loan lending banks from 2010 to 2017. The study applies the random-effect model and the fixed-effect model in the analysis and uses the system generalized system method of moment to check the robustness of the results from the baseline models.

Findings

The study found that agricultural loan pricing by banks is significantly influenced by risk premium, cost of funds, loan impairment, agricultural growth rate and food inflation. Banks should leverage emerging technologies to de-risk agriculture loan pricing to allay the fear of default. Farmers should look for long-term and relatively cheaper funds to support agricultural loans. Increasing credit to the agricultural sector could increase output, thereby reducing food inflation uncertainty for competitive pricing of agricultural loans.

Originality/value

Agriculture employs about 52% of Ghana's labor force, contributing about 20% to GDP. But it is “under” financed. This study leads the way in unraveling the factors accounting for the high prices of agricultural loans in Ghana. This study further contributes to policy development toward increasing credit to the agricultural sector.

Details

African Journal of Economic and Management Studies, vol. 15 no. 1
Type: Research Article
ISSN: 2040-0705

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