Are African smallholder farmers thriving or surviving? Access to finance in Ghana

Africa is home to a quarter of the world’s farmland. Africa comprises 10 percent of all crops produced globally. According to opportunity international, most farmers in Africa operate at 40 percent of their potential capacity. Africa occupies 60% of the world’s arable land. Despite the wealth and natural resources, Africa contains, crop production remains low because most African agriculture producers are smallholder farmers who do not have exposure to a wide range of farming opportunities (Opportunity International, 2013). According to the council of the Alliance (2020), smallholder farming remains predominantly the source of income and food production in the developing world. Figures by FAO show that up to 2.5 billion people are involved in smallholdings in developing economies, roughly equivalent to two-thirds of Africa’s population. Africa is not far from this arena, notably west Africa. Agriculture accounts for 2 percent of Ghana’s GDP, employing roughly 44 percent of the employable populace. More than 70 percent of the economically active Ghanaians are engaged in agriculture activities (Doku, Mawusi Obubuafo and Sam Hagan, 2020). Despite Ghanaians’ livelihood dependency on agriculture, access to financial services remains a daunting challenge to the majority of smallholders and the government at large. Small scale farmers in Ghana’s rural areas, in particular, have limited to no access to financial services that would boost their agricultural productivity from subsistence to modern farming, connect them to profitable markets, combat undernutrition cases and thrive. This article seeks to shed light on challenges to be addressed, programs in place, and the better way forward to ensure Ghana’s smallholders have full access to finance necessary to prosper.

Definition of terms:

According to FAO (2002), smallholders are the marginal and sub-marginal farm individuals who own and cultivate less than 2 hectares.

Brown, Guin and Morkoetter (2020) defined credit as the sum of money in favor of the person to whom control over it is transferred and that credit itself, if not capital, can be used, among other things, to invest. Credit can be formal such as those provided through large government regulations such as private banks, state-owned banks, and registered cooperatives. Informal credits primarily consist of individuals such as friends, family members, traders, or landlords who lend money as a business.

Challenges associated with access to finance

Doku, Mawusi Obubuafo and Sam Hagan (2020) conducted a study in a Ho Municipality of Ghana, randomly interviewing 50 smallholder farmers, revealed the following findings. Lack of collateral impedes access to finance in that they have one small plot of land. The procedures to go through, such as the procedures are the opening account and loan application while requesting credit, are complex that it becomes so hard for farmers who have never gone to school. Low level of education, low outreach, high-interest rate are significant constraints.

Determinants of Microcredit in Ghana

Benjamin et al (2015) contend that women are more credit-worthy than men due to an increased recognition over the years of the substantial contribution of women in agriculture. This is a critical factor in many financial institutions willing to target women in lending. In rural areas of Ghana, Farmers with higher income have greater chances of getting credits than their counterparts because high-income households have economic power that can be advantageous when requesting credit assistance. In comparison, farmers with lower income are deemed as risky borrowers by several financial institutions. Additionally, smallholder farmers from higher-income households are expected to be innovative individuals who solicit loans to add up to other cash to expand their farms. The findings contradict what Olagunju (2016) found that men are more likely to get access to credit facilities in most rural communities because they own larger farmlands which validate higher productivity. Hence it becomes easier to convince microfinance institutions to lend a given amount of credit, which is different from women. Also, in many rural communities, men usually have social and political power to control the resources of the household. Women need their husband’s approval to decide on whether they can take or not take credit. This may provide men the autonomy to use household resources, sometimes as collateral, to access the credit and payback as earlier as possible.

Crop variation adopters are highly likely to secure loans compared to their crop variation non-adopters. A good example is rice farmers. Rice crops variation adopters who need financial support to buy extra inputs needed to enhance their production. Extension contacts increase the chances of securing microcredit because these are often pivotal sources of information for many rural farmers and link rural farmers’ cooperatives to microcredit sources.

The location of the household also demonstrates a significant contribution to access microcredit. For instance, Farmers from the northern region of Ghana have greater chances to access the credits than those in the upper East region of Ghana. This is because of the huge disparity in mobile penetration rates and professional networks among settlers of both regions; in that, farmers from the Northern region of Ghana have a wide network of professionals, indicating their awareness of credit lending information in several financial institutions in Ghana. The finding is similar to that of Olagunju (2016) that information awareness can increase or decrease the chances of accessing financial facilities.

Household size also affects the accessibility of finance. The larger the smallholder household’s size, the more the credit will increase compared to smaller households. This is because larger-sized households have a greater labor force and many members to feed alongside the production targets. So, in attempts to meet the target while adequately feeding their families, they borrow a great amount of credit to increase the farming inputs to yield high agricultural productivity.

Government interventions

The Government of Ghana has been combatting the issue for several decades ago. During the mid-1960s, the Government established a national development bank to provide loans to smallholder farmers at lower interest rates compared to existing commercial banks; 12 percent for maize farmers and 22 percent for other producers. By 2010, 29 percent of the lending had gone into agriculture. Two years down the line, the policymakers and researchers realized that the bank operations and its lending merely worked in favor of the middle and upper class. After a thorough consultation of the intervention, the year 2012 saw rural Ghana with numerous rural and community banks to expand its outreach. This has led to creating a special strategy to augment access to credit through the AGRA loan guarantee program and the establishment of the export development investment trust fund (EDIF) (Doku, Mawusi Obubuafo and Sam Hagan, 2020).

Having realized that several lenders have been fearful of the risks that might arise once credit accessibility is eased, Commercial Banks and other microfinance institutions are reluctant to provide loans to small-scale farmers. The fear centers are several challenges, such as discussed earlier (lack of collateral, etc.). Farmers opted for costly informal loans. Leveraging the opportunities that 58 percent of adults Ghanaians had a bank account in 2017 and 80 percent of mobile phone penetration, researchers have partnered with a social enterprise which is supporting small-scale farmers in Ghana and came up with a digital finance program, Mergdata. This digital platform is to facilitates rapid credit rating and loan provision (Udry, Lambon-Quayefio and Manjeer, 2020).

Conclusion and Recommendations

Access to finance remains a major concern in Ghana despite its policies and facilities over the years. The major constraints that inhibit access to microcredits are collateral, low education level, high-interest rate, and payback period. Household income, location of the household, gender, household size, and crop variation influence micro-credit accessibility in Rural Ghana.  The government of Ghana should reinforce capacity-building facilities to bridge the knowledge gap of small-scale farmers who have never gone to school. This will help these farmers to navigate the complexity of the loan application process and other credit accessibility-related applications. It is advisable that financial institutions in Ghana reform credit provision policies and adjust collateral requirements because it has been observed that it hampers credit accessibility. Yet, the profit derived from adequate agricultural yield can be much more beneficial than the collateral itself. Rural banks should expand their outreach programs to reach small-scale farmers in hard-to-reach areas while increasing their loan portfolio percentage to improve upon their livelihoods.


Alliance (2020) Africa’s smallholder farmers need support to build resiliency and sustainability. Available at:

Benjamin, T. A. et al. (2015) ‘Factors influencing smallholder farmers access to agricultural microcredit in Northern Ghana’, African Journal of Agricultural Research, 10(24), pp. 2460–2469. doi: 10.5897/ajar2015.9536.

Brown, M., Guin, B. and Morkoetter, S. (2020) ‘Deposit withdrawals from distressed banks: Client relationships matter’, Journal of Financial Stability. Elsevier B.V., 46, p. 100707. doi: 10.1016/j.jfs.2019.100707.

Doku, G. D., Mawusi Obubuafo, J. M. and Sam Hagan, M. A. (2020) ‘Access to Credit by Smallholder Female Farmers in Ho Municipality, Ghana’, World Journal of Business and Management, 6(1), p. 17. doi: 10.5296/wjbm.v6i1.17113.

FAO (2002) ‘S m a l l h o l d e r f a r m e r s i n i n d i a : f o o d s e c u r i t y a n d a g r i c u l t u r a l p o l i c y’, p. 63.

Olagunju (2016) Access to Formal and Quasi-Formal Credit by Smallholder Farmers and Artisanal Fishermen: A Case of Zanzibar.

Opportunity International (2013) ‘Financing Smallholder Farmers to Increase Incomes and Transform Lives in Rural Communities’. Available at: Exchange/Financing-Smallholder-Farmers-Opportunity-International.pdf.

Udry, C., Lambon-Quayefio, M. and Manjeer, U. (2020) ‘The Impact of a Digital Credit for Small-Scale Farmers in Ghana’, pp. 2017–2019.