UNIVERSITY OF GHANA TOPIC: ASSESSING THE IMPACT OF EXCHANGE RATE VOLATILITY ON AGRIC-SECTOR LENDING: A CASE STUDY OF AGRICULTURAL DEVELOPMENT BANK BY RONALD SELASI MENSAH (ID NUMBER: 10348428) A PROJECT WORK SUBMITTED TO THE DEPARTMENT OF FINANCE, UNIVERSITY OF GHANA BUSINESS SCHOOL, UNIVERSITY OF GHANA, LEGON, IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF A MASTER OF BUSINESS ADMINISTRATION, FINANCE. MAY, 2019 i DECLARATION I, Ronald Selasi Mensah, hereby declare that this research work is my original work and has not been presented in this University or any other university for any academic award. All references used in the work have been duly acknowledged. I bear sole responsibility for any shortcomings in this work. …………………………………………… ………………………………………………… Ronald Selasi Mensah DATE (10348428) ii CERTIFICATION I hereby certify that this thesis was supervised in accordance with procedures laid down by the University. …………………………………………… ……………………………………………… DR. ELIKPLIMI KOMLA AGBLOYOR DATE (SUPERVISOR) iii DEDICATION This study is dedicated to my dearest parents Mr. Freeman Mensah and Mrs. Regina Amoo for their unyielding support throughout the entire research. I also dedicate this work to my siblings; Irene, Ferdinand and Ernest for their unflinching love and encouragement. iv ACKNOWLEDGEMENT First and foremost, I will like to thank the almighty God for His guidance and protection over me throughout this research. I also wish to acknowledge my supervisor, Dr. Elikplimi Agbloyor for his stewardship over the course of this research work. Lastly, I will like to thank all my lecturers, colleagues and friends who contributed in one way or another towards the completion of this research work. v ABTRACT The agricultural sector is considered as one of the most important sectors of the Ghanaian economy since it constitutes a significant portion of our Gross Domestic Product. However, farmers experience challenges in accessing credit from banks. Over the years, the Ghana cedi has experienced some volatility on the back of the existing structure of the economy. This study seeks to assess the impact of exchange rate volatility on agric-sector lending using the Agricultural Development Bank (ADB) as the case. The research found that farmers finance their farming activities with money borrowed from family and friends. It also found that exchange rate volatility negatively affects agric-sector lending which in turn affects agricultural export volumes. The study recommends that farmers must come together to form societies which stand a better chance of accessing credit. The study also recommends that Financial Institutions organize financial literacy programs to educate farmers on the requirements they must meet in order to access credit. In addition, the study recommends that the Bank of Ghana collaborates with the Ghana Association of Bankers to develop a comprehensive policy to help farmers to access credit. vi CHAPTER ONE .................................................................................................................................... i INTRODUCTION ................................................................................................................................. 1 1.1 Background of the Study ................................................................................................................ 1 1.2 Problem Statement .......................................................................................................................... 2 1.3 Purpose of the Study ....................................................................................................................... 3 1.4 Objectives of the Study ................................................................................................................... 3 1.5 Research Questions ......................................................................................................................... 3 1.6 Significance of the Study ................................................................................................................ 3 1.7 Chapter Outline .............................................................................................................................. 4 CHAPTER TWO .................................................................................................................................. 5 LITERATURE REVIEW .................................................................................................................... 5 2.1 Introduction ..................................................................................................................................... 5 2.2 Access to Credit and Agricultural Productivity ........................................................................... 5 2.3 Exchange Rate Volatility and Access to Credit ............................................................................ 8 2.4 Exchange Rate Volatility and Exports ........................................................................................ 11 CHAPTER THREE ............................................................................................................................ 14 METHODOLOGY ............................................................................................................................. 14 3.1 Introduction ................................................................................................................................... 14 3.2 Research Design/Approach .......................................................................................................... 14 3.3 Study Area ..................................................................................................................................... 14 3.4 Target Population ......................................................................................................................... 14 3.5 Sampling Technique ..................................................................................................................... 15 3.6 Data Collection Instruments ........................................................................................................ 15 3.7 Data Analysis ................................................................................................................................. 15 3.8 Ethical Consideration ................................................................................................................... 15 CHAPTER FOUR ................................................................................................................................. 16 DATA ANALYSES AND DISCUSSION OF FINDINGS ............................................................... 16 4.1 Introduction ............................................................................................................................... 16 CHAPTER FIVE ................................................................................................................................ 24 SUMMARY, CONCLUSTION AND RECOMMENDATIONS .................................................... 24 5.1 Introduction ............................................................................................................................... 24 5.2 Summary of the Research Findings ........................................................................................ 24 vii 5.3 Conclusion ................................................................................................................................. 25 References ............................................................................................................................................ 28 viii CHAPTER ONE INTRODUCTION 1.1 Background of the Study Exchange rate is considered as a principal determining factor of world trade and it has received much attention due to its global imbalances (Alegwu, Aye & Asogwa, 2017). Exchange rate or foreign exchange rate or Forex rate has been described as how much one currency is worth in terms of another. Past years experienced instability which has impacted on exchange rate and trade issues. According to Umaru (2013), the world’s most powerful economies including the United States and China are typical examples to have experienced exchange rate instability. Exchange rate volatility has been defined as “the persistent fluctuation of the exchange rate” (Alagidede & Ibrahim, 2017, pg. 169). Issues surrounding exchange rate volatility have dominated studies due to its importance in both national and international finance and trade. Alagidede and Ibrahim (2017) are of the view that, exchange rate volatility mostly affects developing countries hence has become a major concern to many of these countries. Over the past years, economists as well as those in the agricultural sector have developed interest in matters of exchange rate and its influence on agricultural sector (Alegwu, Aye & Asogwa, 2017). For instance, agricultural producers have been concerned and interested in how exchange rate influences commodity prices. The influence of exchange rates in determining the level of agricultural production and other related issues such as farming equipment has become critical to those in the agricultural sector due to the fast-changing global economy that can be attributed to rapid development of technology (Kafle & Kennedy, 2012). For instance, Kafle and Kennedy (2017) opine that the US dollar which mostly determines international trade most often depresses agricultural prices and agricultural export volumes which puts much pressure on the agricultural sector. 1 Ghana is no exception when it comes to exchange rate volatility. For instance, the Ghana cedi has suffered extreme depreciation against major currencies such as US Dollar, Great Britain Pound, Euro and many others (Alagidede & Ibrahim, 2017). They, for instance revealed that the Ghana Cedi was somehow stable between 2002 and 2007 but saw a major depreciation afterwards and that by the end of July 2009, 1 US dollar was exchanged for 1.49 Ghana Cedis. As at July 2018, 1 US dollar was exchanged for 4.6943 Ghana Cedis (Bog.gov.gh, June 2018). The depreciation of the Ghana Cedi against the major currencies has affected the country’s performance which in turn affects all facets of life including the agricultural sector. It is therefore important to look at how the exchange rate volatility affects the agricultural sector. 1.2 Problem Statement According to Banson, Bosch and Nguyen (2015) Agriculture remains the backbone of the Ghanaian Economy and accounts for 40% of the “Gross Domestic Product” (GDP) and about 70% of employment. This suggests that the significance of agriculture and its related activities cannot be underestimated. According to Khor and Hormeku (2006), the importance of agricultural activities in Ghana is not only limited to the agricultural activities because (many) different sectors of the economy are connected to agriculture. For instance, they mention that, trade, processing and transport of agricultural products and materials are linked to agriculture. The agricultural sector also serves as a source of livelihood and income for people which helps reduce poverty in the long run. Even though the agricultural sector in Ghana has experienced significant economic, political and social transformation, the sector continues to face challenges such as lack of access to credit facilities by farmers, high prices of agricultural equipment and materials, poor storage facilities and many others. According to Alegwu, Aye and Asogwa (2017), exchange rate volatility indeed has some effect on agricultural output, especially in African countries. This 2 study therefore seeks to investigate “the impact of exchange rate volatility on agricultural sector lending” in the Ghanaian context with the focus on Agricultural Development Bank. 1.3 Purpose of the Study The purpose of the study is to examine “the impact of exchange rate volatility on agricultural sector lending” in Ghana. 1.4 Objectives of the Study The main objectives of this study is to: 1. Analyze the factors that influence farmers’ access to credit from Banks. 2. Examine the impact of exchange rate volatility on farmers’ access to credit facilities from Banks. 3. Assess the effect of exchange rate volatility on export volumes 1.5 Research Questions 1. What are the factors that influence farmers’ access to credit from Banks? 2. What is the impact of exchange rate volatility on farmers’ access to credit from Banks? 3. How does exchange rate volatility affect export volumes? 1.6 Significance of the Study Over the years, governments and non-governmental organisations (NGOs) have adopted many strategies to encourage farmers to implement new methods of agricultural activities but most of the farmers are still being confronted by several challenges. Banks are most often unwilling to give credit facilities to the farmers which can mostly be attributed to farmers’ failure to repay loans in timely fashion. Therefore, the study which seeks to investigate the impact of exchange rate volatility on the agricultural sector will help stakeholders such as the farmers, governments and banks understand the challenges that exchange rate instability may pose to the agric-sector. 3 This will also assist the stakeholders to formulate and implement appropriate strategies to deal with the challenges. 1.7 Chapter Outline Chapter one introduces the research work. It also describes the research background, research problem, purpose of the research, the research objectives, research questions, as well as the importance of the study. Chapter two comprises a review of related literature on factors that influence farmers’ access to credit, exchange rate volatility and productivity as well as exchange rate volatility and exports. Chapter three presents the methodological issues of the research. It also identifies the “research design, the study population, sample size and sample technique, instrumentation, measurement of variables, data collection procedure, ethical issues, analytical procedure and the challenges of the study”. Chapter four presents results as well as the findings. This chapter also discusses the findings. Chapter five presents the “summary, conclusion and recommendation of study”. 4 CHAPTER TWO LITERATURE REVIEW 2.1 Introduction This study seeks to investigate the impact of exchange rate instability on agricultural sector lending in Ghana. This chapter provides a review of concepts that underlie access to credit and exchange rate volatility. The chapter will also review previous empirical studies on factors that influence access to credit from Banks, impact of exchange rate volatility on access to credit facilities and effects of exchange rate volatility on exports. 2.2 Access to Credit and Agricultural Productivity According to researchers, agriculture plays an important role in reducing porverty and it is backbone of many developing economies. (Denkyirah, Adu, Aziz & Okoffo, 2016). In light of this, today’s agriculture is continuously changing from the subsistence which used to be predominant in the past years to a more commercial basis. This clearly shows that agriculture is an important activity to many developing nations. According to Hananu, Abdul-Hanan and Zakaria (2015), agriculture is the most important sector as far as the economy of Ghana is concerned and plays a major role in poverty reduction and economic development as a whole. A lot of farmers in Ghana are doing their best to increase both food and non-food products. Unfortunately, many of them find it difficult to access credit facility for their farming activities (Denkyirah et al., 2016). According to Lawal, Omonona and Oni (2009) Access to credit gives farmers the requisite capacity to produce enough which in the end increases output and boosts food security. Credit has been referred to as “the process of having authority over the use of money, goods and services or a tool for ensuring the transfer of purchasing power from an individual or organization to another, temporarily, with a promise to repay at a future date” (Abba, Madaki & Benisheik, 2015). In other words, credit can be explained as cash or non- 5 cash item normally used for purchasing of goods and services with a promise to pay back in future. Kuwornu, Ohene-Ntow and Asuming-Brempong (2012) categorized credit into cash and non-cash. According to them, “cash credit is the one which farmers access from recognized financial institutions and other money lenders whilst non-cash credit is what farmers access in the form of inputs which are normally supplied by either individual entrepreneurs/businessmen or companies”. However, farmers in Ghana find it difficult to access capital for their activities. This assertion is supported by Hussain and Thapa (2015) who were of the view that most farmers in developing countries have major challenges accessing credit. Therefore, Uaiene, Arndt and Masters (2009) report that the difficult nature of farmers’ access to credit for their activities serves as a hindrance to adoption of new modern ways of farming. Akudugu, Egyir, and Mensah-Bonsu (2009) also had similar views in which they opined that modern way of farming such as the use of improved inputs and basic technology for farming have direct bearing on profit. They further stated that farmers will find it difficult to implement such modern technologies in their activities as long as they continue to have challenges in accessing credit. According to researchers, several factors account for farmers’ lack of credit (Uaiene et al., 2009). For instance, Hananu, Abdul-Hanan and Zakaria (2015) identified factors such as age, education and annual income which according to them determine the eligibility of a farmer to access credit. Similarly, Omonona, Akinterinwa and Awiyinka (2008) identified some of the factors as level of education, age, gender, marital status, farm size, access to agricultural extension services, ability to acquire significant size of land, household income which to them determines whether farmers will have access to credit or not. This assertion is corroborated by Nosiru, M.O. (2010) who also asserted that agriculture is the backbone of most developing economies. He was further of the view that because of the significant role agriculture plays, farmers should be assisted to obtain credit facilities to boost 6 their activities most especially in the rural areas. Akwai-Sakyi (2013) mentioned that making credit facilities available to farmers helps them acquire the needed technology and methods which in the end increases output. Yu (2008) also reiterated that making credit available to farmers gives them the ability to acquire farming equipment, new technologies, proper irrigation systems and agricultural inputs. He further opined that apart from the above advantage farmers get, access to credit also helps them to establish the needed storage facilities to store their products. Munturi and Nzomo (2014) identified that access to credit by farmers helps to improve the standard of living of the farming communities. In other words, the social and economic well-being of farmers and their communities are improved especially in the area of education and health. According to Awunyo-Vitor and Abankwa (2012), access to credit has the capacity to increase the productivity and national income distribution of a country. This assertion stems from the fact that majority of people in developing countries are farmers and therefore their ability to access credit means expansion in the agricultural sector, hence, national productivity. Some researchers are even of the view that access to credit by farmers raises their income level during the off farming season (Akudugu, Egyir, and Mensah-Bonsu, 2009). According to Ahma (2010), access to credit has the tendency to help poor farmers from rural areas to engage in other economic activities apart from farming. He further mentioned that farmers’ access to credit enables them to manage shocks that are likely to occur in most of the farming seasons. Similarly, Kafle and Kennedy (2012) mentioned that making credit accessible to farmers enables them to raise their income status especially in poverty-stricken communities. This, according to Ahmad, can be achieved through obtaining credit for their agricultural activities and saving. This is supported by Awunyo-Vitor and Abankwa (2012) who also mentioned that the poverty being experienced by Ghanaian farmers is as a result of low production which results in low income and saving. According to them, this problem can be 7 solved when farmers get access to credit facilities. They also posited that access to credit helps raise the income levels of farmers who operate in small scale to access labour for their agricultural activities. Research shows that households living below the poverty line can have their income levels raised if only they have access to credit to strengthen their farming activities. This will enable them to achieve food security. A study by Baffoe, Matsuda, Masafunii and Akiyama (2015) established that there is a significant positive relationship between access to credit and agricultural productivity. In this study, the increase in agriculture productivity was as a result of borrowers’ technical efficiency. Similarly, a study conducted on “Impact of agricultural credit on farm productivity” by Duy (2012) showed that access to credit, farmers’ educational background and the use of technology by farmers significantly increased productivity. The study further depicted that increase in production was a result of availability of formal credit to the farmers rather than informal credit. Dong, Lu and Featherstone (2010) conducted similar study and they found that farmers’ access to credit had significant positive relationship with increase in agricultural output. Dong and his colleagues were therefore of the view that making credit facility accessible to farmers, educating farmers on how to effectively and efficiently utilize credit facility as well as building capacity of these farmers has the tendency to increase output by higher margin. 2.3 Exchange Rate Volatility and Access to Credit According to Bahmani-Oskooee and Gelan (2018), exchange rate volatility has negative implications on farmers’ access to credit. They believed that exchange rate volatility has an effect on financial institutions that give credit to farmers and the farmers themselves. Similarly, Oseni, (2016) argues that exchange rate instability affects farmers’ access to credit in most developing countries. He further posited that exchange rate volatility tends to affect agriculture and its related activities which in the long run slows down entire economic growth of a country. 8 In relation, Senadza, and Diaba (2017) advised that African countries, especially Sub-Saharan Africa, must put measures that will ensure the stability of their local currencies so as to enjoy economic growth. Chauke, Motlhatlhana, Pfumayaramba, and Anim (2013) describes the natural resources of most developing countries as a “curse” because according to them, though these countries have the natural resources to ensure general growth and development, it turns out that managers of these resources mismanage the resources. They cited exchange rate volatility as one of the factors that affects the economic fortunes of developing countries. From the situation described, it can be realized that exchange rate instability greatly affects the utilization of natural resources of which the agricultural sector is no exception. Njindan Iyke and Ho (2018) express similar arguments; they discovered that exchange rate volatility stunts economic growth of a country. According to them, exchange rate instability affects lending to farmers, businessmen etc. They were of the view that the instability most often brings uncertainty in the entire economic system. They further revealed that the financial institutions are most often unsure if the borrowers can invest and make the expected profit to pay back as agreed. Sometimes, the borrowers themselves are unsure whether they can make the needed profit to pay the financial institutions. Bleaney and Greenaway (2001) revealed that even though most developing countries have undertaken a lot of exchange rate policies to stabilize their economies, most of them, occasionally or unabatedly, experience the consequence of the instability of the exchange rate. Some of these policies range from overvaluation to pumping of more foreign currencies such as the United State dollars into the economy in a bid to achieve stability. Unfortunately, most of these measures do not see the light of day, as most of these developing countries import more that they export (Bah & Amusa, 2003). Bleaney and Greenaway (2001) identified that most of the developing countries, especially in Africa, depend significantly on agriculture for 9 its foreign exchange. They further mentioned that the developing countries have failed to take advantage of these sectors and the consequence is the instability of the exchange rate. The fundamental function of banks is to collect deposits from customers and give loans to customers (Amidu, 2014). In Ghana, because of the instability of the exchange rate as well as lack of capacity of businessmen to pay their loans back, most of the financial institutions are always careful in giving credit facilities to aid businesses (Ladime, Sarpong-Kumankoma & Osei, 2013). According to Amidu and Hinson (2006), the financial institutions usually assess borrowers to identify those who have the potential to do good investments that can bring returns. This is to ensure that the credit given is retrieved within the specified time frame. Biekpe (2011) also found out that the banks are most often cautious about their lending decisions. He explained that lending decisions are normally influenced by a number of factors. One of the factors that Biekpe identified is the exchange rate volatility. According to him, exchange rate instability has an effect on the macroeconomic environment of a country, thus it forms a vital component of a bank’s lending decision. In the study, it was identified that during periods when the exchange rate is stable, businessmen become certain of their operations. This, in the long run, leads to economic boom and as a consequence, businessmen demand for more loans from the banks. During this period, the banks are also willing to give loans knowing very will that there is a greater possibility of the loans being paid back. On the other hand, when the exchange rate is volatile, businessmen are uncertain about the business operations. The result is that, the banks are unwilling to give them loans with the fear that they might not be able to pay back. According to Bahmani-Oskooee and Gelan (2018) this provides a cyclical effect of the relationship between exchange rate and lending of the banks. According to Vazakidis and Adamopoulos (2009), exchange rate has either positive or negative relationship with economic growth. They also revealed that the exchange rate volatility also affects the performance of other economic indicators such as inflation. They therefore concluded that exchange rate 10 volatility affects lending behavior of banks. In addition, Aye et al. (2015) identified exchange rate volatility as a major reason why some banks’ borrowers perform poorly, which in the end affects the profitability of the banks. According to them, this phenomenon is prevalent in developing countries owing to their considerable exposure to foreign trade. With regards to the above discussions, one will expect that in a developing country like Ghana, the instability in the exchange rate will have a negative impact on the credit stance of banks. 2.4 Exchange Rate Volatility and Exports Obeng (2017) found a significant negative relationship between exchange rate volatility and export volumes. According to him, many exporters in developing countries depend on exchange rates to determine the volume of products to export. He was further of the view that this phenomenon is common in developing countries because of the exchange rate instability. According to Obeng, the volumes to export depend on the risk disposition of the exporters. For instance, an exporter who takes high risk is likely to export high volumes even if the exchange rate is unstable On the other hand, low risk takers will decrease their export volumes when the exchange rate is not stable. But he posited that a lot of exporters are likely to reduce their export volumes as a result of exchange rate instability. Tarawalie, Sissoho, Conte and Ahortor (2013) also argue that the impact of exchange rate volatility on exports rests on the former’s substitution and income effects. Therefore, a risk averse exporter will choose not to export products but rather channel products to the local market as a means of dealing with exchange rate volatility. Alternatively, high risk exporters will even see it as an opportunity to export more with the possibility of making enormous profit from the volatile situation. Scholars have had divergent arguments as far as exchange rate volatility on exports is concerned. On one hand, scholars have found a significant positive relationship between exchange rate volatility and exports. On the other hand, scholars have found a negative relationship between exchange rate volatility and exports. Interestingly, a third group of scholars found no effect of exchange 11 rate volatility on exports. These divergent views mean that there is the need to do more investigation into the area. So far, empirical studies have revealed mixed findings as far as exchange rate volatility and exports are concerned. According to Senadza and Diaba (2017) the mixed results by scholars depends on the extent of the volatility during a particular study, a particular period of time, a particular data used for the study, the methodology used for the study, and the specific context the study was conducted. For instance, Tarawalie et al. (2013) conducted a study on “exchange rate volatility and export performance in the WAMZ countries”. They had mixed findings. In some countries such as Gambia, the results showed a significant positive relationship between exchange rate volatility and export volumes. On the other hand, the results in countries such as Nigeria, Liberia and Sierra Leone showed negative relationship between exchange rate volatility and export volumes. However, the results in countries such as Ghana and Guinea showed no effect between exchange rate volatility and export volumes. In other studies, research conducted by Tchokote, Uche and Agboola (2015) on “the effect of exchange rate volatility and exports” in some West African Countries such as Ghana, Nigeria, Togo, Gambia and Cote d’Ivoire, the results were mixed. As some showed positive relationship between exchange rate volatility and export volumes, others showed negative relationship or no effect. Similarly, research conducted by Serenis and Tsounis (2015) investigated “the effect of exchange rate volatility on sectoral exports of Germany, Sweden and UK” and the results indicated that there is a positive relationship between exchange rate volatility and export volumes in Germany and UK but the result in Sweden showed no effect. In relation, a research conducted in Turkey by Tatliyer and Yigit (2016) on “exchange rate volatility influence on foreign trade” findings indicated that exchange rate instability has no significant impact on export levels. 12 Conceptual Framework Access to Credit Exchange Rate Volatility Exports 13 CHAPTER THREE METHODOLOGY 3.1 Introduction This chapter presents the methodology for the study. This section provides the description of the research design, target population, sampling technique, sample size, data collection procedure and data analysis. 3.2 Research Design/Approach In general, there are three core types of research design. These are the qualitative, quantitative, and the mixed method approach. According to Adams & Schvaneveldt (2005), the research design is “the framework or structure to be employed by the researcher in collecting and analyzing the data relevant to the study in focus”. To meet the objectives of the study, the research will employ the use of basic descriptives and a qualitative analysis. Lincoln (2000), explained that “qualitative research involves studying things in their natural setting and trying to make sense of, or interpret phenomena in terms of the meaning people bring to them”. 3.3 Study Area The study covers Greater Accra and Eastern Regions of Ghana. These Regions are selected because, most of the branches of Agricultural Development Bank (ADB) are located here. This proximity facilitates an ease in reaching out to the officials of ADB as well as the farmers to participate in the study. 3.4 Target Population Hanlon and Larget (2011) define a population as an entire group about which it is necessary to ascertain some information. The study targeted the officials of ADB and the farmers who are customers of the bank. 14 3.5 Sampling Technique Purposive technique which is a non-probability sampling technique is used to select participants because it helps in selecting the participants that will be most useful for the study. According to Trochim (2008) in situations where there is the need to quickly reach the targeted sample and where the main concern is not to achieve proportionality, the purposive sampling can be very useful. A sample of 5 members of staff of ADB will considered for the study, as well as 25 farmers, who are customers of the bank. 3.6 Data Collection Instruments Research instruments refer to strategies for fact finding or tools for data collection. Unstructured open-ended questionnaire was used to collect data from the respondents. Face- to-face interview with the aid of interview guide was used to gather data for the study. 3.7 Data Analysis Basic descriptive analysis such as means and frequencies are presented in the form of tables, charts and percentages so that clear meaning can be deduced out of them. After tabulating the results into usable formats, an analysis was done to interpret the results to make it intelligible. Thematic analysis which involves common threads, identification search that stretches across an entire interview was used to analyze the qualitative data (Miles & Huberman, 1994). Braun & Clarke, (2006) steps was followed to analyze the data. 3.8 Ethical Consideration Introductory letters explaining the purpose of this current study were sent to the authorities of ADB for approval. By ensuring that participants were not obliged to disclose their names, they were assured of privacy and confidentiality. Participants were also assured that the information that they provided would be for academic purposes only. 15 CHAPTER FOUR DATA ANALYSES AND DISCUSSION OF FINDINGS 4.1 Introduction This chapter of the study presents the results, and discussion of findings. The order of presentation includes discussion and analysis of the themes generated from the transcribed data from the field. Table 4. 1: Categories of common themes emanating from the study 1. Farmers access to credit 2. Effect of exchange rate volatility on credit facility to farmers. 3. How farmers finance their farming activities 4. Effect of exchange rate volatility on export volumes Source: Field Survey (2019) 1. What are the factors that influence farmers’ access to credit from Banks? 2. What is the impact of exchange rate volatility on farmers’ access to credit from Banks? 3. What are the effects of exchange rate volatility on exports? 4.2 Discussions of themes generated from the study How farmers finance their farming activities According to the respondents, farmers finance their farming activities through financial institutions such as commercial banks, development banks and rural banks. Respondents were of the view that there are several financial institutions that give credit to farmers but most of 16 the farmers were aware of Agricultural Development Bank (ADB) only. According to the respondents, the apparent oblivion of some farmers on the existence of other financial institutions might be due to the illiteracy level among the beneficiaries. Some of the respondents were also of the view that even though they have knowledge of ADB and even other financial institutions, they have never thought of accessing credit from them due to bureaucratic procedures and other requirements such as collateral. They revealed that the amount given them is also not sufficient for their activities. For instance, some of them mentioned that they receive less than GHc 1000 which is nothing to write home about. Respondents also disclosed that they also finance their farming activities with borrowed money from friends and relatives. But they were quick to add that amounts from those sources are mostly woefully inadequate. They also revealed that the monies borrowed from friends and families pose a grave inconvenience to them because they can demand for the monies at any point in time. In their opinion, government must put pragmatic measures in place to aid farmers secure enough credit for their farming activities. From the above discussion, it seems that even though farmers want to access credit facilities from financial institutions, they find it difficult to do so. It can also be noticed that some of the farmers do not have enough information about financial institutions to access credit. The apparent lack of knowledge and consequent inability to access credit facilities available has placed some farmers in dire straits as they believe their activities help grow the economy. 17 Farmers’ access to credit Discussion of Farmers Responses According to the respondents, there are several factors that determine farmers’ access to credit. Some of the factors identified by the respondents are experiences in farming, size of farm, the educational level of the farmer, farmer’s ability to hire labour, distance between the farmer and the lender, marital status, the size of household, age, sex and many others. Respondents were of the view that among all these factors, sex, age, years of experience, educational level and farm size have significant relationship with farmers’ access to credit. It is clear from their responses that access to credit is a major challenge to farmers. This is corroborated by the findings of Hussain and Thapa (2015) who found that most farmers in developing countries have major challenges accessing credit from the financial institutions. They expressed their disappointment in the difficult situations they experience in trying to access credit from the banks. They also revealed that most of the farmers are forced to borrow small amounts of money from friends and family members which are most often woefully inadequate. They expressed dissatisfaction about the way and manner things are not put in place to help farmers. They were of the view that, the way agricultural activities have been touted as the back bone of the Ghanaian economy, they did not expect these barriers to exist in the 21st century. The respondents further explained that that today’s agricultural activities are not like the olden days where agricultural activities were engaged in solely to cater for a subsistence culture. They explained that, agriculture today has taken a different paradigm shift where the focus of most farmers extends beyond a subsistence culture to cater to national as well as export demands. According to them, it is regrettable that the appropriate authorities have not been seen doing 18 enough to help those who are into agricultural activities. They also mentioned that there had not been enough effort from successive governments to have a comprehensive policy in place to help farmers to have access to credit from the banks. For instance, they mentioned that for one to be successful in agriculture, the person will need modern technology to increase production. The respondents also revealed that they are not satisfied with the time they are given to repay loans by the banks. According to them, they are mostly given twenty-four (24) months to repay their loans which normally happens in the harvesting season where prices of their produce is mostly low. They were of the view that at least they should be given thirty-six (36) months or more to repay their loans. Responses of ADB officials According to the respondents, the main focus of Agricultural Development Bank (ADB) since its establishment for about 64 years has been to provide those into agriculture and its allied industries with credit facilities and to develop and modernize agriculture and its related industries. According to the respondents, ADB provides about 85% of institutional credit to agricultural sector. They revealed that they have supported areas such as food and industrial crops, livestock and poultry, fishing, vegetables for local consumption and export. The respondents also intimated that ADB has been helping other agriculture allied industries involved in storage, warehousing, transportation, distribution and marketing of agricultural inputs and produce of all kinds. In addition, they revealed that they also help individuals or companies who are into the value-adding venture of processing of primary agricultural produce and others involved in purchasing, concentration and transportation of primary and secondary agricultural produce mainly for export. They reiterated that ADB has been doing very well in promoting agriculture and its related industries in Ghana. They believe that investing in this 19 area has the potential to improve many poverty-stricken communities. Some of the respondents expressed the conviction that the investment made by ADB has impacted positively on several communities. The respondents admitted that, there are still challenges in relation to farmers’ access to credit from their outfit. The respondents explained that they encouraged beneficiaries to form groups to help them secure credit but some of the farmers had shown reluctance to do so. Some of the respondents revealed that as a renowned financial institution they cannot be giving loans to any individual who applies for credit. Some of the pre-requisites for qualification for credit identified through interviews were (a) That applicants provide proof of being engaged in farming, fishing, livestock or agro-processing (b) That applicants belong to a solidarity groups for at least six (6) months and (c) That applicants operate savings accounts with the bank. The respondents explained that in light of the current situation in the banking sector and the economy as a whole that is the best they can do for those who want to access credit from their bank. Respondents were of the view that applicants normally complain that the procedure they usually have to endure is cumbersome but that cannot be the case. They also revealed that asking applicants to belong to a solidarity group is not meant to punish applicants but to ensure that group members obtain credit through their group leaders, which, in their view, is a rather simple process. They explained that this allows the bank to use joint and several liabilities by the bank as a collateral. They further indicated that giving the loans to groups also ensures that the poor who do not have collateral to individually access credit, can also benefit. Another advantage of this strategy is that it allows the beneficiaries to repay their loans because of the pressure the group puts on them. 20 Effect of exchange rate volatility on credit facility to farmers. Responses of ADB Officials According to officials, exchange rate volatility has negative consequence on access to credit; Bahmani-Oskooee and Gelan (2018) who found that exchange rate volatility has negative implications on farmers’ access to credit, corroborate this finding. According to the respondents, the exchange rate is not stable in relation to our currency. They further mentioned that this is not peculiar to Ghana; it is a “normal” phenomenon in most developing countries. They revealed that the cedi has been depreciating for quite some time which makes planning difficult. To them, the fact that successive governments have struggled to get the problem solved tells how serious the problem is. For instance, they indicated that between 2012 and 2014 alone, the cedi lost about 77% of its value and in 2018, the cedi depreciated against the dollar by 8.3% - an obviously precarious situation for both financial institutions and customers. They also revealed that exchange rate and interest rate play key role in determining the level of inflation in Ghana in the short run and in the long run. But they clarified that an increase in exchange rate leading to increase in inflation may benefit the lender or the borrower depending on the situation at the time. For instance, respondents argued that when currency depreciation leads to inflation, the borrower benefits when he or she has already borrowed from the bank because the local currency would have lost its value by the time the loan is paid back. Responses of the Farmers According to the farmers, exchange rate volatility seriously affects their access to credit. This assertion is supported by Oseni (2016) who explains that exchange rate instability affects 21 farmers’ access to credit in most developing countries. They further revealed that, sometimes the farmer might get access to credit from the financial institution but will experience challenges in repaying the loan. The reason, according to the respondents, is that exchange rate leads to increase in prices of goods and services which includes farming equipment and inputs; this results in the farmers spending more on their farming activities. They further revealed that most farmers are not able to recoup the monies they spend, hence, are unable to pay back the loans. They further reiterated that price of goods and services keeps on increasing all the time which makes planning difficult. They pleaded that government must put measures in place to get the problem resolved or else farmers will continue suffering. Some of their group members are not interested in applying for credit facilities because of this challenge. The plea of the respondents to put measures in place to get the problem resolved is corroborated by the views of Senadza and Diaba (2017) who advised that African countries especially Sub-Saharan Africa must put measures that will ensure the stability of their local currencies so as to enjoy economic growth. Effect of exchange rate volatility on export volumes Responses of the Farmers Regarding the impact of exchange rate volatility on export volumes, respondents believed that exchange rate volatility has a negative impact on exports. This is supported by the findings of Obeng (2017) who also found negative relationship between exchange rate volatility and export volumes. Respondents also explained that depreciation of the local currency against the dollar increases the cost of farming and other related activities along the chain. Some of them lamented that even though the primary rationale for their group formation was to harness or 22 pool resources in order to export their produce, they had had to abandon the idea due to the high cost involved. Respondents also explained that before you can be an exporter of your produce, you ought to have a lot of money to do so. According to them, exporting in small volumes will lead to incurring cost. This is supported by the findings of Tarawalie et al. (2013) who argued that impact of exchange rate volatility on exports rest on the former’s substitution and income effects. Tarawalie and his colleagues further argued that a risk averse exporter will divert his or her products meant for export to the domestic market as a way of coping against the exchange rate volatility whilst high risk exporters will even regard it as an opportunity to export more with the possibility of making enormous profit from the volatile situation. The above argument suggests that a crucial prerequisite for being a high-risk taker is having a lot of money to export more to make profit. This therefore supports the assertion of the respondents. 23 CHAPTER FIVE SUMMARY, CONCLUSTION AND RECOMMENDATIONS 5.1 Introduction This chapter presents the summary of the research findings, conclusion, and recommendations for future research. 5.2 Summary of the Research Findings In the current business environment, it has become necessary for governments to put measures in place to ensure stability of exchange rate. This is even more important to the agricultural sector as researchers have indicated that the sector is critical for the economy of most developing countries (Denckhirah et al., 2016). In view of this, the study sought to assess the impact of exchange rate volatility on agricultural sector. Below are the main findings:  Firstly, it was found that farmers finance their farming activities through credit from financial institutions. It was also found that farmers finance their farming activities through monies borrowed from friends and families.  Secondly, it was revealed that factors such as experiences in farming, size of farm, the educational level of the farmer, farmer’s ability to hire labour, distance between the farmer and the lender, marital status, the size of household, age and sex are key in determining farmers’ access to credit.  Thirdly, it was identified that the bureaucratic processes farmers have to negotiate in order to access credit facility from the financial institutions is a major disincentive, not to mention the small amount of money they receive. 24  Fourthly, it was found that Agricultural Development Bank (ADB) is the main financial institution most farmers are aware of when it comes to giving credit to farmers. It was also revealed that ADB provides about 85% of institutional credit to agricultural sector.  With regards to how exchange rate volatility affects credit facility to farmers, it was found that exchange rate negatively affects farmers access to credit.  Again, it was found that exchange rate volatility negatively affects export volumes. 5.3 Conclusion The findings of the study reveal that farmers finance their farming activities through credit from financial institutions. It finds that farmers finance their farming activities through monies borrowed from friends and families. The study also reveals that factors such as experiences in farming, size of farm, the educational level of the farmer, farmer’s ability to hire labour, distance between the farmer and the lender, marital status, the size of household, age and sex are key in determining farmers’ access to credit. It finds that accessing credit facilities from the financial institutions is a challenge to the farmers because of the bureaucratic processes involved. It finds that Agricultural Development Bank (ADB) is the main financial institution most farmers are aware of when it comes to giving credit to farmers. Lastly, it finds that exchange rate volatility negatively affects export volumes. 5.4 Recommendations for Practice  It is recommended that farmers must come together to form a strong force to be able to access credit facilities from the financial institutions. Even though the financial institutions give credit to farmers in groups, it appears the groups are not strong enough to entice enough credit for their farming activities. 25  Financial institutions who give credit facilities to farmers must form campaign teams to educate the farmers on how they can form strong groups to get them enough credit. They must also educate the farmers on how to adopt modern farming practices to enhance their produce.  The banks must also reduce interest rates to allow more farmers to access credit facilities. In addition, the repayment period should be extended for the farmers to allow them to repay their loans in time.  It is also recommended that banks strategize with the farmers on how they can produce enough for export. 5.5 Recommendation for Policy There is the need for Bank of Ghana to collaborate with Ghana of Association Bankers to develop a comprehensive policy to help farmers have access to credit facilities. Bank of Ghana (BoG) must reduce policy rate to enable the banks reduce their interest rate on the credit facilities to farmers. Government, through the Ministry of Trade and Industry, must formulate policies that will aid farmers to export their produce. Finally, government through BoG must formulate appropriate monetary policies to ensure stability of exchange rates to help farmers access credit from financial institutions as well as export their produce. 26 5.6 Suggestions for Future Research  The study adopted qualitative method for this study. Future studies might consider adopting other approaches such as quantitative and mixed method to replicate the current study.  This study investigated the effect of exchange rate volatility on agric-sector. Future studies may consider other variables such as Inflation and Gross Domestic Product (GDP).  Only one bank was used for the study which gives room for future researchers to compare two or more banks. 27 References Abba, I. Y., Madaki, M. J., & Benisheik, K., M (2015). Analysis of Credit Performance of Small-Scale Farmers in North-Eastern Part of Yobe State, Nigeria. IOSR Journal of Agriculture and Veterinary Science Ver. I, 8(7), 2319 – 2372. Ahma, W. (2010). 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It will be appreciated if you could kindly provide responses to the ALL questions below to facilitate the work. TOPIC: ASSESSING THE IMPACT OF EXCHANGE RATE VOLATILITY ON AGRIC- SECTOR LENDING: A CASE STUDY OF AGRICULTURAL DEVELOPMENT BANK Demographic information 1. Gender Male [ ] Female [ ] 2. Age 21 – 30 [ ] 31 – 30 [ ] 31 – 40 [ ] 41 and above [ ] 3. Educational background SSCE/WASSCE [ ] Diploma [ ] Degree [ ] Masters [ ] 4. Marital Status Married [ ] Single [ ] 5. How many years have you been into farming activities? 6. How have you been financing your farming activities? 7. Where do you get financial assistance? Explain 8. Have you ever requested for loan for you farming activities? 9. Were you able to secure the loan? If no explain. 10. Do you think exchange rate volatility affects farmers’ access to loan? 35 11. Do you produce for local market or for export? 12. If for export, kindly explain how exchange rate volatility affects export volumes? Thank you for your contribution to this research. 36 Appendix B UNIVERSITY OF GHANA BUSINESS SCHOOL Interview Guide for ADB Officials This questionnaire has been designed to seek data to research into the above topic. Please be very objective in your responses as data obtained from this exercise is purely for academic purposes and shall be accorded the highest degree of confidentiality. It will be appreciated if you could kindly provide responses to the ALL questions below to facilitate the work. TOPIC: ASSESSING THE IMPACT OF EXCHANGE RATE VOLATILITY ON AGRIC- SECTOR LENDING: A CASE STUDY OF AGRICULTURAL DEVELOPMENT BANK Demographic information 1. Gender Male [ ] Female [ ] 2. Age 21 – 30 [ ] 31 – 30 [ ] 31 – 40 [ ] 41 and above [ ] 3. Educational background SSCE/WASSCE [ ] Diploma [ ] Degree [ ] Masters [ ] 4. Marital Status Married [ ] Single [ ] 5. Position…………………… 6. How often do farmers access credit? 7. How do you assess farmers who request for credit from you bank? Explain. 8. What are the requirements farmers must have to meet before qualifying for credit facility? 9. Do you give farmers education about how they can easily access credit facility from banks? 37 10. Does exchange rate volatility affect lending of credit facility to farmers? Thank you for your contribution to this research. 38