FORMAL AND INFORMAL FINANCIAL SYSTEMS OF FOOD PRODUCERS AND DISTRIBUTORS IN THE NORTHERN REGION OF GHANA

Abstract

The main objective of the study was to examine the financial systems operating in the food production and distribution sectors in the Northern Region of Ghana. A sample size of 194 respondents consisting of 160 food producers and 24 food distributors as well as 10 banking institutions were interviewed. Purposive sampling technique was used to select districts and microfinance institutions. Simple random sampling was used to select communities whereas systematic sampling procedure was employed for farm households in chosen communities. Techniques employed for the data collection was questionnaire administration, participatory rural appraisal and direct observation. Statistical Package of Social Science and Microsoft Excel were used to analysed the data providing frequencies, means, percentages and proportions data. The study revealed that over 70% of the entrepreneurs interviewed depend heavily on informal financial sector for their small scale agri-businesses. The result also revealed that most of the entrepreneurs availed only small amount of credit from the formal and informal financial sectors. Illiteracy with its attendant factors of fear, information gap and the lack of understanding in addition to the lack of collateral and high interest rates played a high role in deterring entrepreneurs from seeking loans. The study concludes that lending terms in the formal sector focus on default risks and high transaction costs whiles in the informal sector, the failure to seek loans was due to the failure by the different lenders to offer the credit package required by specific borrowers. The study recommends that, formal financial institutions should link their operations with those of informal lenders. This can help ensure that they reach the agri-business enterprises.