BoG introduces warehouse system of financing

The Bank of Ghana (BoG) has initiated steps towards the introduction of a Warehouse Receipt System (WRS) of financing in the country.

Under the warehouse system of financing, loans will be given out on the basis of goods or commodities held in trust as collateral.

This initiative, according to the BoG, is part of measures to reverse the challenges posed as a result of the absence of a developed domestic commodity exchange and to place the financial system in the country on a sound footing.

The First Deputy Governor of the BoG, Mr Millison Narh, made this known at the opening of a two-day commodity training and risk management seminar in Accra.

It was organised by INTL FCStone Ltd, a wholly owned subsidiary of INTL FCStone Inc, and brought together representatives from the Ghanaian business community, as well as regional participation from Nigeria and La Cote d’Ivoire.

It also brought together participants from multilateral institutions such as the IFC and the African Development Bank.

According to Mr Narh, it is expected that Commodity-Backed Warrants (CBW) will be issued by market participants to fund their operations, as these instruments were prerequisites for the establishment of commodity exchanges.

“This initiative will not only expand the frontiers of our banking system, but also establish the requisite financial infrastructure needed to fuel the operation of the proposed commodity exchanges,” he said.

The commodities market in Ghana, he noted, was less developed and only cocoa and crude oil appeared to have well-structured market infrastructure to facilitate their trading.

“The absence of a commodity exchange has hampered the domestic trading of these commodities and the ramifications are visible, and key among them are the issues of price discovery and transparency,” he said.

Mr Narh stressed that empirical studies showed that commodity trading presented enormous benefits to economies.

“Commodity trading has positive impact on farmers and the wider economy. Of the 76 positive hypothesis used, there was evidence to support the assertion that of the 66 positive hypothesis, 30 of them were farmer related while the remaining 36 were related to the wider economy,” he said.