IIGh, Ashesi University provide insights to increase financing of SMEs with new report on Catalytic Capital Investments

Impact Investing Ghana (IIGh) and Ashesi University have launched a comprehensive report on Catalytic Capital and its role in increasing financing for Small and Medium Enterprises (SMEs) as part of their commitment to promoting sustainable development and increasing appropriate patient capital for SMEs to transform Ghana’s economy.

The research funded by the Catalytic Capital Consortium offers a broad overview of the landscape for SME financing from 2004 to 2021 and provides insights and guidance for both current and prospective impact-oriented institutions and practitioners working in a developing economy like Ghana.

The report launch brought together major stakeholders to discuss the strategies, hurdles and outcomes in generating such capital for Ghanaian SMEs.

Catalytic capital refers to capital that is willing to accept disproportionate risk and/or concessionary return to generate a positive impact and enable third-party investments that otherwise would not be possible. The report identified $ 989 million in catalytic financing deployed in Ghana between 2004 and 2021 in SMEs and analyzed these to provide a framework to accelerate the mobilization of catalytic capital to fill the $ 4.8 billion financing gap that SMEs in Ghana face. It found that catalytic capital schemes enabled 3rd party investments that were 3 to 7 times the initial investment in the SME—an important and promising key to closing the SME financing gap in Ghana.

Actionable recommendations include;

  • Support for efforts in Ghana to increase the supply of catalytic capital including supporting innovative financing vehicles designed to deliver appropriate finance for SMEs, action by philanthropic foundations to include catalytic capital in their program activities, by private sector actors to partner with catalytic capital providers, and by the government to disburse funding in ways that are catalytic, transparent and unlock additional third-party investments.
  • Commitment by Development Finance Institutions (DFIs) to take on more risk and be truly catalytic for example by working with emerging fund managers and financing innovative funding vehicles.
  • Action by International Development Agencies (IDAs) to participate in blended finance vehicles and use structures such as pay-for-performance incentives to crowd in private sector funding.
  • A commensurate increase in funding for technical assistance and transaction advisory work, including increasing the number of capital-raise service providers and strengthening the quality of enterprise support to increase the demand for catalytic capital and the effectiveness of SMEs.
  • Creation of affordable currency hedging solutions and for the government to put in more effort to stabilise the currency.

Addressing the impact the report could have, Amma Lartey, CEO of IIGh, shared that  SMEs in Ghana and across Sub-Saharan Africa, are simply not getting the money they need to grow. Conventional capital has not been an effective way to bridge the massive financing gap because SMEs are generally perceived as too small and too risky. Impact investors—investors that target enterprises seeking to make a social impact—mostly require market rate returns and are often not willing to make concessions to enable innovative models to launch and scale.  What is needed is catalytic capital providers with the vision and the willingness to take on more risk in order to enable the exponential impact, growth, and ultimately, the returns expected. Impact Investing Ghana and its partners will be advocating for the implementation of the recommendations from the report and coordinating collaborative action to unlock financing for SMEs. One example is an innovative fund of funds under development to unlock local pension funding for SMEs in Ghana.

Gordon Adomdza, Principal Investigator at Ashesi University shared that it is important as we seek to transform Ghana’s economy that we provide data and insights that help in the design of stronger financial institutions, products and investments. He gave participants a preview of an online Ghana Investing Map that will provide data to researchers and investors to guide decisions and invited the report’s readers to sign up to be notified when the map goes live at https://ghanainvestingmap.com/

Speaking at the event, UN Resident Coordinator for Ghana, Charles Abani, lauded IIGh for the seminal report and reiterated the UN’s commitment to supporting locally led initiatives to increase financing for SMEs and building beneficial relationships between SMEs and private investors. He emphasized MSMEs’ contributions to Ghana achieving self-reliance and the Sustainable Development Goals (SDGs).

The event was attended by key ecosystem players with addresses from Mirabelle Moreaux, board member of Impact Investing Ghana, Sangu Dele, board member of Ashesi University, Nana Osei Bonsu, C.E.O. of the Private Enterprise Federation, and Hamdiya Ismaila, General Manager of the Venture Capital Trust Fund and addressed a wide range of issues such as increasing SME funding for women, how to grow financing in an economic downturn, and the need for more cedi-denominated investment vehicles.

The full report can be downloaded here https://bit.ly/3UgFMlc. To find out more about how you can support action to increase catalytic capital and appropriate financing for SMEs email [email protected]

About Impact Investment Ghana (IIGh)

Impact Investing Ghana (IIGh) is the Ghana National Advisory Board for Impact Investing. We are an independent private-sector-led initiative promoting sustainable development and advancing the development of the impact investment ecosystem in Ghana. Established as a nonprofit, IIGh is Ghana’s representative to the Global Steering Group (GSG) for Impact Investing, the successor to the Social Impact Investment Taskforce established by the G8. IIGh aims at tackling Ghana’s pressing social and environmental challenges by driving more capital to deliver real impact. We are a local platform bringing together all the stakeholder groups needed to redirect significant capital flows towards social and environmental impact including leaders from finance, business, government, social organizations and philanthropy. Private-sector-led, yet in close partnership with the national government, we raise awareness, create market intelligence, change policies, and mobilize additional financial resources for the public good. IIGh has an ambitious plan to support the growth of impact ventures and to catalyze $1 billion in impact funds for investment for impact ventures in Ghana and the West African sub-region prioritizing areas including reducing underemployment and unemployment, reducing inequality gaps and addressing climate and environmental issues.

About Ashesi University

The mission of Ashesi is to educate a new generation of ethical, entrepreneurial leaders in Africa; to cultivate within our students the critical thinking skills, the concern for others and the courage it will take to transform their continent. By raising the bar for higher education in Africa, we aim to significantly contribute to a renaissance in Africa.

The University began instruction in March 2002 and quickly gained a reputation for innovation and quality education. Ashesi is the first University in Ghana to adopt and blend the liberal arts model with majors in Computer Science, Management Information Systems, Business Administration, and Engineering. Through its work with partners, Ashesi has impacted education outcomes for some 150,000 students across Africa. The University is committed to applied research as a critical aspect of its work to strengthen the impact of higher education in Africa.