Across Sub-Saharan Africa, small- and medium-size enterprises (SMEs) face a nearly $331 billion financing gap, and the picture is not very different in Ghana. Ghanaian SMEs—an important part of the nation’s economy—face one of the largest SME financing gaps in all of Africa, estimated at $4.8 billion. They are simply not getting the money they need—to grow, to scale up, or in many cases even to survive. The financing shortfall is especially high in the agriculture, forestry and fishing sectors, among women-owned enterprises, and in geographical areas outside Accra, Ghana, especially the Northern, Upper West, and Upper East regions—the very regions saddled with the highest incidences of multidimensional poverty.
But conventional capital—a commercial investment that seeks market-rate, returns—has not been an effective way to bridge this financing gap because SMEs are generally perceived as too small and too risky. On the supply side, commercial financial institutions charge high-interest rates, up to 30%, and require substantial collateral for loans that are typically short-term and while venture capital is increasing the industry is still at an early stage.
Impact investors—investors that target enterprises seeking to make a social impact such as creating jobs, especially for traditionally disadvantaged groups like women and youth—would seem to be a promising source of innovative financing vehicles for Ghanaian SMEs. The challenge there is that most of the dramatic growth in impact investing around the world in the past five years has come from investors seeking both market-rate, risk-adjusted returns and positive social impact and not willing to make concessions to enable innovative models to launch and scale.
What is needed to bridge the SME financing shortfall are pioneer 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.
That need is being filled by catalytic investment capital. Catalytic capital can be thought of as a specialised form of impact investing. It is capital that, compared to conventional capital, is willing to accept a disproportionate degree of risk and/or concessionary returns in order generate a positive impact and bring in more conventional, market-rate, third-party investors that otherwise would not be willing to invest.
The study that led to this report was launched to develop a better grasp of Ghana’s catalytic capital investment ecosystem to provide insights that will allow key institutions to mobilise catalytic capital in ways that unlock additional appropriate commercial capital for small- and medium-size enterprises (SMEs) and for impact. This report offers a broad overview of the landscape from 2004 to 2021 and provides insights and guidance that will enable both current and prospective impact-oriented institutions and practitioners to better understand;
- How patient, long-term catalytic capital has been deployed in Ghana’s SME financing sector, the roles it has played, and lessons to guide its future expansion
- The distinct forms catalytic capital takes, the uses to which SMEs have put it, and the outcomes it has generated, both positive and negative
- How catalytic capital has been deployed to address the social and economic needs of various underserved populations, and
- What kinds of concessions have been employed to unlock additional commercial capital for SMEs and to draw in conventional investors who normally target market-rate returns.
View the Ghana’s Investing Ecosystem Map by clicking on this link https://ghanainvestingmap.com/