Small and medium-sized enterprises (SMEs) and small and growing businesses (SGBs) are essential to global commerce and have the potential to be instrumental in achieving the ambitious UN Sustainable Development Goals (SDGs).

In emerging markets, SMEs form the backbone of economies, contributing up to 40 percent of GDP and creating 7 in 10 employment opportunities. In Africa, they account for 90 percent of all business. With the continent’s population predicted to double by 2050 – which will account for more than a quarter of people on the planet – harnessing the potential of SMEs to drive employment, provide products and services, and ensure shared prosperity will be critical.

Yet unlocking financing for Africa’s SMEs has proven to be a significant challenge, with a funding gap estimated to exceed $300 billion. Ghana, one of the fastest growing economies in the world, is a case in point. Its aim to deliver on the 2030 SDG Agenda in the medium-term and set itself up for equitable long-term growth and stability is hindered by a financing gap of around $4.8 billion – the largest in Africa – facing its SMEs. The implications of this funding gap are severe, jeopardizing Ghana’s long term economic growth and threatening its resilience in the face of social and environmental challenges. Ghana’s ‘Country Financing Roadmap for the SDGs’ report is clear: unlocking greater financing for SMEs is one of the key levers that could accelerate progress towards the SDGs.

Impact investing in Ghana

Impact investing continues to gain traction as a powerful tool for mobilising capital to bridge funding gaps in emerging markets, but its success hinges on establishing robust impact ecosystems underpinned by private investments that prioritise people and the planet while also ensuring financial returns. This challenge is one that Impact Investing Ghana (IIGh), has tackled head-on, in collaboration with regional partners such as the National Advisory Board for Impact Investing in Nigeria to support the growth of impact investing across West Africa.

Earlier this year, IIGh began the operational setup of the Ci-Gaba Fund of Funds (FoF), which aims to unlock $75 million in local and international funding. Ci-Gaba will be led by Savannah Impact Advisory’s Founder and CEO, Hamdiya Ismaila, who has headed Ghana’s Venture Capital Trust—one of the continent’s few locally run Fund of Funds—for the last 16 years. The fund’s blended vehicle structure strategically combines philanthropic funding with local, commercial funding. By using blended finance, the fund seeks to ensure returns are safeguarded, appealing specifically to local pension funds and addressing the risk perceptions of investors who may be reticent to engage with innovative structures.

Several elements set Ci-Gaba apart from the typical investment vehicle – it will be dedicated to investing in SMEs, demonstrating a commitment to bolstering local business. Investments will be made in local currency, incentivising domestic market participation and encouraging economic growth. And, it will tap into Ghana’s dynamic pension market, which currently stands at more than $4 billion – 5.7 percent of the country’s GDP. In short, it’s a triple-win for SMEs, sustainable development, and the pension industry, who can benefit from new diversification opportunities and increased revenues from new jobs created.

Navigating risks and the promise of catalytic capital

However, impact investing in emerging markets can come with a set of challenges, with currency risk due to fluctuating exchange rates often topping the list. This is where the blended FoF structure can offer a solution by facilitating the aggregation of capital and providing opportunities to absorb and channel new capital sources that are, crucially, local. In Ghana, default on government debt inadvertently created a positive incentive for pensions to diversify away from treasury bonds and invest in more locally-denominated vehicles tied to the real economy.

For impact investing to be able to fully address the challenges of sustainable development, more strategies and instruments are needed that cater to the missing – or transforming-middle to build investment capacity in this under-developed segment. FoFs like Ci-Gaba are opening the door for these transformations, by raising risk-tolerant, flexible, patient, and concessionary investment capital or ‘catalytic capital’, alongside more commercial capital.

In Ghana, IIGh’s research revealed that catalytic capital schemes are able to draw in third party investments into SMEs, generating value that is 3 to 7 times higher than the initial investment. This represents a promising key to helping close the SME financing gap in Ghana and beyond. When translated into initiatives like Ci-Gaba, the roadmap to achieving the SDGs may just have found a fast track.

Africa and beyond

The ripple effects of IIGh’s work are already reaching beyond Ghana’s borders. To help steer this impact, African National Advisory Boards for Impact Investing and the Global Steering Group for Impact Investment (GSG) have established the Africa Impact Investing Group (AIIG), which aims to increase the provision of capital for SMEs across the African continent. Under the umbrella of the AIIG, two additional impact schemes are being developed benefitting SMEs in Nigeria and Zambia.

With 2030 looming on the horizon, developing innovative impact ecosystems that foster progress toward achieving the SDGs will be a key factor between success and failure. Beyond this immediate timeline, the wellbeing of future generations depends on our ability to reframe our current global financial system, making the shift to a model that is sustainable and inclusive, leaving no one behind.

Amma Lartey is the Chief Executive Officer at Impact Investing Ghana (IIGh)

Gila Norich is the Head of Knowledge Development, Global Steering Group for Impact Investment (GSG)