SDG Impact Finance Initiative, with the support of Convergence, awarded a USD 120,000 feasibility study grant under its Innovation Window to Ground Up Project (GRUP) for its Ghana SDG-SME Fund of Funds (FoF). The fund aims to catalyze external commercial capital into Ghana’s SME investment ecosystem.
Ghana received an estimated USD 1.3 Billion of international aid in 2021. In recent years, the country has made it its key objective to transition beyond aid funding through trade and investment and to “create prosperity and equal opportunity for all. In addition to becoming independent from aid, the country strives to invest in its private sectors to achieve the SDGs. In 2021, the government was the largest financier of the SDGs, accounting for over 90% of Ghana's total funding for SDGs. Despite some commercial investments that focus on environmental and social aspects of the SDGs in Ghana, there is very limited growth in private SDG-focused investment within the country.
The proposed FoF addresses the development challenges through investing in local Micro/Small and Medium-sized Enterprises (M/SMEs). The fund is designed to catalyze international commercial capital into Ghana’s SME investment ecosystem to help scale domestic SMEs. Subsequently, by targeting these “missing middle” enterprises’ capital needs, the FoF will gradually transition SDG-focused investment activities away from public development agencies and towards private, commercial entities, while maintaining Ghana’s focus on SDG agendas.
Design question and learning potential for the market: How can a blended finance fund of funds attract international investments into Ghana and subsequently help the country to scale up its SDG focused M/SMEs?
The USD 250 Million Ghana-based SDG-lens SME Fund Of Funds (FoF) will be managed by a Ghanaian Fund Manager, with advisory support from a consortium of international fund managers and the Ghana Investment Promotion Centre (GIPC). The investment will be made in funds that are Ghana-focused, targeting specific SDG areas, with investment sizes ranging between USD 2.5 and USD 15 Million.
The blended structure attracts a wide range of investors, including international private sector institutional investors, domestic Ghanaian private and public institutional investors, pension funds, and the government. Additionally, the FoF will engage with a second group of investors, such as MFIs, DFIs, and Foundations, to provide a concessional tranche of the capital structure. This will help de-risk and incentivize the entry of private sector investors. Each commitment is required to be over USD 5 million in size with an average size of USD 25 million per investor. Under the structure, international investors will gain co-investment rights in underlying funds to increase their exposure. In the long run, the FoF can help foreign investors to build confidence in investing directly in Ghana.
The FoF is highly scalable and contributes to SDG development in emerging markets by mobilizing international and local private capital. Furthermore, it builds exposure for international investors to familiarize themselves with Ghana's investment, potentially leading to sustained investment beyond the initial FOF phase and fostering long-term capital flows into the country.
