Unlocking financing from native pensions for SME development and affect – Life Pulse Daily

Introduction

Small and Medium-sized Enterprises (SMEs) are the backbone of West Africa’s economy, representing 92% of all businesses, employing 80% of the workforce, and contributing 70% of the region’s GDP. Despite their critical role in economic development and job creation, SMEs face a persistent financing gap that limits their growth potential. According to the World Bank Group, 40% of SMEs in developing countries cannot access credit, resulting in an unmet financing need of $5.2 trillion annually—equivalent to nearly 19% of these nations’ GDP.

This capital shortage severely impacts both emerging and established fund managers, restricting their ability to invest in high-potential SMEs. However, a promising solution lies in unlocking domestic pension funds for investment in alternative assets such as venture capital (VC) and private equity (PE) funds that support SME growth. This approach not only addresses the financing gap but also promotes innovation and sustainable economic development across Ghana and West Africa.

Analysis

The Role of Pension Funds in SME Financing

Pension funds in Ghana manage over $4 billion in assets, representing 5.7% of the country’s GDP. These funds are traditionally invested in low-risk, government-backed securities. However, regulatory frameworks now allow up to 25% of pension assets to be allocated to alternative investments, including private equity and private debt—asset classes that can directly benefit SMEs.

The underutilization of pension capital for SME financing stems from limited awareness, risk perception, and a lack of institutional-grade investment vehicles. This is where initiatives like the Pensions Industry Collaborative (PIC) and the Ci-Gaba Fund of Funds come into play, offering structured pathways to channel pension capital into high-impact SME investments.

Ci-Gaba Fund of Funds: A Catalyst for Change

Managed by Savannah Impact Advisory, the Ci-Gaba Fund of Funds is a pioneering development vehicle designed to mobilize $75 million in domestic pension capital for investment in West African SMEs. The fund operates as a “fund of funds,” investing in local VC and PE managers who, in turn, support SMEs across six key sectors:

• Agriculture and agribusiness
• Light manufacturing
• Healthcare
• Education
• Financial inclusion
• Technology and innovation

By investing in local currency and partnering with domestic fund managers, Ci-Gaba reduces foreign exchange risk, enhances local ownership, and increases the visibility of high-potential SMEs to institutional investors.

Pensions Industry Collaborative (PIC): Building Institutional Capacity

The PIC is a multi-stakeholder initiative led by Impact Investing Ghana, bringing together Ghana’s largest pension fund managers, trustees, regulators, and financial institutions. Its primary mission is to expand pension investments into productive sectors of the economy through three core objectives:

1. Capacity Building: Delivering training programs to enhance understanding of alternative investments among pension managers and trustees.
2. Product Development: Supporting the creation of institutional-grade investment vehicles that meet the risk-return profiles of pension funds.
3. Policy Advocacy: Promoting regulatory reforms to create a more enabling environment for pension fund investments in alternative assets.

The PIC has developed the “Pensions Industry Alternative Investment Plan,” a comprehensive framework that guides collaboration between government, regulators, and financial institutions to scale pension investments in SME-supporting assets.

Summary

The financing gap facing SMEs in West Africa is both a challenge and an opportunity. With 40% of SMEs unable to access credit, there is an urgent need for innovative financing solutions. Domestic pension funds, with their long-term investment horizon and growing asset base, are uniquely positioned to fill this gap. Through structured initiatives like Ci-Gaba and PIC, Ghana is emerging as a regional leader in unlocking pension capital for SME development.

These programs not only provide much-needed capital but also build institutional capacity, promote regulatory reform, and foster collaboration across the financial ecosystem. The success of these models offers a replicable blueprint for other African countries seeking to harness pension capital for inclusive economic growth.

Key Points

Practical Advice

For Pension Fund Managers

Pension fund managers should consider diversifying a portion of their portfolios into alternative assets, particularly those focused on SME development. Engaging with initiatives like PIC can provide access to structured learning, risk assessment tools, and vetted investment opportunities. Start with pilot allocations to build experience and confidence in alternative asset classes.

For Policymakers

Regulators should review and update investment guidelines to encourage prudent allocation to alternative assets. This includes setting clear risk management standards, promoting transparency, and supporting the development of local fund managers. Regulatory sandboxes and pilot programs can help test new investment models while safeguarding pension assets.

For SMEs and Fund Managers

SMEs and local VC/PE managers should focus on building institutional-grade investment propositions with clear impact metrics, governance structures, and exit strategies. Participating in capacity-building programs can enhance credibility and attract pension fund interest. Transparency and regular reporting are key to building long-term investor confidence.

Points of Caution

• Alternative investments carry higher risk and longer lock-up periods than traditional fixed-income securities.
• Pension funds must maintain fiduciary responsibility and ensure investments align with member risk tolerance.
• Limited track records of local fund managers may require co-investment with experienced international partners.
• Macroeconomic instability, inflation, and currency fluctuations can impact returns.
• Strong governance and transparency mechanisms are essential to prevent misuse of funds.

Comparison

While many African countries face similar SME financing challenges, Ghana stands out for its progressive regulatory framework and structured approach to pension fund mobilization. Unlike Nigeria or Kenya, where regulatory restrictions limit pension investments in alternative assets, Ghana allows up to 25% allocation, providing greater flexibility.

Compared to South Africa, which has a more mature private equity market but lower focus on SME impact, Ghana’s model emphasizes both financial returns and social impact. The Ci-Gaba and PIC models are more collaborative and inclusive, involving multiple stakeholders from the outset.

Regionally, Ghana’s approach offers a middle path—balancing risk, return, and impact—making it a potential model for other West African nations.

Legal Implications

Pension fund investments in alternative assets must comply with the National Pensions Regulatory Authority (NPRA) guidelines in Ghana. The law permits up to 25% allocation to alternative investments, including private equity and private debt, provided they meet prudential standards.

Fiduciary duties require pension trustees to act in the best interest of contributors, ensuring investments are prudent, diversified, and aligned with long-term objectives. Any investment in VC/PE funds must undergo rigorous due diligence, risk assessment, and ongoing monitoring.

Regulatory reforms may be needed in other African countries to enable similar pension fund participation. This includes updating investment guidelines, strengthening oversight, and enhancing transparency requirements for alternative asset managers.

Conclusion

Unlocking domestic pension funds for SME development is not just a financial strategy—it’s a transformative approach to inclusive economic growth. Ghana’s leadership through the Ci-Gaba Fund of Funds and the Pensions Industry Collaborative demonstrates how structured collaboration, capacity building, and regulatory support can mobilize long-term capital for high-impact investments.

By investing in local fund managers and SMEs across critical sectors, these initiatives are building a more resilient and diversified economy. The model offers valuable lessons for other African nations seeking to bridge the SME financing gap while generating sustainable returns for pension contributors.

As West Africa continues to grow, the integration of pension capital into productive sectors will be essential for unlocking the full potential of SMEs, driving innovation, and creating lasting economic transformation.

FAQ

Sources

• World Bank Group (WBG) – SME Finance Gap Report
• Impact Investing Ghana – Ci-Gaba and PIC Program Documentation
• National Pensions Regulatory Authority (NPRA) – Investment Guidelines
• Savannah Impact Advisory – Fund Management Reports
• Ghana Investment Promotion Centre – Economic Data
• Research and Innovation Systems for Africa (RISA) Fund – Partnership Reports
• FMO – Development Finance Institution Reports