The General Manager of Venture Capital Trust Fund (VCTF), Hamdiyiah Ishmael, says there has never been a better time in the history of the nation for stakeholder engagements on the introduction and regulation of alternate investment strategies and asset classes than now.
According to her, prevailing conditions such aa ongoing reforms in the financial sector, the emphasis by otherwise risk-averse traditional lenders, especially banks, to tighten their purse-strings in favor of liquidity as a result of the effects of COVID-19, and increased access to market due to the imminent commencement of AfCFTA have led to a rare opportunity for sustained discourse on finance for enterprises.
Speaking to B&FT on the sidelines of a sensitisation workshop organised by SE-Ghana themed ‘Sensitisation on the need for Impact Investing Funds and Actions’, she stressed that conscious and consistent measures must be implemented in driving education and financing social enterprises by engaging asset-holders and asset-owners in the deployment of capital.
“We must be intentional on two fronts, and first is that we need a clear definition of what social enterprises and impact Investments entail. With that, we seem to be making some headway. But we must also be intentional in providing access to patient capital for these enterprises.
“This is the time to hammer on the alternatives, so that we can bring in more kinds of money to support businesses, to stabilise them… The burden of funding socially impactful enterprises shouldn’t be borne solely by government,” she said.
On the need to set up a Fund for impact investing, she affirmed the VCTF’s commitment but called for circumspection when dealing with how much is required to begin.
“You don’t need to have GH¢1billion to start, but we can build an endowment from statutory funding,” she said.
The ‘Report on Impact Investing in Ghana’, which influenced the theme, revealed that there are no clear-cut guidelines on how to enhance and regulate impact investing activities in Ghana – with only “scattered, piece-meal fashioned policy and legal considerations for impact investing ecosystem in the Ghanaian economy”.
The study, conducted by Professor Ernest Asamoah, interacted with 110 respondents ranging from social enterprises to regulators and financial institutions, and further revealed that the few existing funding opportunities are initiated and managed by foreign partners – often with very stringent conditions attached.
Also, financial institutions are reluctant to give Ghanaian social enterprises loans due to their unattractiveness or lack of understanding for their business model.
“Some financial institutions are even unfamiliar with what social enterprises and impact investing mean. This shows the great need for an alternative,” Professor Asamoah said.
An analysis of currently available sources of funding for impact investing showed that 52 percent is from debt, 32 percent through asset-based financing, and a measly 3 percent from venture capital – with the rest primarily funded directly through founding shareholder equity.
“Government and the relevant development partners should as a matter of urgency set up a Social Impact Fund aimed at making funding accessible, open and at lower cost to social impact investors,” the report recommended.
Increasing existing taxes; introduction of a new, dedicated tax category; a commercial capital raise and voluntary contributions were also proposed as potential sources of funding.
Chief Executive Officer of Social Enterprise (SE) Ghana, Amma Lartey, revealed that creating awareness about social enterprises and impact investing is a primary objective of SE-Ghana – adding that her organisation’s goal is to ensure members have businesses that are ready to take capital.
“This means that they need to be profitable or have clear paths to profitability; they need to have strong governance structures, strong boards; not just family and friends, but competent boards which can help the business to grow. The social impact that they crave to deliver must be evident, measurable and clear,” she explained.
She expressed optimism, citing the results of engagements with the VCTF, Ministries of Finance and Trade and Industry, and the Securities and Exchange Commission with the launch Impact Investing Ghana and impending policies on Social Enterprises, which is before Parliament, and Crowd-funding.
The workshop, which aimed at informing stakeholders about the impact investing ecosystem, its challenges and opportunities, was sponsored by the BUSAC Fund and supported by USAID and the British Council among others.