VCTF & DBG poised to ease long-term funding to SMEs

Yaw Owusu-Brempong, Chief Executive Officer, Venture Capital Trust Fund (VCTF)

The Venture Capital Trust Fund (VCTF) was established by Venture Capital Trust Fund ACT, 2004, (ACT 680) to provide financing to small and medium-sized enterprises (SMEs) by easing access to long-term funding to SME’s.

VCTF’s Chief Executive Officer, Yaw Owusu-Brempong, has revealed that in the next five years, the Venture Capital Trust Fund (VCTF) will deploy GH¢1.5 billion to support small and medium-sized enterprises (SMEs).

Following the signing ceremony of investment agreements for MIREPA SME Fund and WANGRA Green Ventures, the CEO indicated that the VCTF stands to increase its capital pool to the SMEs sector.

“Over the next five years, VCTF intends to deploy GH¢1.5 billion to support SMEs. With this amount, we intend to leverage about GH¢5 for every GH¢1 spent, thereby increasing the capital pool to SMEs to about GH¢7.5 billion.”

VCTF investment agreement signed with MIREPA SME Fund and WANGRA Green Ventures – venture capital (VC) Fund Managers – will deploy GH¢35 million to SMEs in Ghana. This brings total capital deployment toward SME finance to GH¢60 million in under 2 months, this year.

VCTF has been recapitalised under the Ghana Economic Transformation Project by World Bank with US$40 million to invest in both early-stage and transformational sectors of the Ghanaian economy in addition to a technical assistance facility of US$5 million, which allows the Trust Fund to design programmes for the development of the VC ecosystem.

Between 2006 and 2020, VCTF committed about US$25 million to seven funds. Mr. Owusu-Brempong, however, indicated that VCTF has committed roughly about US$25 million, but at different exchange rates because it’s over a period of time.

Successful investments include Joyce Ababio Fashion, Axis Pension Fund, African University College of Communications (AUCC), Legacy Girls, Rising Sun Montessori, Everpure Ghana as well as Scientellect DNA Diagnostic Centre and Caltech – an ethanol processing business – which was later taken over by Kasapreko.

Mr. Owusu-Brempong, in an interview with the B&FT, stated that VCTF is very selective in the choice of fund managers because VC investment is not about managing money, it is about managing several businesses at the same time.

Closely related to this, available data suggests only 11 percent of banks’ credit is longer than 5 years. Additionally, less than 8 percent of the credit goes to manufacturing, and less than 4 percent to agriculture – both of which are essential for economic development.

Therefore, to ensure competitively priced medium-to-long-term financing to the SME sector, the Development Bank Ghana (DBG) is leveraging on its capacity and partner financial institutions (PFIs) to de-risk the sector.

DBG’s Chief Executive Officer (CEO), Kwamina Duker, stated that by connecting PFIs and SMEs, the DBG aims to serve as a catalyst for economic development, driven by the private sector to provide both competitively priced long-term capital and capacity-building.

The bank has invested GH¢245 million during the one-year period, and expects to invest GH¢1 billion more in the following three to six months despite the current local and global economic troubles.

“At the moment we have about five PFIs that we have on-boarded or are close to on-boarding. Key PFIs are Fidelity CBG, Access Bank, Cal Bank; and we have other banks in the pipeline which we will be completing in the coming months.”

DBG’s cooperation with commercial banks enables it to increase its lending capacity by also making use of the PFIs’ available resources.

The DBG is probably the most capitalised bank in the country; however, the bank has 10 partnerships in a bid to foster this mandate.

“Talking about transforming the private sector. We’re focusing on four sectors. We’ll focus on agriculture, manufacturing, ICT, and on high-value sectors such as tourism and transport,” he added.

The importance of SMEs to social and economic development in Ghana, and even Africa is almost undisputed. Throughout the continent, SME promotion is a priority in the policy agenda of most countries as it is widely recognised.

SMEs in Ghana employ more than 80 percent of the workforce and generate some 70 percent of GDP. However, access to finance for SMEs remains a challenge to growth; therefore, SMEs are a key pillar of Ghana’s economic resilience, prosperity and international competitiveness.

SMEs are, however, bedevilled with a lot of challenges that render them ineffective and inefficient. Some SMEs also complain about the cumbersome banking procedures and difficulties in accessing bank loans.

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