For programmes like DGGF, strengthening SMEs is not only about providing finance but also about how decisions are made, who is involved, and how different forms of support come together. By connecting public and private actors and aligning finance, technical assistance and policy objectives, governance helps ensure that support for SMEs is coherent, context- and country specific, and more likely to lead to sustainable impact. In this context, governance is about how roles are divided and how public and private actors work together and reinforce each other in practice. Therefore, well‑designed governance arrangements help ensure that financial instruments are effectively complemented by these other forms of support, such as: local stakeholders, ESG and tax experts, and embassies.
Local stakeholders and embedded local knowledge
A relevant consideration in SME finance is how regional knowledge and presence are integrated into investment decision making. Programmes like DGGF operate through local intermediaries, such as fund managers, banks, and financial institutions that are active in the countries and regions where SMEs operate. This choice of governance makes sure that insights into business markets and risks are structurally part of the investment process.
This approach also ensures that local stakeholders have a meaningful role in shaping how finance reaches SMEs. By working through intermediaries that are active in the countries and regions where SMEs operate, DGGF ensures that local market knowledge is structurally part of the investment process. These intermediaries are close to entrepreneurs, understand regulatory and market constraints, and can translate this knowledge into investment decisions and financial products that better fit the local context. As a result, SME finance becomes more accessible and better aligned with the context in which businesses operate.
Image: © DGGF
Tax, ESG and impact safeguards
In addition, governance also plays an important role in ensuring that SME finance contributes to responsible and sustainable growth. Within DGGF, tax integrity, environmental and social standards, and impact considerations are embedded in the investment process. Partner funds are required to apply these policies and report compliance with these standards to ensure accountability throughout the investment chain.
DGGF supports local partners through guidance and capacity building, for example, on ESG policies, reporting practices and risk management. By providing the funds with this information through, for instance, on-site workshops, the intermediaries become aware of the social and environmental impact of their actions and choices on the planet and community. By embedding tax and ESG considerations, DGGF helps protect local stakeholders and ensures that SME growth contributes to broader development objectives.
The role of embassies in linking finance, policy, and context
Lastly, within local markets and support efforts for SMEs, embassies play an important role. Rather than acting as implementers or financiers, embassies typically operate at the intersection of policy, local context, and private‑sector engagement. Being present on the ground helps embassies see how markets function, know what rules apply, and understand the need for improving inclusive or sustainable growth in bureaucratic processes.
In practice, embassies often support SME development by:
- facilitating dialogue between public authorities, funds, and private‑sector stakeholders;
- helping align programmes and initiatives with national priorities;
- identifying gaps where existing support instruments do not adequately reach target groups.
This support often takes place behind the scenes but can make a real difference in how finance reaches SMEs. Governance mechanisms help bridge this distance by linking investment strategies to local context, complementary support, and public priorities, without blurring institutional roles.
Why governance matters for SME finance
This structured role is particularly relevant to DGGF. In practice, there are often several layers between those making investment decisions and the businesses on the ground, while policy objectives are defined at a broader level. Taken together, these governance elements – the involvement of local intermediaries, the embedding of tax and ESG, and the connecting role of embassies – help link investment decisions to local realities. As markets evolve, governance arrangements must evolve with them. For DGGF, this means continuously learning how different actors contribute to different contexts and adjusting its approach to ensure SME finance remains effective, responsible, and relevant over time.