Access to finance remains one of the biggest challenges for small and medium-sized enterprises (SMEs) in emerging markets. SMEs face an estimated USD 8 trillion annual financing gap, while 40% of formal SMEs remain underserved. Yet the challenge is not always a lack of capital. In many countries, significant amounts of capital are already held by pension funds, banks, foundations and family offices. Even modest reallocations could be transformative: for example, just 2% of African pension fund assets, around USD 7 billion, could double SME financing pipelines in some markets. The challenge is finding effective ways to mobilise this capital towards SME financing.
Together with GSG Impact, DGGF explored how local capital can be mobilised to strengthen SME financing. Combining insights from the DGGF portfolio and case studies from Ghana, Morocco, Colombia and India, the paper identifies practical lessons for successfully engaging local investors.
Key challenges and what works
The paper identifies four common barriers that often prevent local capital from reaching SMEs:
- Connection gaps: investors and fund managers struggle to find each other.
- Ticket-size mismatches: investment sizes do not align with investor expectations or SME financing needs.
- Conviction gaps: local and international investors wait for each other to invest first.
- Capacity gaps: there are too few experienced fund managers able to absorb institutional capital.
The research shows that successful funds overcome these barriers by involving local investors early in fund design, attracting credible anchor investors, and creating structures that balance risk and return.
Image: © Juan Nino / Unsplash
Lessons from Ghana, Morocco, Colombia and India
The knowledge paper also highlights several examples of successful local capital mobilisation. As such, the Ci-Gaba Fund in Ghana worked for instance closely with local pension funds and used blended finance structures to build confidence among local investors. In Morrocco, the Mohammed VI Investment Fund demonstrated how public capital can attract significant private investment when governance remains independent and professionally managed. Meanwhile, experiences from Colombia and India show the importance of strong local anchor investors and long-term ecosystem building. In Colombia, an early commitment from Fundación Bancolombia helped validate the investment case for international investors, while in India, SIDBI demonstrated the potential of catalytic public capital, helping mobilise more than USD 12 billion into the broader investment ecosystem. Together, these examples illustrate that there is no one-size-fits-all approach, but they also reveal that strong local participation can be a powerful driver of SME financing.
Looking ahead
The paper concludes that mobilising local capital requires more than individual transactions. It requires a supportive regulatory environment, capable fund managers and trusted local investors as essential components of a functioning investment ecosystem. All in all, the paper shows that local capital can play a critical role in expanding access to finance and strengthening sustainable SME finance markets.
Read the full paper here to explore the case studies and learn more about the mechanisms that help unlock local capital for SME growth