The Influence of Bank-Based and Capital Market-Based Impact Investments on SME Financing in Ghana: Governance, Strategy Change and Impacts

Abstract

Impact investing, defined as direct investments into funds, small and medium-sized enterprises (SMEs) and viable non-profit social enterprises with intentionality to simultaneously realise social impact and financial returns is increasingly attracting the attention of academics and industry practitioners. A contentious claim is that impact investment, as transformational in its approach to entrepreneurial financing, is a panacea to SME financing constraints and solutions to intractable societal problems, is contestable considering the myriad of developmental challenges in Bottom-of-the-Pyramid (BoP) communities in the developing world. Based on an empirical investigation of the influences of finance first and impact first investments into bank-based and capital market-based funds on SMEs in Ghana, this thesis interrogates this claim. Specifically, the thesis argues that though impact investing represents an innovation in private sector approaches to development, the extent to which it can achieve the much-hyped societal transformation in BoP communities cannot be substantiated. This research contributes to the above debate by critically investigating the influences of impact investment funds on investee SMEs through an integrated theoretical framework. The framework draws on the literature from different disciplines including impact investing, social entrepreneurship, strategic management, financial intermediation, economics, SME management and concepts of governance, strategy change and impacts, which was then applied within the research setting of Ghana. Empirically, the thesis develops two case studies of bank-based and capital market-based funds into SMEs, respectively. Qualitative research was employed with data collection comprising in-depth interviews, rapid participant observation complemented by documentary evidence. Findings reveal that the distinctiveness of finance and impact first investors reflect their choices of bank and capital market-based intermediary used resulting in pluralistic, entrepreneurial financing options for categories of SMEs targeted for social impact and financial returns. These findings have implication for fund managers, SME owner-managers and policymakers due to private sector-driven developmental model by impact investors.