Impact investing in Africa is scaling up, with impact-oriented deal flow quadrupling between 2020 and 2024. However, the focus has largely remained on the supply side of capital (e.g., new blended finance and impact-first funds). This is revealing a systemic constraint that could impede future deal flow: the lack of investable pipeline.
To be clear, the problem is not a lack of promising social enterprises or ambitious entrepreneurs, but a scarcity of enterprises that have the connections to meet investors, and the internal systems and capacity to put impact capital to work.
The Missing Ingredient: Investment Facilitation
Impact investing can generate both financial and social returns at smaller ticket sizes, but in Africa, it often focuses on larger companies — such as expat-founded and expat-led ventures — that already possess the capacity required to pass international due diligence. Meanwhile, African-led small and medium enterprises (SMEs) struggle to produce the sophisticated financial models and social impact management and measurement expected during due diligence. Even SMEs that can meet the technical standards that impact investors demand often lack the network that helps well-connected expat-led businesses find investment opportunities. As a result, many promising SMEs are locked out of the investment market.
A critical solution is the investment facilitation provided by specialized business advisory service providers (BASPs). These advisors deliver the strategic, technical and networking support African SMEs need to demonstrate their potential to capital providers. In addition to other services like legal and human resources, BASPs communicate the compelling investment opportunities SMEs represent through “deal rooms” — a series of documents such as financial statements, pitch decks, contracts and policies that allow potential investors to understand the enterprise’s growth potential. BASPs also act as transaction advisors, connecting enterprises with investors and accompanying the enterprise through the process of the deal.
The Impact of BASPs
The success of Ghanaian agribusiness Mariseth Farms demonstrates how impact can be scaled when innovative funding is combined with business advisory services. Mariseth, an enterprise founded by Marian Ofori Twumasi and focused on local farmers, had grown organically but needed outside investment to continue scaling.
After receiving strategic business advisory services from our advisory firm, Pangea Africa, the company was able to raise $850,000 from three impact investors in 2024/25, accelerating its growth and impact. Mariseth’s earnings tripled in 2025, a sharp increase that would not have been possible without access to working capital from these impact investors, which has enabled it to procure more agricultural produce from smallholder farmers.
This growth demonstrates the efficiency of the BASP approach, as the facilitation costs we incurred to get Mariseth investment-ready were low, about 3% of the investment value. Additionally, this support unlocked both private capital and social returns: Mariseth now works with 9,255 smallholder farmers, compared to 1,550 at the end of 2023. And by providing pre-financing for high-quality inputs (e.g., drought tolerant seed), mechanization services and fair market prices, it contributes directly to farmers’ resilient livelihoods, food security and gender equity.
BASPs’ effectiveness has also been quantified in research: USAID’s Financial Inclusion in Ghana program reported that BASPs in the project’s network successfully facilitated $45.1 million in financing for 529 agribusinesses. Additionally, TechnoServe, a global pioneer of business advisory services that closely tracks impact data, reported that their advisory services in 2024 delivered an average of $7.60 in increased revenue for farmers and small businesses for every $1 invested in their programs.
While BASPs are key to strengthening the quality and quantity of the deal pipeline, financing these providers themselves has been challenging. Development partners tend to view advisory services as a commercial activity, and are reluctant to provide them with ongoing grant financing — meanwhile SMEs have limited ability to pay for these crucial services themselves. And though some BASPs have solved this funding challenge through a performance-based compensation model, this approach makes it difficult to scale, as BASPs don’t typically have the risk tolerance or working capital to work on a deferred fee basis.
The Innovation: A Mechanism that Addresses the Market Failure and Incentivizes Results
To resolve this market failure, a systemic intervention is needed to scale up investment facilitation support from BASPs. To that end, organizations like Social Finance International, a not-for-profit innovative finance advisor, work with funders to address this need by redesigning funding to create the right market incentives and ensure that risk sits with the right party.
To further advance these efforts, Social Finance International and Pangea Africa are currently laying the groundwork for a new financing mechanism with a results-based revolving “evergreen” transaction advisory facility defined by three key criteria of success:
- The financing mechanism should solve the BASP financing market failure described above, and build in long-term financial sustainability.
- BASPs should be incentivized to provide high-quality investment facilitation support that delivers a successful investment round.
- No party should take on more risk than it has an appetite for.
The new facility would be seed-funded by donors. It would provide grants or contracts to BASPs to provide SMEs support, with minimal upfront cost to the SME. However, the upfront funding would only partially cover the BASPs’ expenses, so participating BASPs would have an incentive to catalyze successful transactions, as these would be further rewarded by a results-based bonus from the transaction advisory facility when the SME closes an investment.
At the same time, there would be no free lunch for SMEs. In return for receiving business advisory services with reduced upfront fees, the SME would commit to paying a success fee back to the revolving facility, financed from the investment. The facility would hence be replenished from successful transactions.
In this approach, all parties’ incentives are aligned:
- The BASP would have an incentive to perform well: Linking a share of its payment to a successful investment would improve the accountability and cost-effectiveness of its services. This approach would also deepen BASPs’ engagement with SMEs, creating a sense of shared responsibility. The smaller financial risk and larger financial reward (through the results-based bonus) could also encourage new BASPs to enter the market.
- The SME would pay reduced upfront fees and would similarly take on no financial risk, but in return for a successful transaction, it would give up a pre-agreed share of the investment raised.
- Investors would be crowded in: They are always looking for a pipeline of prospective investees — and this pipeline is costly to build in Africa, where the ecosystem is not as well structured. The facility would address this challenge, enabling investors to ultimately close more deals with African SMEs, without requiring them to pay for the services directly.
- The revolving facility itself would take on significant financial risk by pre-paying transaction advisory costs, but that risk would be somewhat mitigated by the prospect of replenishment through a percentage of the investment when deals are closed.
Further Questions about this Revolving Facility
The proposed revolving facility would be an entirely new approach to scaling investment facilitation services to impactful SMEs in Africa, so some questions still need exploring:
- What do successes and failures of investment facilitation to date tell us about how to align the incentives of BASPs, SMEs and investors — and how to allocate risk?
- What other mechanisms have been piloted for innovative investment facilitation for SMEs in Africa and globally?
- Can investment facilitation unlock opportunities for smaller and informal enterprises and, if so, how can that be incentivized?
Conclusion
Without fresh thinking, impact investment in Africa will continue to fall short of its transformative potential.
The fundamental innovation needed to increase the flow of impact-first investment capital in Africa is not on the supply side but on the demand side. Significant financial and social impact can be achieved when high-quality investment readiness support is available to local SMEs. We need to tackle the market failure that impedes investment facilitators from working with these SMEs to enable greater deal flow.
The proposed revolving facility for business advisory service providers is one way to unlock a flow of capital that could fund the growing universe of African social enterprises. By combining incentives for transaction success with built-in financial sustainability, it aligns all parties around the same goal: more capital for high-impact enterprises.
John Scicchitano is managing director and co-founder of Pangea Africa; Rob Mills is an executive director at Social Finance International.
Photo credit: Jacob Wackerhausen
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