Retreat, retrenchment and recalibration were the three Rs of development finance in 2025. If 2026 is to be the year of revival for development growth capital, it will be because local pensions, insurance funds and wealthy families step up to strengthen local financing ecosystems for local needs.
Much of the attention for such local asset owners is focused on financing local companies poised for growth. Such informal, small and mid-sized businesses generate the bulk of much-needed employment for young and growing populations across emerging markets.
“2025 has been a year where the ‘tourists’ left and the builders stayed,” says Lelemba Phiri of South Africa-based ATG Samata, a gender-lens fund that invests throughout Africa. “I’m thinking about how the African ecosystem has successfully transitioned from a hype-cycle to a build-cycle.”
That transition was born of necessity. The year began with the dismantling of USAID and its $40 billion annual development assistance budget, sending shock waves through emerging economies in Africa, Asia and Latin America. The funding had supported everything from vaccines to farmer training, women’s livelihoods to small business finance. USAID’s collapse in February was a gut punch to nonprofits, social enterprise and investment fund managers already competing for funding from shrinking foreign aid budgets.
But in private-sector development circles, it didn’t take long for whispers to begin circulating among local practitioners and even some international investors. Might markets weaned off foreign aid be better off in the long run? Could local capital be mobilized to fill the gaps? Wouldn’t African capital for African development be more sustainable than relying on fickle international donors that often have their own agendas?
This year, local investment fund managers and other ecosystem players began realizing the fruits of their diligent, years-long efforts to educate domestic and regional pension funds, insurers, family offices, and wealthy individuals about “alternative investments,” especially small business finance, venture capital and private equity. The portfolios of many such local asset owners have long been limited to local government paper and international public equities.
Local pensions, for example, began to see their own advantages in financing job-creating growth companies – newly employed workers could become savers in the pension schemes, buoying the plans’ finances as older workers began to draw down benefits. A Ugandan pension scheme, the National Social Security Fund, held its first All-Africa Pension Summit to engage other African pensions in local private equity and venture investment opportunities as a pathway to building new pension savers.
“We said, as a fund, we cannot be passive or bystanders in the economy,” NSSF’s Patrick Ayota told ImpactAlpha. Of the new generation of workers, he added, “Now they’re making a little more money, and they’ll save a bit of that money with the fund.”
The emergence of such local financing ecosystems will be the story to follow as ImpactAlpha’s correspondents fan out across Africa, Asia and Latin America to chart the new “pathways to growth.”
Local leadership
Local fund managers like Phiri are playing a pivotal role in reshaping local capital markets around local rather than foreign capital. Such managers have long called out the obstacles and biases that hold back African fund managers, particularly those run by women.
Ghana’s Ci-Gaba Fund of Funds, a $75 million blended finance initiative, is focused on unlocking local institutional capital for West African venture and growth capital funds. Ci-Gaba has made two investments with capital secured from two Ghanaian pension funds, backstopped by catalytic capital from UK’s development financier FSD Africa.
“The key focus has been on deepening local participation in private equity and venture capital,” says Dinah Hammond of Savannah Impact Advisory, which manages Ci-Gaba. “Our focus for 2026 will be expanding co-investment frameworks that enable pension funds to safely participate in alternative assets.”
The fund of funds was developed by Impact Investing Ghana, the local national advisory board for impact investing, and supported by Switzerland-based Argidius Foundation, to “ensure that Ghanaian institutional investors are not only observers but active co-investors in Africa’s growth story,” Hammond says.
Doing that requires intense engagement with local policy makers and regulators. “We see this as a necessary step toward building sustainable capital markets,” Hammond says.
Beyond equity
The new fit-for-purpose funds are redesign the kinds of capital local managers are deploying.
Traditional venture and private equity models aren’t a fit for African business needs – most promising businesses are too small for traditional private equity and too traditional for venture capital. Mitigating risks and optimizing returns requires right-sizing checks, blending equity and debt structures, layering in technical assistance, and designing exit and liquidity milestones into fund structures.
“There is an inherent problem of moving big capital to small deals,” Drew von Glahn of the Collaborative for Frontier Finance, an Africa-focused fund manager network, said on last month’s Agents of Impact Call. “[Local] capital managers are playing that incredibly important role in the middle of the hourglass. They can take large pools of capital and disburse it.”
Senegal-based WIC Capital provides flexible financing up to €2 million ($2.3 million) in female-led businesses in Senegal and Cote d’Ivoire. It uses revenue-sharing agreements to provide liquidity for the fund and its investors.
“One of the problems for small business investors is liquidity,” said WIC Capital’s Evelyne Dioh Simpa. “That’s the only way we can keep the money flowing toward our small businesses that are the majority of our private sector.”
Heva Fund in Kenya is focusing on businesses in the creative economy, a sector that especially impacts Africa’s swelling population of young people. HEVA offers both grants and milestone-based debt financing to creative economy entrepreneurs.
TLG Capital’s second Africa Growth Impact Fund uses a unique structure to provide dollar-denominated loans to African businesses that can’t get them from their local banks.
ATG Samata invests in women-led and focused businesses that are improving resilience and sustainability in Africa’s core economic sectors, like food, mobility and financial services.
“We’ve stopped looking for the next unicorn and started valuing the camels—businesses with sustainable unit economics that can survive harsh climates,” Phiri says. “My mind is on the founders who have quietly executed this year despite the macro headwinds.”
She’s encouraged by signs that “the market is finally catching up to the reality that founders need diverse financial tools, not just standard SAFE notes.”
The growing number of small funds may be just what the market needs. Few businesses in Africa are able to absorb the larger checks that larger funds would be compelled to write.
Nigeria-based Aruwa Capital, for example, makes $1 million to $3 million equity investments in African businesses employing and serving women. The woman-run firm started with a $30 million fund in 2018 and is now raising $60 million for its second fund to make similarly sized investments.
“This segment is where we see the demand on the ground,” said Aruwa’s Adesuwa Okunbo Rhodes. “If someone said I should raise a $500 million fund in Africa tomorrow, I would politely decline.”
Catalytic capital
Capital from foreign investors and development finance institutions still makes up the majority of capital supporting African impact and private equity funds. Managers stress that foreign development finance will continue to play a significant role in Africa’s economic development.
“Development finance institutions remain critical anchors for the ecosystem,” says Phiri. She adds, “Their risk mandates can sometimes limit their flexibility in the earliest stages.”
The demise of foreign aid has helped steer some development finance institutions in the right direction. Some of the long-standing DFI players in Africa, like the International Finance Corp., British International Investment, the Netherlands’ FMO, the African Development Bank and others, have shifted at least some capital to catalytic and less risk-averse pools, and are testing simpler ways of using blended finance.
FinDev Canada, the newest of the G7 development finance institutions, has tried to show that development finance can be fast and efficient. Through its Japan International Cooperation Agency, Japan has dialed up its engagement on the continent – fueled both by prospects for economic growth at home and a desire to counter-balance China’s influence.
“We’re doing this as a natural course as our work evolves in the development space,” JICA’s Ryo Tsujii told ImpactAlpha. “We need to pivot to private sector engagement in Africa and businesses are natural enablers of economic growth.”
The end-of-year market sentiment of cautious optimism is markedly different from February’s frenzy and worry.
Managers report that foundations have stepped up their engagement this year to partially back-fill the gaps in catalytic and first-loss capital. The foundations behind the Growth Firms Alliance, including Argidius Foundation, are pooling resources to galvanize local capital for local development in Africa. The GFA supported the All-Africa Pension Summit and has collaborated with networks like Impact Investing Ghana and the Collaborative for Frontier Finance.
Mastercard Foundation’s Africa Growth Fund has been a key pot of early-stage funding for emerging African fund managers, supporting fund managers like Aruwa Capital in Nigeria, Inua Capital in Uganda, Chui Ventures in Kenya, and Janngo Capital in Côte d’Ivoire-based. The fund was self-reflective in a milestone report acknowledging the fund’s missteps and market criticisms on its multi-year journey advocating for systemic change in how private capital in Africa is deployed.
Mastercard Foundation, the world’s second largest philanthropic endowment behind the Gates Foundation, is partnering with NSSF in Uganda on the Hi-Innovator Programme to equip youth, women, refugees and disabled individuals with entrepreneurship skills and capital.
What’s still needed is scale, says Savannah Advisory’s Hammond. “Mobilizing larger pools of domestic capital to match the ambition of impact mandates.”
“We hope to see a continued deepening of blended finance structures that de-risk participation for local investors,” she adds, “alongside greater harmonization of impact measurement frameworks across Africa.”
