ABOUT CATALYTIC CAPITAL AFRICA
Learn More About the Catalytic Capital Africa Campaign and why you should support it.
WHAT IS CATALYTIC CAPITAL
Catalytic Capital is capital that is willing to innovate and to accept disproportionate risk and/or concessionary returns to generate positive impact and unlock additional commercial third-party investments that otherwise would not be possible or likely.
The concessions that individually or in combination make an investment catalytic have been summarised into five Ps.
Price - Accepting a return on investment lower than the likely risk
Pledge - Using guarantees to provide credit enhancement
Position - Occupying a subordinated debt or equity position to enhance credit for investees
Patience - Going into investments that take longer than usual or even an uncertain period
Purpose - Accommodating non-traditional terms to meet the needs of investees. E.g. smaller investment sizes or collateral-free investments.
WHY IS IT NEEDED FOR SMES IN AFRICA
Increasing financing for SMEs across Africa has been identified as a key lever to enable the attainment of the SDGs in African countries like Ghana. However, there is a massive SME financing gap estimated by the International Monetary Fund (IMF) as USD 331 billion. In addition, African SMEs struggle to find affordable patient capital and many countries have mostly very short-term debt financing available that impedes growth. Also, the size of investment needed by the average Africa SMEs $50,000 to $2million is below the size of investment that current regional and global suppliers of capital can provide - a situation referred to as the missing middle.
Domestic capital providers including venture funds are able to provide financing of the investment size that SMEs need however there is a need to innovate with models that are able to deploy capital more cost-effectively and at scale. This calls for catalytic capital which is willing to take on more risk to catalyze these new solutions.
WHAT CAN I DO TO TAKE ACTION
1. Deploy Catalytic Capital: Deploy capital through local capital providers, in the process strengthening local capital markets and reducing deal sizes.
2. Strengthen Local Capital Providers: Deploy capital through local capital providers, in the process strengthening local capital markets and reducing deal sizes.
3. Deliver sustainable jobs: Invest in SMEs that employ the majority of people on the continent to enable them to grow and to deliver sustainable jobs.
4. Green Growth: Enable all businesses to become more climate resilient and pursue growth that is greener and more sustainable.