AVPN Global Conference 2023 | 20 - 22 June 2023



Accelerating Impact with Catalytic Capital

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What is catalytic capital

Asia sees a growing number of untapped opportunities to support underserved populations, early-stage innovations, and underfunded sectors.

The Catalytic Capital Consortium defines catalytic capital as investment capital that is patient, risk-tolerant, concessionary, and flexible in ways that differ from conventional investment, with the ability to de-risk and mobilise additional investment from mainstream investors.

By deploying catalytic capital, funders and investors are able to ensure the additionality of their capital, address issues on the ground that are often aligned with their values, whilst at the same time achieve their return objectives.

It is well-placed to build proofs-of-concept and support the development of ground-breaking solutions which other funds might deem too risky.


Catalytic capital in action

South Asia

Artha Impact

Deploying patient capital into early-stage high-impact businesses that focus on underserved communities, while also building the impact investing ecosystem.

North Asia

Merry Year Social Consulting

Investing upfront risk capital and crowding in other equity investors and acting as an intermediary bringing blended transaction structures to life.



Choosing between – equity, loans, grants, or a combination as part of a holistic approach to achieving impact through its portfolio.


Investors in Asia

Catalytic capital investors target underserved populations and markets in high-risk sectors, such as climate action, food and agriculture, education, livelihoods and inequality.


Roles that investors play

Catalytic capital investors are driven by motivation to bring additionality and support innovations that others might be hesitant to fund. Investors can play different roles with their catalytic capital, depending on the kinds of gaps that exist, and what is needed to address them.


Capital is directed towards building new sectors, attracting talent and forming markets. It involves a high level of risk and uncertainty.


Capital is used to help grow businesses so that they can attract wider interest. This role is for investors looking to bring in more money from elsewhere.


Capital is deployed as an ongoing concessional investment required by enterprises that cannot achieve full commercial viability.


Structures and instruments

Investors and funders in Asia use different structures and instruments in deploying catalytic capital. Choosing the right instrument requires a strong assessment and understanding of the needs of the investee organisation, alongside ensuring that investees’ financial needs are aligned with the resource providers’ own investment objectives.


Key challenges

Investors and funders have to overcome challenges on several fronts when deploying catalytic capital. Many of these relate to the practice being emergent but are notable nonetheless.

Deploying catalytic capital in a blended structure can be costly. Transactions such as impact bonds have little to no precedent. Investors must navigate legal, regulatory and accounting standards themselves, adding to the administrative complexity and cost.

It can also be challenging to clearly identify the risk-reward ratio borne by different parties in blended transactions. Commercial investors often do not see eye-to-eye with catalytic capital providers on deal size and the scale of transactions.

Governance issues can be a hurdle for those ready to deploy catalytic capital. Many investors have investment arms outside Asia, and it can be difficult to find staff in the markets of interest with the appropriate expertise to manage transactions.

Moreover, Asian private wealth holders and asset owners often follow a “two pockets” concept, with one pocket of money set aside for investment and the other to “do good.” Each pocket is distinct, and while blending is a growing practice, it is still rare.

Given the experimental nature of catalytic capital deployment in the region, the size of the transactions might be smaller than mainstream or large institutional investors require, which could be over USD 100 million. On top of this is the inherent risk of failure when embarking on an untested approach.
A core ecosystem challenge is the lack of channels for investors to identify allies and opportunities to co-invest. The absence of architecture that connects all the stakeholders in Asia preserves silos.

Data and research on investment performance is hard to find in Asia. Impact measurement and management is still a nascent discipline globally with few incentives to adopt common standards. This is apparent in Asia, and can be attributed to the complexity and resource intensiveness of impact measurement: according to one intermediary, impact measurement for an impact bond can cost up to 10% of the deal size.

There is also insufficient transparency on deal terms and actors even though most would agree on its value. In some countries in Asia, it is clear that fiscal frameworks and regulatory restrictions are often inconsistent, unclear and impede the deployment of catalytic capital. For example, in Australia, there are regulations that demarcate the fiduciary duty of foundation trustees, and similarly, in Hong Kong, the Inland Revenue’s approach to charities limits the activities for which the charity can use its funds to ensure its charitable status. Tax regimes can also be challenging when cross-border activity occurs, especially when philanthropic partners are tax-exempt in certain jurisdictions.

Whether the issues are around financial laws, charity laws or foreign capital laws, wealth managers may need to set up different vehicles to navigate the relevant regulatory environments. This again adds to complexity and cost. In many cases, particularly in emerging economies, the complex policy infrastructure leads wealth managers to focus their time on market prospecting and building a pipeline of companies.

Influencing public policies and regulations is seen as complicated because investors do not have the capacity to do so. Governments are constantly shifting priorities, while many laws in the region limit the scope of nonprofit organisations in political and advocacy work.
Despite progress over the last decade, market information remains limited, making it hard for investors to identify quality investable impact-first companies with the potential to scale. This lack of pipeline is evident in different parts of the region, with a majority of social enterprises in Southeast Asia yet to report a profit in the past year and only 10% of Indonesian social enterprises having been identified as investable in research conducted in 2017.

Enterprises also face challenges in proper bookkeeping and generating financial projections – the minimum documentation required for investments. This is made worse in certain markets where social enterprises do not even have a way of legally registering their entities to reflect their unique operating models. Impact-first social businesses can also encounter societal stigma. In Hong Kong, for example, consumers can perceive product offerings to be of lower quality than those offered by conventional businesses.


Learn how you can effectively deploy catalytic capital in Asia and beyond

Connect with fellow investors at catalytic capital sessions at the AVPN Global Conference 2023

Learn through the AVPN Academy learning series

Uncover insights from catalytic capital investors around the world in our global webinar series.

Share your experience deploying catalytic capital


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