This is Part Two of a three-part blog series by AVPN and the Catalytic Capital Consortium (C3), exploring how strategic capital can bridge the gap between intent and impact in a changing financing landscape. By examining the evolving role of catalytic capital, this series unpacks how investors can move beyond traditional funding models to build lasting resilience across Asian markets.
Across regions, catalytic capital, defined as investment that accepts disproportionate risk or concessionary returns to unlock third-party funding, has proven most effective when treated not as a single instrument, but as a set of deliberate design choices around risk, time, and collaboration. Evidence from Asia and other markets points to a small number of recurring practices for deploying it effectively.
Start with clarity on the role capital is meant to play
Capital performs differently depending on whether it is designed to seed, scale, or sustain impact. Early-stage capital may need to absorb significant uncertainty in unproven models or first-time funds. Scaling capital often plays a different role, helping to crowd in commercial investors once viability is demonstrated. In some cases, sustaining capital supports impact-first activities where full commercialisation may not be realistic or appropriate.
Practitioners across AVPN Learning Circles have noted that catalytic capital underperforms when there is an assumption that every investment must eventually transition to fully market-rate finance. In practice, resilience often depends on accepting different end states rather than forcing a single pathway to commercial success.
Design for time horizons that match impact reality
Across climate, micro-, small-, and medium-sized enterprise (MSME) finance, and inclusive infrastructure, many viable solutions require extended periods to mature. Yet much of the capital available to them is structured around significantly shorter timeframes. Catalytic capital addresses this mismatch by absorbing duration risk early, through longer fund lifecycles, patient equity, flexible debt, or return structures that are back-ended or capped.
Insights from the AVPN Learning Circles consistently highlight that promising enterprises stall not because they lack demand or capability, but because capital exits before markets have time to form. Time, in these contexts, is not a secondary consideration. It is a core design variable.
Pair capital with ecosystem enablers, not standalone deals
Catalytic capital rarely works in isolation. Where it has unlocked scale, it has typically been paired with technical assistance, local intermediaries, and market-building support. In India, for example, early approaches to MSME rooftop solar finance succeeded by combining risk-tolerant capital with technical support. This capital was directed toward specialised lenders, financial institutions with specific expertise in the solar sector that could better assess the technology, while also providing underwriting support to help them manage credit risk. This combination reduced the fear of the unknown for lenders. Catalytic capital is most effective when it helps convert perceived risk into understood risk.
Use networks to reduce fragmentation and accelerate learning
Catalytic capital remains scarce and fragmented. One response has been a growing emphasis on network-led approaches that prioritise shared learning alongside deployment. Recent convenings and practitioner guidance, including those emerging from the Catalytic Capital Consortium (C3) community, point to a growing convergence on how catalytic capital needs to be deployed more deliberately.
In practice, catalytic capital scales less by replicating funds than by replicating understanding. Networks lower the cost of experimentation, shorten learning curves, and reduce the likelihood that actors repeat early-stage mistakes in isolation.
Missed the beginning? Catch up on Part One: Redefining resilience, or if you are ready for the conclusion, read Part Three: The way forward – organising for ecosystem resilience.
This series is produced in partnership with the Catalytic Capital Consortium (C3), an investment, learning, and market development initiative created and led by the John D. and Catherine T. MacArthur Foundation, The Rockefeller Foundation, and the Omidyar Network. Together with AVPN, C3 is building a Community of Practice to equip investors with the knowledge, networks, and tools needed to deploy capital that is patient, flexible, and risk-tolerant.
To effectively diagnose and address specific market failures, investors need a robust methodology. Download Addressing Capital Gaps: A Guide to Strategic Deployment of Catalytic Capital. This guide draws on real-world cases to provide the rigorous framework practitioners need to move from intuition to high-impact, evidence-based deal structuring.
