EXPLAINER: Catalytic Capital and how it is fueling Social Impact in Africa

Catalytic capital is a powerful tool in philanthropy and social investment.

It provides funding that accepts higher risks or lower returns to support projects with significant social or environmental impact.

This type of capital is essential for initiatives that may not attract traditional investors due to perceived risks or lower financial returns.

Understanding Catalytic Capital

Catalytic capital refers to investments—such as debt, equity, or guarantees, that accept disproportionate risk and/or concessionary returns compared to conventional investments.

The goal is to generate a positive impact and enable third-party investment that otherwise would not be possible.

Unlike traditional investments that prioritize financial returns, catalytic capital focuses on social and environmental outcomes.

It is patient, risk-tolerant, and flexible, making it suitable for supporting innovative solutions to complex challenges.

The Role of Catalytic Capital in Philanthropy and Social Investment

Catalytic capital plays a crucial role in addressing funding gaps for projects that aim to achieve social good. It helps in three main ways:

Seeding Innovation: Catalytic capital provides early-stage funding to new models that have not yet demonstrated commercial viability.

This support allows these models to test and refine their approaches, building a track record that can attract conventional investors.

Scaling Impact: It helps enterprises and intermediaries expand their operations into new areas or reach more people.

These investments are often structured to de-risk and mobilize additional investment from conventional investors.

Sustaining Efforts: Some impact enterprises require ongoing support to maintain services for hard-to-reach beneficiaries.

Catalytic capital can provide the necessary subsidy to sustain these operations.

Catalytic Capital in Action: African Examples

1. Rensource Energy, Nigeria

Founded in 2015, Rensource Energy provides solar and battery-based power subscription packages to individuals and businesses in Nigeria.

Initially, raising funds was challenging due to the novelty of climate tech in Africa.

However, over the years, Rensource has raised about $30 million, mostly from venture capital firms.

This growth illustrates how catalytic capital can support early-stage companies in emerging sectors.

2. MAX (Metro Africa Xpress), Nigeria

MAX focuses on electric two- and three-wheelers and electric vehicle infrastructure in Nigeria.

Since its inception in 2015, the company has raised just under $100 million.

Catalytic capital played a significant role in supporting MAX’s innovative approach to transportation and decarbonization.

3. Kubik, Kenya and Ethiopia

Kubik transforms difficult-to-recycle plastic waste into durable, low-carbon building materials.

Operating in Kenya and Ethiopia, the company has raised around $5.2 million since its launch in 2021.

Catalytic capital has been instrumental in supporting Kubik’s mission to address waste management and sustainable construction.

4. Wetility, South Africa

Wetility provides solar panels for homes and businesses, along with a digital management system for power usage.

In 2023, the Johannesburg-based startup secured $48 million in funding, primarily from private equity.

This investment supports Wetility’s efforts to improve energy access and reliability in southern Africa.

5. Komaza, Kenya

Komaza is a forestry company that partners with smallholder farmers to develop sustainable and scalable commercial forestry.

By providing seedlings, training, and a guaranteed market, Komaza supports reforestation and carbon sequestration efforts.

Catalytic capital has enabled Komaza to expand its operations and environmental impact.

6. M-Kopa, East Africa

M-Kopa offers off-grid families affordable solar home systems using mobile technology and a pay-as-you-go finance strategy.

This approach improves quality of life by providing reliable electricity, impacting health, education, and economic prospects.

Catalytic capital has been crucial in scaling M-Kopa’s operations across East Africa.

7. Babban Gona, Nigeria

Babban Gona addresses food insecurity and rural poverty through an agricultural franchise model.

By offering training, inputs, and market access to smallholder farmers, the company helps increase crop yields and incomes.

Catalytic capital has supported Babban Gona’s mission to transform agriculture in Nigeria.

Institutional Support and Initiatives

African Venture Philanthropy Alliance (AVPA)

In 2024, AVPA announced the Catalytic Pooled Fund (CPF), aiming to mobilize $200 million of catalytic capital over five years.

This fund is expected to leverage up to $2 billion in private capital, supporting social development across Africa.

Growth Capital by Co-Creation Hub (CcHUB), Nigeria

Launched in 2015, Growth Capital by CcHUB is an investment arm that supports social tech ventures in Nigeria.

By providing funding and mentorship, it helps startups develop technologies that make public services smarter and more accessible.

Nigerian Capital Development Fund (NCDF)

NCDF is an independent social investment financial intermediary that mobilizes capital to invest in projects and social enterprises in Nigeria.

Its focus areas include housing, agriculture, and clean energy, aiming to generate a positive social and environmental impact.

Higherlife Foundation, Zimbabwe

Founded in 1996, Higherlife Foundation supports orphaned and vulnerable children in Africa through education and material support.

Its programs include scholarships, leadership training, and health initiatives, all funded through philanthropic efforts.

Tony Elumelu Foundation (TEF), Nigeria

Established in 2010, TEF is a non-profit organization that empowers African entrepreneurs through training, mentorship, and funding.

Its flagship program, the TEF Entrepreneurship Programme, has supported thousands of startups across the continent.

Catalytic capital is a vital component in the landscape of philanthropy and social investment, especially in regions like Africa, where innovative solutions are needed to address complex challenges.

By providing flexible, patient, and risk-tolerant funding, catalytic capital enables the development, scaling, and sustainability of impactful initiatives that might not attract traditional investment.

As the field continues to evolve, the strategic deployment of catalytic capital will remain essential in driving social and environmental progress across the continent.