News
By Karina Wong, Head of Investments, Small Foundation
Originally posted on ImpactAlpha
Catalytic capital has become a familiar phrase in global impact circles, but for Small Foundation, it represents something foundational. It is the means by which rural African entrepreneurs, often operating in fragmented markets and overlooked by conventional investors, can become more resilient.
Small Foundation has spent years experimenting: partnering, failing, learning, and adjusting, and trying to understand how our resources can best support rural MSME ecosystems. As active members of the Catalytic Capital Consortium (C3) community, the launch of its new guide, Addressing Capital Gaps: A Guide to Strategic Deployment of Catalytic Capital, is meaningful for us not because it unveils a new concept, but because it provides structure, shared language, and clarity to work we’ve been navigating.
Where our catalytic capital journey began
For years we observed the same pattern across rural and agricultural markets in sub-Saharan Africa: promising enterprises and impactful pilots would emerge – innovative agribusiness models, rural finance schemes, cooperative-led innovations – but they struggled to achieve the scale or sustainability needed to influence whole markets. The ideas were strong, the entrepreneurs talented, the communities engaged, and yet momentum stalled.
This wasn’t down to a lack of capital. Rather the type of capital available and the expectations attached to it, did not align with the realities of rural markets. Ticket sizes were too large, risk appetites too narrow, and time horizons too short. And many investors lacked familiarity with rural business models, leading to overly cautious underwriting or a default preference for urban sectors.
Those early lessons pushed Small Foundation towards catalytic capital, even before we used that term, alongside an intentional systems change strategy. We began experimenting with tools, such as grants, early equity, and ecosystem funding, as we searched for ways to unlock the potential we were seeing.
We began to partner with organisations like Equity for Africa Group and Investisseurs & Partenaires, support research and impact networks, and engage deeply with ecosystem builders such as Open Capital Advisors and the Council on Smallholder Agricultural Finance. Some of our partners grew significantly, others pivoted, and a few closed. Each outcome taught us something about the market, and about us as a foundation.
A sharper lens on our practice
Much of our learning has emerged from a simple set of questions:
- Where can we be uniquely catalytic?
- Where does our flexibility, patience, and appetite for experimentation create genuine value?
- How can our contributions fit alongside others, without duplicating efforts?
Through years of practice, we have learned that getting close to the problem is essential. We spend time understanding not just what a business needs today, but what is preventing it from reaching its next phase. We analyse whether a barrier is structural, cyclical, or a result of misaligned expectations between investors and entrepreneurs. And crucially, we consider how a model might graduate to different forms of capital, new markets, or stronger institutional footing.
But one of our deepest lessons, which is strongly reinforced in the new C3 guide, is that not all barriers are rational. Technical fixes don’t always move a market. Many constraints in rural MSME finance stem from mindset barriers: assumptions that rural markets are “too risky,” that smaller deals aren’t worth the transaction effort, or that unfamiliar business models are inherently fragile. These are often automatic mental shortcuts that shape investor behaviour as powerfully as financial analysis.
This matters for catalytic capital because mindset barriers won’t be solved by more spreadsheets or better data alone – they require demonstration. When we examine mindsets alongside economics, we see white spaces more clearly, places where taking the first risk, supporting an unconventional model, or backing a new intermediary can unlock momentum that would not emerge otherwise.
Applying the lens
This thinking underpinned our support for Emerald Africa, a facility designed to help digital innovators serving rural markets. Many of these early-stage companies have real potential, but they need time and safety to iterate – something commercial capital rarely offers. Emerald Africa steps in early, challenging the mindset that rural digital innovation is too nascent to warrant investment.
We used the same lens when designing our Moremi Working Capital Facility and Small Foundation GP Facility for African fund managers. Here the mindset barrier was subtle but real: emerging managers, especially those outside major hubs, were often perceived as “not ready,” despite strong local networks and promising pipelines. Their challenge wasn’t competence; it was oxygen. By providing working capital, we signalled confidence in their potential and helped create the proof points needed for larger investors to follow.
These experiences reinforced a few truths: being catalytic is not about being different, it is about being usefully different. It demands willingness to take risk, to learn, and to collaborate. It also requires continuous attention to mindsets, our own and those of the market. Because shifting a system often begins with shifting what people believe is possible.
Learning together
For Small Foundation, the C3 guide is important because it provides a shared framework. It clarifies how to diagnose barriers, distinguish between misalignment and deeper structural constraints, and identify where catalytic responses can be most effective. It also strengthens our role within the C3 Community of Practice, where we learn constantly from peers that deploy catalytic capital in very different ways.
Most importantly, the guide helps us identify white spaces with greater clarity. It supports our commitment to be intentional, to intervene only where we add value, and to collaborate where others are better placed to act. It helps us avoid duplication, strengthen alignment, and ensure that our catalytic investments contribute to broader system change rather than isolated results.
Towards a smarter catalytic capital strategy
As we deepen our work with C3, we are reminded that:
- No single funder can close capital gaps alone.
- Catalytic capital is most powerful when it is part of a broader systems strategy.
- Collaboration multiplies impact.
- Additionality requires intentionality.
- Meaningful change in rural African markets takes both courage and patience.
We will continue to show up in the C3 community, sharing our learnings, hearing from people working in different contexts, and reflecting more deeply on the roles we play. We’ll also keep refining our systems change strategy, working with partners on the ground, and using the guide’s frameworks to clarify where we can best contribute to thriving, sustainable rural economies.
At its core, catalytic capital is about possibility. It’s about what becomes feasible when flexibility, collaboration, and long-term commitment combine. And for Small Foundation, it’s about ensuring that rural African entrepreneurs can access not just the capital they need, but the systems that allow them to succeed.
We hope you’ll continue learning and shaping this field with us.
