Understanding where catalytic capital is additional for agri-SMEs

Catalytic capital – capital that accepts higher risk or lower returns to achieve positive impact that would not happen otherwise – in agri-SME finance is scarce. At the same time, donors and capital allocators face growing pressure to demonstrate that this capital is delivering real impact. Accountability for what catalytic capital actually enables often stops short of where it matters most: the agri-SMEs it is ultimately meant to serve.

A new report from the Agri-SME Learning Collective Making Catalytic Capital Count examines how intermediary additionality on SMEs (the effects of the intermediary’s inputs that would not have happened otherwise) is defined, measured, managed, funded and reported.  It also looks at what needs to change to bring greater clarity and accountability to how catalytic capital is deployed. The report draws on interviews with nine international intermediaries that received first-loss and other forms of catalytic capital.

The main findings from the report are:

1. SME-level additionality takes many forms and should not be compared across very different strategies.
2. Practices for assessing it vary widely, from simple yes/no calls to formal scoring frameworks.
3. Accountability remains underdeveloped: most donors and investors focus on their additionality on intermediaries, not the intermediaries’ additionality on SMEs.
4. Delivering additionality carries real costs (covered through first-loss capital, fees, or technical assistance) that are rarely made visible to capital providers.
5. Capital mobilised and additionality are often conflated, but they are not the same thing, and should not be judged as if they are.

  The report identifies a key set of recommendations:

• Donors and investors should define what kind of additionality they want their capital to support, build this into due diligence and reporting requirements, and avoid treating capital mobilisation or leverage ratios as a proxy for additionality.
• Intermediaries should clearly explain how and why they are additional to the SMEs they invest in, be transparent about costs, and share what they learn.
• Ecosystem builders (networks, researchers and platforms) should close data gaps and create space for intermediaries to compare notes.

The implementation of these recommendations is not just good practice; this research makes the argument that it is what determines whether scarce capital reaches the SMEs that need it most.

“Catalytic capital is scarce. What we do with the accountability around it shouldn’t be” – Songbae Lee

Read the full report here.