Catalytic funding is the provision of resources to an investment fund or vehicle designed to mitigate risk and improve the fund's overall viability to attract new investment for development goals. These intermediaries pool resources and distribute risks among investors and are a primary vehicle for blended finance. In many markets in which USAID is present, funds or financial vehicles capable of addressing USAID priorities are few in number and/or too small or inexperienced to make an impact at the needed scale. Support to these entities is a means to address this systemic weakness and is the focus of this learning brief.
Under a framework of support called catalytic funding, INVEST has helped mobilize over $140 million in new investment through support of funds and financial vehicles between May 2019 and September 2022. This learning brief answers the following questions: What is catalytic funding in the context of USAID? How can USAID support result in outcomes that would have not occurred otherwise (additionality)? What lessons are derived from the INVEST experience with catalytic funding?