Lessons from a decade of using catalytic capital for impact

British International Investment (BII) is the UK's development finance institution, with roots going back to just after World War Two. It was established in 1948 to help developing and emerging countries grow.

It says: 'Our mission is to help solve the biggest global development challenges by investing patient, flexible capital in impactful businesses.'

In 2014, it decided to take this approach a step further by introducing a separate pool of capital with the goal of achieving greater impact for development by embracing a flexible approach to risk.

While still seeking a positive financial return at the individual investment level, the strategy sought to transform markets by targeting high-impact investments in sectors and geographies where risks were not always fully compensated by additional returns. BII named the resulting portfolio ‘Catalyst’.

Cover of Pioneering catalytic capital: A decade of learning

Now it has produced a report outlining the lessons it has learned in the last decade of committing $1.6 billion of Catalyst capital to 91 businesses and funds through 120 transactions.

The report, Pioneering catalytic capital: A decade of learning, part of BII's Insight series of practical and digestible lessons on the issues of private sector investment and development, describes how BII built a high impact portfolio that, at the end of 2023, was 'supporting over 108,000 jobs, contributing to over 324,000 megawatt-hours (MWh) of power production – 100 per cent of which is renewable – and reaching over 7.7 million farmers'.

BII says Catalyst’s most significant contribution has been enabling it to offer financial support to a broader range of high impact businesses and projects, along with their stakeholders, than it could have without it.

'Through Catalyst, we have placed patient, flexible capital into the hands of high-impact businesses that otherwise lacked access to the necessary volumes and types of financing,' the report says.

Learnings from Catalyst

Drawing from its decade-long experience managing a capital pool that targets enhanced development impact, BII has distilled five key insights that may guide other like-minded investors as they consider incorporating a high impact portfolio into their asset allocation strategy.

Lesson 1. Maintaining clarity of purpose and discipline is critical
Lesson 2. An enhanced impact allocation can strengthen broader understandings of impact across an organisation
Lesson 3. Capital preservation (at a minimum) is possible when taking a flexible approach to risk
Lesson 4. A strong learning culture is crucial to success
Lesson 5. Catalysing markets requires patience and partnerships

BII adds: 'The Catalyst portfolio is young and continues to evolve to meet the changing needs of the markets in which we invest. However, now feels like an appropriate time to take stock of our portfolio and reflect on our experience and lessons to date.'

Download the report by clicking below.