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Just as I landed in Tarawa, I was greeted by the warm ocean breeze. A small, crowded airport nestled in the middle of the Pacific, where the familiar sight of passengers gathered around an overflowing baggage conveyor belt unexpectedly reminded me of Dhaka. Sometimes, despite being thousands of kilometres apart, countries have more in common than we imagine.
I was in Kiribati for the first time, spending two weeks with the Development Bank of Kiribati (DBK) supported by United Nations Capital Development Fund (UNCDF) to understand its lending processes and explore how SME finance could be scaled to support locally led economic growth.
Kiribati is unlike almost anywhere else in the world. Made up of 33 coral atolls spread across an ocean area larger than India, its capital, South Tarawa, is a narrow strip of land with the turquoise lagoon on one side and the vast Pacific Ocean on the other. The geography is breathtaking but it also defines many of the country’s economic realities. Transport is expensive, markets are fragmented, waste management is a challenge and delivering financial services across dispersed islands is inherently challenging.
Despite its size, Kiribati is not without assets. The country manages one of the Pacific’s largest sovereign wealth fund, the Revenue Equalization Reserve Fund (RERF), built from historical phosphate mining revenues and now valued at around AUD 1.7 billion (roughly USD 1.1 billion), several times larger than the country’s annual GDP. Yet translating this national wealth into broad-based private sector growth remains a challenge.
Kiribati’s economy is relatively small, with a GDP of around USD 350-400 million and GDP per capita of roughly USD 2,500-3,000, well below the Pacific Island average and less than half that of Fiji. While Australia and New Zealand have historically been the country’s closest partners, geopolitical competition is becoming increasingly visible. The country uses the Australian Dollar as its currency, yet during my visit it was equally evident to see growing Chinese businesses and infrastructure alongside long-standing Japanese-supported schools and public facilities.
At the centre of Kiribati’s financial ecosystem sits the Development Bank of Kiribati (DBK). With assets of ~ USD 20 million, alongside ANZ as the country’s only commercial bank, DBK has become the principal institution financing SMEs. Yet it operates primarily as a lending institution rather than a full-service bank. DBk at the moment does not mobilise deposits, relies heavily on collateral-based lending and continues to serve entrepreneurs through largely traditional processes.
This is where catalytic capital can play a transformative role. Too often, catalytic capital is viewed simply as concessional funding. In reality, its value lies in reducing risk sufficiently to crowd in commercial finance that otherwise would never flow.
Rather than financing SMEs directly, catalytic capital can be deployed through carefully designed financial instruments. Partial credit guarantee facilities can reduce collateral requirements for viable businesses. Refinancing windows can lower the cost of funds for development banks, allowing them to lend further and at more affordable rates. Instead of asking entrepreneurs to pledge scarce land assets, governments and development partners can share a portion of the lending risk, enabling banks to finance a much larger pool of productive enterprises.
Digital finance makes this opportunity even more compelling. Mobile money platforms such as M-PAiSA already have significant reach across Kiribati’s islands. By integrating mobile wallets with formal banking systems, development banks could introduce nano-loans, digital repayments and alternative credit assessment models based on transaction histories rather than physical collateral. For small island economies where physical branches are costly and distances immense, digital finance can be critical infrastructure.
However, expanding finance alone is not enough. Building resilient financial systems requires investment in institutions as much as in capital.
Three priorities stand out.
The Pacific is often viewed through the lens of climate vulnerability or geopolitical competition. Yet after spending time in Kiribati, I came away with a different perspective. The region possesses entrepreneurial talent, patient institutions and substantial public resources. What is often missing is not capital itself, but financial structures capable of directing that capital towards productive private enterprise.
Catalytic capital cannot solve every development challenge. But when designed well, it can do something more powerful than simply financing projects—it can build financial systems that continue to mobilise private investment.
This article was authored by Bijon Islam, Co-founder and CEO of LightCastle Partners. For further clarification, please contact: [email protected].
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