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There is no denying that Bangladesh has achieved remarkable success in the last decade or so with a higher-than-South Asia average of GDP per capita. The economy touches almost half a trillion dollars alongside the emergence of a growing middle and affluent class. However, inequality is at an all-time high and we are in the midst of growing inflation and economic exclusions.
Bangladesh is not an exception, though. The moot question here is how we can change the status quo and progress from here. This requires a concerted effort from all of us. One of the tools that we can use to create more collaboration and synergy is “catalytic financing”.
Catalytic financing (CF), leveraged the right way, can use existing financial provisions to mobilize additional capital and investments from different sources, thereby “catalyzing” development and impact. CF can be used to initiate programs for Bangladesh that can help in inclusive development in a variety of ways. However, we do not have sufficient capital to get started.
So some key areas in Bangladesh where catalytic financing can help are highlighted below:
So what are some of the ways CF can help? Starting from performance payments for achieving measurable and sustainable results to providing matching funds with the private sector (thus reducing the cost of capital to the enterprise and de-risking investments for private investors) to acting as first loss-guarantee schemes for lending to enterprises working with vulnerable groups – catalytic capital can ensure that critical innovations can flourish.
Let’s now take a closer look at some of these instruments.
Apart from these, there are a variety of other instruments like challenge funds, development or social impact bonds, matching funds or even just different types of equity or quasi-equity instruments like SAFE (simple agreement for future equity) where, based on the impact generated, either the investors or the enterprise gets monetary benefit. There can be tax benefits for investing in certain sectors from the government to support high-priority verticals. Implemented rightly, CF can significantly help towards achieving SDG goals while ensuring inclusive development.
This article was originally published by The Financial Express.
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