Catalytic Capital and Its Role in Digital Credit

How do we ensure that the rapid growth of digital credit doesn’t come at the expense of consumer protection? A new blog post from Jayshree Venkatesan, senior research director at the Center for Financial Inclusion, examines the role of catalytic capital in shaping market incentives and the need for impact-oriented investors to address consumer risks as markets mature.

“In our research, we focus on the role of catalytic capital in shaping market incentives as they attract capital to digital credit models,” she writes, noting the organization’s 2023 report on this work. “We conclude that the role played by catalytic capital differs depending on the stage of market development. At an early stage, catalytic capital investments can help prove business models, expand services to newer consumer segments, and/or attract capital to under-served geographies. As the supply of capital increases, markets shift to a growth stage. Catalytic capital investors, who are more impact-oriented, need to shift their roles as markets grow to one that addresses consumer risks that accompany an increased supply of capital.

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