2.6. Role of "Investment Catalyst"

An ‘investment catalyst’ in this context encourages, facilitates, and sometimes provides direct financial investment to an enterprise or individual entrepreneur in a developing economy. USAID is considered an investment catalyst because it assists SMEs acquire financing.

As investment catalysts, there are several things development agencies such as USAID can do to facilitate financial transactions that may achieve specific development goals but fall short of the ability to obtain financing. Each works by making the transaction more attractive in some manner, for example:

1. By reducing or offsetting cost and risk (i.e., “squeezing the pricing stack”); or
2. By increasing the financial return.