Additionality in development finance is described by the Organisation for Economic Co-operation and Development as “additional financial or non-financial input resulting in additional development outcomes that would not have materialized without the intervention.” Drawing from USAID’s use of catalytic funding, we can use additionality to evaluate both financial and ecosystem-level outcomes.
Along with other public and philanthropic organizations, the U.S. Agency for International Development has been exploring using blended finance to achieve its development goals. Since May 2019, under an initiative called INVEST, USAID has helped mobilize over $140 million in new investment using catalytic funding, with an additional $98.5 million being sought. Catalytic funding can be used for two primary purposes.
First, it can enable fund managers to create a first-loss layer within the fund’s structure, meaning that it absorbs the first economic losses if the investment does not yield returns, reducing risk for investors, which incentivizes more to come on board. Second, it can be used to defray operational costs, giving fund managers more flexibility and time to explore new investment strategies, build new relationships with potential investors, or develop pipelines of investible opportunities.
About the authors
Natalie Alm
Natalie Alm is a communications advisor for the USAID INVEST project at DAI, with over a decade of experience fostering collaboration and partnership between the public and private sectors.
Sharon D’Onofrio
Sharon D’Onofrio is the director of learning for the USAID INVEST project at DAI. She has over 20 years of experience in international development focusing on financial services, women’s economic empowerment, and private sector engagement and investment.
