Catalytic Capital and Recoverable Grants in Impact Investing

This guide discusses catalytic capital and recoverable grants within the context of impact investing. Catalytic capital is defined as capital that encourages additional investment by absorbing risk and demonstrating potential. Recoverable grants, typically issued by private foundations, allow for the possibility of returning funds to the donor if specific impact goals are met. The document outlines the structure of recoverable grants, emphasizing that they should not be treated as loans to avoid legal and tax implications. It provides examples of how recoverable grants function as catalytic capital, such as acting as first-loss capital in investment funds or supporting technical assistance for enterprises. The guide highlights various scenarios where recoverable grants are utilized, including funding for off-grid solar projects, housing initiatives, and support for small businesses. It emphasizes the importance of understanding the accounting treatment of recoverable grants to avoid adverse consequences for grantees.