Business

Business Model & Economics

The 4-Way Split Mechanism

Catalyst’s revenue model fundamentally differs from traditional lending platforms by distributing value across four stakeholder groups rather than extracting maximum profit for a single entity. This structure creates network effects where each participant’s success depends on collective ecosystem health.

When an SME reports profits for an installment period, the distribution algorithm executes a precise calculation. Consider a concrete example: an SME received ₦500,000 in funding with 20% profit-sharing terms and reports ₦1,000,000 in profits for the period.

Step-by-Step Calculation

Step 1: Calculate Gross Lender Share
Gross Lender Share = Reported Profit × Profit Share Percentage
= ₦1,000,000 × 20% = ₦200,000

Step 2: Platform Fee on Lender Share (10%)
Platform Fee (Lender) = ₦200,000 × 10% = ₦20,000

Step 3: Net Lender Share
Net Lender Share = ₦200,000 - ₦20,000 = ₦180,000

Step 4: SME Gross Share
SME Gross Share = ₦1,000,000 - ₦200,000 = ₦800,000

Step 5: Platform Fee on SME Share (20%)
Platform Fee (SME) = ₦800,000 × 20% = ₦160,000

Step 6: Agent Commission (5% if sponsored)
Agent Commission = ₦800,000 × 5% = ₦40,000

Step 7: SME Net Share
SME Net Share = ₦800,000 - ₦160,000 - ₦40,000 = ₦600,000

Step 8: Total Platform Revenue
Total Platform Revenue = ₦20,000 + ₦160,000 = ₦180,000

Step 9: Risk Mitigation Fund (10% of revenue)
Risk Fund = ₦180,000 × 10% = ₦18,000

Step 10: Platform Net Revenue
Platform Net = ₦180,000 - ₦18,000 = ₦162,000

Final Distribution

From ₦1,000,000 in reported profits:

  • Investors: ₦180,000 (18%)
  • SME: ₦600,000 (60%)
  • Agent: ₦40,000 (4%)
  • Platform: ₦162,000 (16.2%)
  • Risk Fund: ₦18,000 (1.8%)

Unit Economics

Typical Investment Cycle

  • Average Funding Request: ₦500,000
  • Average Term: 3 months
  • Average Reported Profits: ₦1,000,000
  • Profit Share Percentage: 20%

Per Request Performance:

  • Platform Revenue: ₦180,000
  • Transaction Costs: ₦5,000
  • KYC & Support: ₦18,000
  • Infrastructure: ₦12,000
  • Marketing: ₦15,000
  • Net Contribution: ₦130,000

Scale Economics

At 1,000 active requests annually:

  • Total Revenue: ₦180,000,000 (₦180M)
  • Total Costs: ₦50,000,000 (₦50M)
  • Net Contribution: ₦130,000,000 (₦130M)
  • Risk Fund: ₦18,000,000 (₦18M)

This supports a team of 15-20 full-time employees with competitive salaries, funds continued development, and builds financial reserves.

Generational Income for Agents

The Agent commission structure creates “generational income”—Agents earn ongoing returns from businesses they sponsored years earlier as those businesses continue generating profits.

Example Agent Portfolio

An Agent sponsors 20 entrepreneurs over two years. If 70% succeed (14 businesses), and each averages ₦500,000 in funding with ₦1,000,000 in annual profits:

Agent Annual Commission = 14 businesses × ₦40,000
= ₦560,000 annually

As sponsored businesses scale to ₦2,000,000 in annual profits by year three, the Agent’s commission doubles to ₦1,120,000 annually—all from sponsorship work done years earlier.

This creates incentives to identify promising entrepreneurs, provide mentorship, and build reputations for good judgment. Agents become talent scouts whose income depends on their portfolio’s success.

Why This Model Works

  1. Investors get performance-linked returns (36% in example) vs. predatory lending’s extractive interest
  2. SMEs retain majority of profits (60%) for reinvestment and growth
  3. Agents build long-term income streams through careful talent selection
  4. Platform sustains operations while creating positive-sum economics
  5. Risk Fund provides safety net for edge cases and defaults

Unlike predatory lending that extracts wealth from communities, Catalyst ensures sustainable growth benefits the entire ecosystem.

Documentation