Formulate Hypothesis: Trust as Infrastructure
After identifying patterns from our ground truth research and recognizing the trust deficit underlying forty million merchants’ financial exclusion, we needed to articulate a clear hypothesis about what solution could address this systemic problem. This wasn’t just about building an app. This was about creating new infrastructure.
The Core Problem Statement
Forty million micro merchants across Nigeria contribute fifty eight percent of national GDP yet face systematic exclusion from formal financial services due to inability to provide physical collateral, audited financial statements, or formal credit histories. This creates a documented thirty two point two billion naira financing gap while forcing entrepreneurs to accept predatory lending at fifty to one hundred percent annual interest or remain trapped in survival mode unable to scale viable businesses.
The problem affects market traders, artisans, service providers, and small business operators across urban and peri-urban Nigeria. Geographic concentration exists in Lagos but the pattern extends to every major city. Scale is massive: forty million merchants, contributing multiple trillions of naira annually to economic activity, systematically invisible to capital providers who lack mechanisms to assess creditworthiness outside traditional frameworks.
Our Hypothesis
We believe that micro merchants and aspiring entrepreneurs face financial exclusion not because they lack creditworthiness but because their economic activity remains invisible to formal financial systems that were designed for large corporations with property holdings and audited books.
If we create digital trust infrastructure that captures business performance data and enables community vouching as alternative to physical collateral, then investors will be able to assess creditworthiness based on actual business capability rather than inherited assets.
This will enable capital allocation at reasonable terms to forty million currently excluded entrepreneurs, unlocking growth potential while generating sustainable returns for investors through profit sharing arrangements that align incentives rather than extracting wealth through predatory interest rates.
Why We Believe This Will Work
Our hypothesis rests on several validated assumptions from field research and the broader CATS framework.
First, the merchants we researched demonstrated clear business competence. They weren’t failing entrepreneurs seeking rescue. They were viable businesses already validated by market demand, seeking growth capital they couldn’t access due to visibility gaps not capability gaps. Making their performance data available to investors addresses the actual barrier: information asymmetry.
Second, Nigerian investors seek return opportunities. Capital exists but sits idle or flows into low yield safe assets because investors lack trusted mechanisms to assess informal economy investments. Creating transparency through verified data and blockchain based fund tracking removes the key blocker: trust deficit.
Third, community knowledge provides valid credit assessment when structured properly. Our Agent sponsorship model emerged from recognizing that local community members often possess better information about individual capability than any credit bureau could generate. The challenge was creating incentive structures that prevented abuse while harnessing this distributed knowledge.
Fourth, profit sharing aligns incentives better than fixed interest. Traditional lending creates adversarial relationships: lenders want maximum extraction, borrowers want minimum payments. Profit sharing creates partnership: when businesses succeed, both entrepreneurs and investors benefit proportionally. This regenerative model builds sustainable ecosystems rather than extractive relationships.
Testing the Hypothesis
Our hypothesis generated testable predictions that guided solution development.
Prediction one: If we build marketplace integration that captures sales data, merchants with existing transaction histories will generate trust scores that investors find credible enough to deploy capital. Testing mechanism: implement Performance Trust pathway and measure investor engagement.
Prediction two: If we enable Agent sponsorship with proper incentive alignment, community members will successfully identify promising entrepreneurs who lack transaction history but possess business capability. Testing mechanism: implement Human Trust pathway and track sponsored entrepreneur success rates.
Prediction three: If we implement transparent profit distribution through blockchain and provide real time investment tracking, investors will accept profit sharing arrangements rather than demanding predatory fixed interest rates. Testing mechanism: offer twenty percent profit share terms and measure capital deployment against traditional microfinance rates.
Prediction four: If we build for multi-currency investment across Naira, Cardano, and stablecoins, we can access broader capital pools including cryptocurrency holders seeking productive yield opportunities. Testing mechanism: implement blockchain escrow and measure cross-currency investment patterns.
These predictions shaped our technical architecture decisions, feature prioritization, and success metrics throughout the build phase.
The Thesis Refined
Through discussions with mentors, other hackathon teams, and continued field research, we refined our hypothesis into a sharper thesis statement.
Physical collateral requirements systematically exclude capable entrepreneurs from capital access not because they protect lenders from defaults but because financial institutions lack alternative mechanisms to assess creditworthiness in informal economies. Digital trust infrastructure that makes business performance visible and verifiable can replace collateral requirements with performance metrics, enabling rational capital allocation based on actual business capability rather than inherited wealth.
This infrastructure doesn’t require merchants to formalize operations, register businesses, or generate audited statements. It meets them where they are, capturing the trust signals they already generate through customer relationships, sales consistency, and operational reliability. It doesn’t impose new burdens. It makes existing credibility visible.
The thesis positions Catalyst not as another lending platform competing for borrowers but as infrastructure enabling the emergence of fair lending markets where trust becomes quantifiable, transparent, and accessible to all participants regardless of asset ownership.
Next: Define Opportunity - Solution options we explored