Formulate Insight: The Trust Deficit Revealed
After two weeks in Lagos markets gathering ground truth data, our team joined the broader CATS Hackathon community for virtual sessions on November 26th and 29th. These marathon Google Meet gatherings brought together all eleven teams to process what we’d witnessed and identify patterns across dozens of individual observations.
The Data Dump
The first session on Wednesday evening felt overwhelming. Each team arrived with raw data from their field research. Market traders who couldn’t access loans despite years of profitable operations. Waste collectors facing financial exclusion despite handling fourteen thousand metric tons of daily refuse. Farmers unable to prove harvest productivity. University students paying tuition for crumbling infrastructure with no accountability mechanisms.
The problems seemed disconnected. Financial exclusion and infrastructure accountability don’t share obvious connections. But as teams presented their findings, something unexpected emerged. Every problem shared a common root: invisibility and opacity creating trust deficits that paralyzed economic activity and institutional accountability.
Pattern Recognition
For Catalyst specifically, three patterns crystallized from our market research that shaped our entire solution approach.
The first pattern was systematic invisibility. Forty million merchants conducting trillions of naira in annual economic activity yet remaining completely undetectable to formal financial systems. Their businesses weren’t failing. Their creditworthiness wasn’t questionable. Their economic contribution was massive. But traditional banking infrastructure literally couldn’t see them because it was designed to process audited financial statements, formal credit histories, and physical collateral documentation. Cash based informal commerce didn’t generate the paper trail banks required, rendering productive businesses invisible regardless of actual performance.
The second pattern was the collateral trap. Multiple merchants described wanting to expand operations, upgrade equipment, or increase inventory but being blocked by collateral requirements. A young entrepreneur with fashion design skills, proven sales ability, and established customer relationships couldn’t access five hundred thousand naira because she didn’t own land or vehicles. The banking system optimized for asset seizure rather than productive investment, systematically excluding youth and informal economy participants regardless of business capability.
The third pattern was predatory lending filling the vacuum. Every merchant who’d been rejected by formal lenders had a story about turning to informal moneylenders charging ten to twenty percent monthly interest. These weren’t isolated incidents. This was the default financing mechanism for Nigeria’s real economy. Businesses that could have grown with reasonable capital access instead remained trapped in survival mode, paying extractive interest rates that prevented wealth accumulation while enriching predatory actors.
The Throughline
During the Saturday session, facilitated discussion helped us identify the throughline connecting these patterns. The problem wasn’t lack of capital. Nigeria has investors seeking returns. The problem wasn’t lack of viable businesses. Our ground truth research documented thousands of profitable operations. The problem was trust infrastructure, or rather, the complete absence of it for informal economy participants.
Traditional trust mechanisms like credit bureaus, audited financials, and collateral requirements were designed for large corporations operating in formal economies. They couldn’t assess the micro merchant selling phones in Computer Village, the tailor operating from a market stall, or the provisions seller who’s maintained the same location for a decade. Without mechanisms to verify business performance, assess repayment capacity, or build credible reputations, rational investors chose to abstain rather than risk capital on invisible businesses.
This insight reframed our entire approach. We weren’t building a lending platform. We weren’t creating another microfinance institution. We were building trust infrastructure that could make invisible economic activity visible and verifiable.
The Aha Moment
The breakthrough came when we realized trust could be constructed through multiple valid pathways, not just the single path traditional banking imposed. For merchants with existing marketplace presence, we could capture sales data, customer reviews, fulfillment rates, and transaction patterns to quantify reliability. For aspiring entrepreneurs without transaction history, we could enable community vouching where established members sponsor individuals with viable business plans.
Both pathways would create digital trust profiles that investors could assess. Both would replace physical collateral with verifiable performance metrics. Both would enable capital allocation based on actual business capability rather than inherited assets.
This wasn’t just a feature idea. This was infrastructure that could transform how forty million merchants access growth capital. If we could make their economic activity visible, we could unlock the thirty two point two billion naira financing gap not through charity or subsidy, but through transparent market mechanisms where investors earned returns while entrepreneurs built wealth.
Key Insights That Shaped Our Solution
First, merchants don’t need handouts. They need visibility. The businesses we researched were already viable and profitable. They weren’t seeking donations. They sought capital at reasonable terms that recognized their actual creditworthiness. Our solution had to focus on making existing business performance verifiable rather than trying to fix or teach entrepreneurs.
Second, trust infrastructure enables wealth building rather than extraction. Predatory lending at fifty to one hundred percent annual interest extracts wealth from vulnerable communities. Our model had to ensure value flowed back to entrepreneurs through reasonable profit sharing arrangements that aligned investor returns with SME success.
Third, youth entrepreneurship requires trust mechanisms beyond physical collateral. The most capable entrepreneurs we met were often young people with skills, market knowledge, and execution ability but no inherited assets. Our Agent sponsorship pathway emerged directly from this insight, creating human collateral where community vouching could bootstrap initial credibility.
Fourth, investors need transparency, not just promises. Capital providers aren’t charitable foundations. They seek returns and risk mitigation. Our blockchain integration and reputation scoring system emerged from recognizing that investors would participate if they could see verified business data and track fund usage transparently.
These insights became the foundation for every technical decision we made in the following weeks, transforming field research observations into the architecture of a trust infrastructure platform.
Next: Formulate Hypothesis - Our thesis about trust infrastructure