In recent months, I have had the privilege of engaging in three important conversations on the future of peace finance: co-organizing the Peace Finance Forum, participating in the World Bank Fragility Forum, and joining discussions during the first-ever UN Peacebuilding Week.

Across these spaces, one message has become increasingly clear: if we are serious about supporting peace, resilience, and recovery in fragile and conflict-affected settings, we need to rethink how finance is structured, sequenced and deployed. The question is no longer whether the private sector has a role to play in fragile contexts. It does—and often in ways that are both practical and deeply human. Local businesses keep food moving to markets when supply chains are disrupted. Small enterprises continue to employ young people when formal opportunities disappear. Entrepreneurs adapt their services to reach displaced communities, while domestic financial institutions use their knowledge of local markets, relationships, and risk to keep capital circulating where external actors may struggle to operate.

The real question is whether the financing architecture is ready to meet these businesses and institutions where they are—recognizing their resilience, responding to their realities, and providing the patient, flexible, and risk-tolerant capital they need to grow.

Too often, it is not.

The financing gap is one of timing, not intent

The issue is not that development finance institutions including the World Bank’s International Finance Corporation (IFC), or other investors do not want to invest in fragile, high-risk, and early-stage markets. The issue is that many investment opportunities are still too early, too small, too risky, and too costly for their current models. There is often a limited bankable pipeline, high transaction costs, limited local presence, and the difficulty of structuring investments that meet both market realities and development objectives.

The numbers are telling. Over the past decade, only a small share of IFC commitments reportedly reached the markets where needs are often greatest: around 9 percent to Least Developed Countries, 0.7 percent to Small Island Developing States, and 7.2 percent to fragile and conflict-affected settings. In LDCs, IFC’s average financial service provider transaction size is around USD 44 million, and only one third of these investments were below $10 million, indicating challenges to deploy smaller ticket sizes often needed to operate in these settings.

This points to a deeper gap. Many local Micro, Small, and Medium-sized Enterprises (MSMEs), and growing businesses are too large for microfinance, but too small or risky for commercial banks and other larger investors. They sit in the missing middle of finance, precisely where peace-positive economic activity often begins.

Women in Kibira National Park collect seeds at the Peace Sanctuary, supporting environmental restoration while strengthening livelihoods and the foundations for lasting peace. Photo: UNCDF, Burundi.

Creating the conditions for investment

This is precisely where UNCDF has a distinctive role to play.

UNCDF’s added value in fragile settings is that we can work in the space where investment conditions are not yet ready, but where the foundations for future investment can be built. We are not competing with IFC, multilateral development banks, development finance institutions, or commercial investors. We are helping create the next generation of investable clients, institutions, and pipelines so larger financial institutions can follow.

Our role is to prepare the ground, like an on-ramp. It means using catalytic and risk-tolerant finance to help local enterprises and financial institutions build the track record, governance, systems, and resilience needed to attract larger capital over time.

It means deploying instruments such as concessional loans, guarantees, first-loss capital, reimbursable grants, local currency finance and technical assistance in ways that reduce risk without removing market discipline. In the State of Palestine, for example, the UNDP-UNCDF ReStart facility uses first-loss guarantees to help financial institutions continue lending to MSMEs affected by conflict and economic disruption. In Somalia, revolving finance is helping displaced people and small businesses rebuild livelihoods while strengthening their track record with local financial institutions.

It means working with partners to move opportunities from concept to transaction, from transaction to portfolio and from portfolio to scale.

This is not just about financing individual deals. It is about building the conditions for bankable investment in markets where those conditions do not yet exist.

In fragile settings, the central challenge is not choosing between commercial viability and peace impact, but identifying and structuring investments that can deliver both, often over different timelines. Some peace-positive investments may require more patient capital, stronger risk-sharing, or additional technical support before they can generate returns at the scale and pace expected by conventional investors. The task, therefore, is to structure investments so that commercial and peacebuilding objectives reinforce one another.

Three principles for peace-positive investment

First, we need to be clear about what “peace-positive” means in each context. It cannot be a generic label. It should be linked to concrete outcomes: jobs for excluded groups, stronger local supply chains, reduced economic marginalization, access to finance in underserved areas, greater participation of women and youth, or stronger trust between communities and institutions.

Second, the investment structure must match the risk and return profile. In fragile contexts, standard financing terms are often not enough. Guarantees, concessional capital, longer tenors, technical assistance, and first-loss structures can help reduce pressure for short-term returns while preserving financial discipline. These instruments can enable investors to enter markets where peace and development additionality is high, but where perceived and real risks remain significant.

Third, we need strong screening and monitoring. Some investments may be commercially attractive but could reinforce exclusion, elite capture, land tensions, or conflict dynamics. Those investments should be redesigned or avoided. Peace-positive finance requires conflict sensitivity, transparency, and ongoing monitoring, not just a one-time assessment.

UNCDF’s work in Burundi provides a practical example of how these three principles can be applied. Through the UN Peacebuilding Fund, UNCDF invested USD 1.5 million in a hydropower project designed as an innovative intervention combining peacebuilding, conservation, and blended finance in a post-conflict context. Beyond mobilizing capital, the initiative was designed to generate peace and development outcomes by linking the hydropower investment to conservation, community participation, local livelihoods, and a long-term payment mechanism benefiting the Kibira National Park and surrounding communities. The case demonstrates how a relatively small amount of concessional capital, combined with conflict-sensitive design, appropriate governance, and continuous monitoring, can help unlock a much larger investment while embedding peace-positive objectives within the financial structure.

“The Peacebuilding Fund is excited to be a partner in the Kibira project because it demonstrates that peacebuilding is everyone’s business, that peacebuilding is a foundation for sustainable development, and that small public investments can help de-risk much larger fund flows in fragile settings." - Brian J. Williams, Chief, Peacebuilding Fund Branch, Peacebuilding and Peace Support Office.

A new architecture for financing peace

This is where UNCDF’s new Strategic Framework is especially important. It calls for greater intentionality in how we work with partners, how we serve the missing middle, and how we use our catalytic finance mandate to unlock public and private capital for the places and people most often left behind. In fragile and high-risk markets, this means positioning UNCDF as a practical partner for pipeline creation, early-stage derisking, and market-building.

We are seeing growing recognition of this role.

Together, these developments signal the emergence of a new peace finance architecture—one that more intentionally connects peacebuilding, private sector development, catalytic capital, and long-term market resilience. Discussions at the Peace Finance Forum, the World Bank Fragility Forum, and UN Peacebuilding Week all pointed in the same direction: achieving sustainable peace will increasingly depend on our ability to align public policy, peacebuilding efforts, and investment approaches in ways that strengthen local economies and expand opportunity in fragile contexts.

Bridging the gap between crisis response and commercial investment

For this emerging architecture to work, we need to be clear about sequencing.

Humanitarian and crisis response financing remains essential. Sovereign financing remains essential. Large-scale DFI and MDB investment remains essential. But between emergency response and commercial investment, there is a missing bridge. That bridge is where UNCDF can add value.

We can help identify early opportunities. We can work with local financial institutions. We can provide the first layer of risk absorption. We can support investees before they are ready for larger capital. We can help generate evidence, track impact, and strengthen the conditions for others to enter.

The objective is not for UNCDF to hold risk forever. The objective is to take early risk deliberately, reduce it over time, and create pathways for scale.

If we want private sector investment to contribute to peace and resilience, we need to stop treating fragile markets as places where investment is seen as either impossible or immediately scalable. They are neither. They require patient preparation, local presence, careful structuring, and partnerships that understand both risk and purpose.

This is the opportunity before us.

No single institution can build peace-positive investment markets alone. Building pipelines where none exist, derisking early opportunities, and shaping investments that are both commercially viable and peace-positive will require collective effort. It calls for partners willing to engage earlier, share risk more deliberately, and align around long-term outcomes rather than short-term returns.

The opportunity is to work together to expand the space for investment in fragile settings, not by shifting risk from one actor to another, but by growing the overall pool of investable opportunities from Gaza and Kibira, to Damascus and Kinshasa. This means combining catalytic capital, technical expertise, local knowledge, and patient investment to unlock markets that have long been overlooked.

At a time when the world is searching for new ways to finance peace, the question is not who leads alone, but who is ready to step forward, share risk, and help build the market conditions that peace-positive investment requires.