UNCDF works on both the market and the capital side of digital finance. On the market side, it helps financial service providers, fintechs and regulators build models and systems that serve the last mile sustainably. On the capital side, it deploys risk-absorbing finance that proves those models work, then steps back as commercial investors move in.

Where markets are not yet ready for commercial capital, UNCDF acts as a first mover, pairing grants and catalytic capital with foundational technical assistance to build the track record, data and confidence that larger investors need.

Digital finance: from access to economic opportunity

Digital finance has changed who can reach the financial system, with account ownership in Sub-Saharan Africa rising from 34 percent of adults in 2014 to 58 percent in 2024, driven largely by mobile money. Access, however, has run ahead of outcomes: formal bank credit in low-income countries has stayed at around 5 percent of adults for a decade, and the MSME financing gap in emerging and developing economies was estimated at USD5.7 trillion.in 2019.

The next frontier is moving beyond access to productive use, financial health, business growth and resilience. This requires strengthening the market conditions that allow financial institutions and technology providers to serve underserved segments sustainably, while directing catalytic capital toward the barriers that commercial markets cannot yet overcome on their own.

“Digital finance has already proven it can reach the last mile. Next is to make it pay off for the farmer and the micro-entrepreneur, for the providers who serve them and for the investors whose capital they need. That is where UNCDF’s catalytic role matters most.” - Richard Ndahiro, Global Thematic Lead on Digital Finance, UNCDF.

Focusing where UNCDF adds most value

UNCDF works alongside other development partners, including United Nations entities,multilateral development banks, development finance institutions, specialist investors, foundations and market-development institutions - that already provide capital, technical assistance and policy support. Rather than filling every gap, UNCDF focuses where its intervention can change a market’s trajectory toward viability, investment and scale:

• Making underserved markets investable, by connecting market intelligence, business-model innovation, data, technical assistance and catalytic capital into a single pathway toward investment.
• Reaching the last mile of MSME finance, by concentrating on micro, small, informal, rural and women-led enterprises, where conventional models have not yet achieved sustainable economics.
• Bridging demonstration and crowd-in, by owning the move from “a model that works” to “a market that investors will finance”.
• Connecting markets, systems and capital, by linking financial inclusion, market systems and capital mobilization rather than treating them as separate interventions.

Delivering better, stronger and greater capital

UNCDF’s digital finance work pursues three mutually reinforcing objectives, and lasting change in a market requires progress on all three.

Better capital: inclusion

Expanding affordable, accessible and appropriate digital financial services for underserved MSMEs and households, with a focus on the depth and quality of access rather than coverage alone. This includes digital payments, MSME credit, savings, insurance, remittances and last-mile access through agent networks and device financing, with the aim of higher incomes, lower costs, smoother cash flows and greater agency over financial lives.

Stronger capital: systems

Building resilient, inclusive digital financial systems that can intermediate capital sustainably and withstand economic and climate shocks. This covers payment rails and interoperability, credit data and open finance, the capacity of regulators and providers, and consumer protection and trust.

Greater capital: mobilization

Using digital finance to crowd in larger volumes of public and private capital into high-impact investments in LDCs and fragile markets. Digital lending generates investable transaction histories, while data and traceability help de-risk portfolios and draw in commercial investors.

Using catalytic capital to unlock digital finance markets

Capital deployment is UNCDF’s main lever for entering high-risk markets that commercial investors will not enter alone. Depending on the market failure being addressed, UNCDF can deploy:

• investment grants for early-stage fintech and digital financial service models, tied to inclusion outcomes
• concessional loans and co-lending
• guarantees and first-loss capital that shift the risk-return profile for co-investors
• blended finance structures alongside development finance institutions and commercial investors
• targeted capital for MSME digital lending platforms, embedded finance in value chains, device financing, agent networks and merchant payment ecosystems

Building the capabilities that make capital work

Technical assistance is deployed alongside capital as part of every intervention, not as a separate track. UNCDF supports financial service providers, fintechs and regulators with product design, digitization strategy and go-to-market support; risk management, underwriting models and credit policy; MSME platform development and aggregator partnerships; and data and innovation for inclusion, including alternative credit scoring, open finance frameworks and AI-enabled risk analytics that make thin-file customers financeable.

Shaping markets that outlast any single intervention

UNCDF works with governments, central banks and industry to ensure that change continues beyond the life of any one project. This includes support for electronic know your customer(Ekyc), interoperability and open finance regulation; digital public infrastructure such as national payment systems and data exchange layers; proportionate anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks; and public-private dialogue platforms.

Meeting each market where it stands

A market with a nascent mobile money ecosystem needs different support from one with an active fintech sector. UNCDF therefore begins with a market readiness assessment covering infrastructure, regulation, market actors, the data ecosystem and capital availability, which can be applied at national or subnational level.

The assessment places each market on a four-stage market development pathway, and UNCDF’s role and instruments change as the market matures:

1. Build: in early-stage and last-milemarkets, UNCDF acts as market builder, using grants, pilots and first-mover capital to prove the concept.
2. Demonstrate and catalyse: in transitional markets, UNCDF acts as market catalyst, using blended finance and first-loss guarantees to validate models and generate credit performance data.
3. Crowd in: in maturing markets, UNCDF acts as capital mobilizer, structuring co-investment as private capital replaces concessional finance.
4. Scale and exit: markets transition to market-led growth, and UNCDF exits.

In SIDS, the approach places greater emphasis on remittances, regional payment corridors and climate-linked products. In fragile and conflict-affected settings, it starts from humanitarian and government-to-person payments and community-level models, applying a do-no-harm lens throughout.

Harnessing artificial intelligence responsibly

Artificial intelligence is changing credit underwriting, fraud detection and risk management, and can make previously unscoreable customers commercially viable, while also amplifying risks related to bias, privacy and model performance. UNCDF supports AI-powered business models where they create clear additionality, and helps providers and regulators build the governance, model risk management and proportionate oversight needed to use AI safely.

Our projects related to digital finance