1.     Historical Overview of UNCDF

The United Nations Capital Development Fund (UNCDF) has been contributing to the United Nations Development Programme (UNDP) for more than thirty years (UNCDF, 1995a). UNCDF's vocation thus fits in with UNDP's priorities, i.e. sustainable human development. Until the early 1990s, UNCDF's main function was to finance physical infrastructure and equipment, in support of poverty alleviation projects. However, two observations led UNCDF to redirect its programme (Christensen et al., 1996):

* the unsustainability of such infrastructure when developed in isolation; and especially

* a threat to UNCDF's very existence, as a result of the gradual reduction in donor contributions.

In 1995, UNCDF therefore produced a policy paper, in which it suggests that it should essentially play the role of local development facilitator, especially at the level of institutional partnership, bearing in mind that: "… interaction between government bodies and local communities is a key factor in promoting development and reducing poverty" (UNCDF, 1995a). UNCDF support now focuses on:

* local governance;

* community development and

* strengthening local institutions;

* using a participatory approach in all cases (Christensen et al. 1996).

To this end, UNCDF has been working in four areas since 1995, as shown in Table 1, which also gives the proportion of the UNCDF budget allocated to each programme.

Table 1: UNCDF components and budget proportions

Programmes	Proportion of the UNCDF budget (%)
	Early 1990s	1997-1998 forecast
Infrastructure and equipment	About 75%	About 50%(4)
Eco-development Local development funds	About 20%	About 35%
Micro-finance (micro-credit and guarantee funds)	About 5%	About 15%

(Source: Christensen et al. 1996)

As the table shows, there has been a trend over the last few years towards a reduction in the "infrastructure and equipment" component, as a result of UNCDF's new policy directions.

According to the terms of an agreement reached with the donors, UNCDF has guaranteed funding available for three years (1996-1999) to set up the first activities in line with the new policy directions. A donor evaluation will take place at the end of this probationary period.

The eco-development programme will be described in the following section. For the purposes of information and comparison, we give hereunder a brief description of the two other new operational focuses of the Fund, namely the local development funds (LDF) and the micro-finance tool (MF=micro-credit/guarantee funds).

The LDF programme supports local governance(5), using two instruments (Romeo, 1996):

* Local development funds properly so-called, intended to increase the amount of fiscal transfers from the central government to peripheral administrative levels;

* Capacity-building in participatory planning of the use of these funds.

The latter tool should, in principle, allow something other than infrastructure to be financed, i.e. productive and natural resource management activities. These latter two categories of activities have, however, been little developed hitherto within the LDF programme, due to a lack of intermediate structures between the local administration and village communities (L. Romeo, 1997, pers. comm.)

The micro-finance (MF) programme mainly relates to loans granted for income generation schemes and/or activities(6), whether on an individual or collective basis. Such programmes are usually managed by operators outside the project, so as to reduce the risk of confusion between activities which receive loans and those which may be subsidized (Henri Dommel, 1997, pers. comm.). Guarantee funds are provided by UNCDF to guarantee micro-credit operations under certain circumstances. Unlike the LDF programme, the UNCDF micro-finance component is associated with the eco-development programme in several projects.

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