Local Finance Initiative

The catalytic role of the private sector in stimulating economic growth and reducing poverty has already been proven. Despite consensus on this critical role, the basic legal and financial mechanisms necessary to develop the private sector still contain many shortcomings in many developing countries, thus slowing the growth of that sector at the local and national levels.

Food security and managing natural resources are important domains in which UNCDF is involved. Strong with decades of experience in food local food security, UNCDF considers the urgent need to include the private sector in its approach and to develop new funding mechanisms for food production and trade. In this context, the LFI emphasizes on investments that can enhance the four pillars of food security.

The innovative nature of LFI

LFI paves the way for the investment of new capital and relies on proven methods for funding local development. The specificity of this tool is the introduction and application of a large range of approaches and risk-reduction instruments, strengthening project management methods as well as existing risk-reduction instruments or credit-enhancement options. LFI puts the emphasis on an efficient coordination and data outlets, including online tools which linked the appropriate actors at the local and national levels, horizontally and vertically. Furthermore, the construction of governmental investment networks allows the identification and the resolution of difficult questions that can sometimes block the funding of local economic infrastructures.

The LFI is implemented through the programs’ components and includes capacity building for public and private stakeholders as well as counselling services in the shape of feasibility studies, market studies, financial analysis,etc… to the sponsors for the design of small and medium sized infrastructure projects. In fine, it results in a more efficient assistance through the creation of innovative partnerships which maximize the limited resources of the governmental sectors by mobilizing and stimulating the private sector in funding crucial projects for the inclusive local development.

The implementation process

The implementation process of the LFI mechanism operates as follow: the F4F team identifies in a participative manner, a number of catalytic projects, scouts the existing local development plans. When necessary, the team works jointly with women economic empowerment programs, climate resilience, fiscal decentralization and local economic development for the development of partnerships with potential sponsors.

The implementation of the chosen catalytic investments then melds in the national process of policy review, the legislative, operational and regulatory review in order to create an adequate environment allowing the funding of local development through the domestic financial sector. Simultaneously, the cumulated experience during the implementation of other projects helps refine, activate and improve national and international mechanisms which support local development. Better national and international frameworks, adapted systems and tools to the local reality, encourage the setting up of more relevant projects and facilitate their funding by the local financial sector. The projects implemented also serve as a “: « proof of concept » which demonstrate the viability of the F4F approach and encourage more investments.

The projects funded with the LFI mechanism adopt four sustainability principles:

  • National ownership
  • Alignment with the programming of countries and existing structures
  • Inclusion in the national policies
  • Reinvestment of the seed capital provided by the program

Strategies for LFI partnerships

The LFI mechanism relies on partnership and cooperation with a large number of various international and national stakeholders in order to maximize the impact of the programs and ensure that the interventions are harmonized. It completes the efforts of other partners, including the other UN agencies, the private sectors, national and sub-national governments, national and international development agencies as well as the civil society.

At the national level, the approach allows the institutionalization of the funding mechanisms and facilitates the increase in national governments’ ownership and from the country programs of the UN. The expertise of the F4F technical team for crucial advice on mobilizing private and domestic finance and increase the local business environment is thus essential.

At the global level, the LFI mechanism allows to each a variety development partners from the private sector and foundations carrying innovative methods which have direct interests in the building of inclusive market networks and supply chains.

Stories from the Field