Capacity Building of African Local Government Financing Institutions

UNCDF is working in 4 countries (Cameroon, Madagascar, Mali, Niger), in partnership with RIAFCO, FMDV and PPIAF, through the Municipal Investment Finance (MIF) programme, to identify the most effective ways to sustain and diversify local government financing institutions (LGFIs) financial resources in order to reinforce and to support local authorities and to bolster their own financial resources.

At a moment where local authorities are recognized for their role in the SDG implementation agenda, there is a need for more finance. All cities are not equal in this and cities from the South, especially secondary cities in Africa need more support to deliver services and contribute to the development agenda.

African municipalities face specific additional challenges: extremely limited payment capacity of basic services customers for cost recovery, very low potential for tax revenues, underdeveloped financial sectors, large informal sector and high unemployment rates, which in turn result in low contributions to savings and investments.

This situation justifies the need of technical, financial and institutional reinforcement to support local authorities, especially the middle-sized cities. The creation of Municipal Development Funds, National Investment Funds for local authorities, or local government financing institutions (LGFIs) in those countries can remove barriers for local government debt financing.

Those institutions, created by central governments, can play multiple roles: technical support, training and capacity building to local authorities for own resources mobilization, ensuring proper accountability channeling of credit and grants to municipalities. In addition, those institutions can support the mobilization of innovative sources of finance, and play a key role in creating the appropriate national environment for municipal finance through policy and regulatory support.

Through the programme, technical partners – UNCDF, FMDV- support to strengthen those local government financing institutions (LGFIs) in Africa through the RIAFCO, the Network of African Finance Institutions for Local Authorities, which represents a number of LGFIs in Africa.

The RIAFCO has a key role to advocate, promote knowledge and capacity building of LGFIs in terms of innovative finance for local authorities. The network unites African finance institutions through a unique platform, thereby promoting mutual learning and south-south cooperation. RIAFCO was created at the demand of the countries involved in both the International Conference on the Financing of Local Authorities in Yaoundé in 2011 and the Africities Summit in Dakar in 2012. RIAFCO was created in 2014 by four founding members (Cameroon, Gabon, Burundi and Mali), and has now around ten institutions members (Benin, Burkina Faso, Cote d'Ivoire, Madagascar, Niger, Senegal etc.).

This program aimed to strengthen the LGFIs in African countries through the RIAFCO network, to, in fine, local authorities have a better understanding of municipal finance and capacities to improve their access to finance. More specifically, the program identified and improved the awareness of the LGFIs about innovative sources of finance, (climate finance, access to loan, domestic and private sources of finance, etc.)

This program has achieved its objectives:

1. develop of knowledge and communication products to enhance RIAFCO members’ understanding of municipal finance instruments as well as the regulatory/policy context,
2. strengthen of RIAFCO’s capacities in order to enable it to support its members in accessing alternative sources of municipal funding.

Outcome : The overall outcome of the proposal is that LGFIs -and local authorities- in African countries have a better understanding of opportunities and enhanced skills to innovative sources of finance through the RIAFCO network. More specifically, the two main outputs are:

1. Knowledge products and capacity building tools (publications, online resource center, studies, tool kits for capacity building for LGFIs) are developed to strengthen understanding of municipal finance and its regulatory/policy context amongst RIAFCO members,
2. RIAFCO’s leadership capacities are strengthened to enable it to formulate a strategic vision on how to promote municipal finance in African LDCs.

By promoting knowledge and sharing of experiences on municipal finance, the project contributed to bridging the gap between infrastructure finance needs in Africa and the supply of credit. It will do this primarily by strengthening the understanding of the existing policy, regulatory and institutional bottlenecks, using the LGFIs for local authorities as unavoidable intermediaries.

Responsible Parties: Network of African Financial Institutions for Local Governments (RIAFCO), Global Fund for Cities Development (FMDV), with financial support from the World Bank’s Public-Private Infrastructure Advisory Facility (PPIAF).

Project duration: May 2016 – June 2018