Municipal Investment Finance - What Are the Opportunities?
  • September 12, 2014

In an urbanizing country, the nation's economic prosperity increasingly depends on having functional and resilient cities. As cities and towns grow, decentralization becomes more viable and more necessary, and in many countries local government autonomy increases.Enhancing the capacity of local officials to carry out their delegated functions, not only improves safety and quality of life locally, it empowers cities and towns to contribute in important ways to national social and economic development targets. However, the magnitude of the tasks assigned to the local governments in most LDCs vastly exceeds the resources at their disposal. Cities are stuck in a vicious cycle of limited resources leading to a constrained response, while the population of the city and the demand for services continue to grow exponationally. Mobilizing adequate resources present a huge challenge. Most LDC cities have a weak tax base, and limited capacity to strengthen it, to identify and prepare projects, or to carry out their mandates for infrastructure development and service provision. Even when government transfers are predictable and generous, they are rarely adequate for major infrastructure improvements in growing cities. Capital investment funding is often provided by national agencies whose access to capital is highly constrained, or it may be allocated from national budget line items where local governments must compete with other government entities. In order to support the efforts of central and local governments, and other stakeholders to increase access to capital for urban services, UNCDF intends to develop the Municipal Investment Fund (MIF) Project. The goal of MIF is to give access to capital, including private capital, to cities and other local entities and jurisdictions in selected LDCs for investment in sustainable urban infrastructure, and in activities that build resilience and strengthen environmental protection. MIF will work with central and local governments to develop targeted policy reforms, promote democratic local governance, and foster stronger engagement in communities and among stakeholders. MIF adheres to UNCDF’s capital investment mandate and specifically to LDFP’s Core Approach, and is innovative in shifting the paradigm from grant distributions to incorporating direct support to local governments through an effective Municipal Investment financing framework. Under this formulation and in preparation for development of MIF, a joint mission took place to three countries in Southeast Asia (Vietnam, Thailand and Bangladesh) with Cities Alliance, to compare the current status and opportunities in municipal finance. This also featured a learning exchange introducing the Dakar Municipal Finance Program through two of its representatives who participated in the mission. It is hoped this will form the basis for further partnership, with specific discussions to take place later this month in New York between senior management officials of UNCDF and Cities Alliance.