The UN Capital Development Fund (UNCDF) gathered over 120 nationwide project developers and financial institutions to a three-day technical workshop on project finance. The workshop is part of a training series UNCDF hosts each year, to inform both private and public infrastructure project developers and lenders about innovative tools in the field of project finance, and the ways UNCDF can support them through its Local Finance Initiative (LFI) Programme based in Dar es Salaam.
UNCDF speakers outlined LFI's innovative tools, including limited recourse financing and risk mitigation strategies. Furthermore, contracting sequences and the basic terms and conditions that can be expected from each contract were highlighted. The process of preparing projects to be investment ready, the types of stakeholders and their distinctive roles were also discussed, in order to ensure that a greater number of project developers learn to speak the language of investors and lenders. The LFI programme in Tanzania puts a high focus on developing the skills and capacities of local project developers to ensure an optimal cooperation with bankers and investors.
The LFI programme is implemented in partnership with the government of Tanzania. It is designed to promote sustainable, inclusive and equitable growth by developing local investment opportunities that can deliver transformative impact and support the projects to get financing through the private sector and preferably domestic capital markets. The design phase of the programme confirmed that domestic capital, until to-date, is not used to support small and medium scale infrastructure investment at the rural and sub-national levels. Also, it has not been available for local economic development actors, whether they are local governments or private businesses.
The UNCDF delivers the LFI approach and its methodologies to select group of projects and their developers through the projects' development and financing stages. In other words, projects that are otherwise un-bankable are de-risked and taken to an investment-ready stage where they are prepared to access commercial capital. Selection of projects is based on a) impact to local communities; b) potential for commercial viability; c) priority infrastructure areas e.g. energy, agro-processing, public facilities infrastructure, and other traditional and industrial small and medium size infrastructure.
The inhehrent risks of project development (pre-feasibility, investment, construction, implementation and operation) require significant know-how and experience of the developer, in order for the projects to be properly managed and the risks to be mitigated for investors, lenders, contractors, and other third parties. LFI provides this capacity through specific support activities, including project structuring, financial evaluation and structuring, investment memorandum preparation and introduction of risk mitigation strategies. Additional support is provided in the form of grants for technical studies, seed capital, subordinated debt, credit enhancements and options that reduce transaction costs at the last mile of the project development phase. The non-recourse project finance approach, as one example, has been deployed successfully in developed countries to access long-term private finance for infrastructure projects, yet is not widely applied for small and medium infrastructure projects in Least Developed Countries (LDCs). UNCDF’s use of this approach is a critical element to leverage limited public funds needed to unleash private capital to scale up local development.
Information Note for News Editors
About UNCDF UNCDF has a unique financial mandate within the UN system. It provides investment capital and technical support to both the public and the private sector. The ability to provide capital financing in the forms of grants, loans and credit enhancement and the technical expertise in preparing portfolios of sustainable and resilient capacity building and infrastructure projects, makes its mandate complementary to the mandates of other UN agencies. It also positions UNCDF as an early stage investor to de-risk opportunities that can later be scaled up by institutional financial partners and increasingly by philanthropic foundations and private sector investors. UNCDF has proven its ability to deliver true leverage on smaller and more risky investments and interventions within its core areas of expertise: Inclusive Finance and Local Development Finance. The concept-proven pilot projects and programmes are replicated and brought to scale with the help and the add-on financing of other development partners with different, and yet complementary, mandates.
UNCDF has also a proven track record in developing local public finance capacities, which were brought to a national scale by larger development partners (i.e. World Bank).
UNCDF’s work on local development finance aims at ensuring that people in all regions and locations benefit from economic growth. This means dealing with the specific local challenges of, for example, peri-urban areas and remote rural locations. It means investing domestic resources into local economies and services through, inter-alia, fiscal decentralization, climate finance and project finance. UNCDF focuses its efforts towards strengthening public financial management and local revenue, improving the quality of public and private investments at the local level.
UNCDF’s work on inclusive finance seeks to develop inclusive financial systems and ensure that a range of financial products is available to all segments of society, at a reasonable cost, and on a sustainable basis. UNCDF supports a wide range of providers (e.g. microfinance institutions, banks, cooperatives, money transfer companies) and a variety of financial products and services (e.g. savings, credit, insurance, payments, and remittances). UNCDF also supports newer delivery channels (e.g. mobile phone networks) that offer relevant potential for scale.
UNCDF’s original mandate – to promote economic development in the least developed countries – remains highly relevant today. Economic growth is necessary to enhance living standards, reduce poverty and cope with the world’s growing population. And it must be socially and environmentally sustainable to deliver maximum benefits for current and future generations.