Remarks of Judith Karl, UNCDF Executive Secretary, on the occasion of the Executive Board Annual session 2019

  • June 06, 2019

  • New York, United States

Mr President, Distinguished Members of the Executive Board, Colleagues and friends,

Thank you, Ambassador Cho, for chairing this session. And thank you, Mourad, for those introductory remarks. As you said, we are meeting at an important moment on the pathway to 2030.

We see the impressive progress being made in LDCs, with a growing number on track to graduate.

Our work in 2018 demonstrates the exciting opportunities we face, but also some stubborn challenges.

We produced a major report last year on blended finance in the LDCs. It shows an important and dynamic debate on the role of blending, and its utility in reaching riskier markets. According to OECD data, too little private finance is being invested in LDCs. Even through blended finance transactions, just 7% of private finance mobilized by aid money benefits LDCs.

The report highlighted the need for more risk-taking and changes in the incentives that underpin much of the financing for development architecture if we aim to get more finance to the last mile in LDCs.

We need to make those changes now, before the structure of the current international financial system further entrenches the inequalities that leave poor and vulnerable countries and communities at risk of being left behind.

One of these opportunities is in our work on local development finance. The road to 2030 winds through every town and village. But local governments are chronically under-resourced. In 2018, we directly supported 368 local governments in 23 LDCs and low-income countries, completing 294 public and private investments. As governments replicate these local financing models, the impact achieves scale. But the persistent financing gaps at the local level must be addressed if LDCs are to meet the SDGs and tackle the effects of climate change at the local level.

Financial inclusion is also a critical enabler for the 2030 Agenda. In 2018, the financial service providers we supported mobilized some $400 million in savings that enhanced household resilience and put domestic resources into productive circulation. Across our entire portfolio, nearly 60 percent of the savers and 66 percent of the borrowers we help reach are women. Still, far too many people and SMEs lack the finance they need to build a better future.

And our LDC investment platform has matured over the last 18 months. We have approved 16 loans and guarantees totaling some $3 million, with 10 more transactions in process. These investments are going to initiatives that are too risky or too small to be of interest to the “bigger players” in the financial architecture, but can help change lives for the better in the last mile of LDCs, and our aim is to use the demonstration effects to open up domestic markets. But the missing middle finance gap remains stubborn, and we need quick action to fill it.

I am joined today by colleagues who will brief you on their exciting work. Sabine Mensah is a regional technical specialist working on digital financial services in Africa. Sharmeen Hossain is an investment officer based in Bangladesh. Anders Berlin is the head of our investment platform.

Because of the commitment of UNCDF colleagues, of the 18 development effectiveness indicators reported in 2018, all are assessed to be on track or exceeding their 2018 milestone targets.

Let me highlight some key results and priorities going forward.

First, on local development finance.

Increasingly, the fiscal decentralization systems we have helped develop across Africa and Asia are evolving to support climate adaptation through both public investments and the local private sector. We are helping local governments to develop measurable and verifiable investment plans and to gain direct access to global funds like the GCF.

Our local climate finance mechanism – LOCAL – now includes 14 countries and works in 107 local governments, representing over 6 million people. Building on our demonstrations, the national governments in Bhutan and Cambodia have started to scale up the local climate mechanism to all local governments.

In early April I had the privilege of traveling to Korea where the guidelines from the LOCAL approach were adopted as a supplement to the UNFCCC’s National Adaptation Plan framework.

Now we need to continue expanding this work. How can we meet our ambitions under the Paris Agreement if towns and cities on the climate front lines cannot respond effectively?

As Sharmeen illustrated, the future development of the LDCs also depends significantly on how well urbanization is managed in cities and towns.

This is another area which the financing architecture is not supporting sufficiently. In October, we will be launching an International Municipal Investment Fund. It is a third-party managed fund established by UNCDF and United Cities and Local Governments - UCLG. It will co-finance with domestic banks the municipal investments that will accelerate the sustainable development of growing urban and peri-urban areas.

Women’s economic empowerment is central to all this work, with over two-thirds of all jobs we supported through our local investments benefiting women.

Our approach involves working with local governments on gender-sensitive local economic assessments that identify specific infrastructure and local economy bottlenecks to women’s economic empowerment. We help identify impactful infrastructure projects or SMEs, and then help leverage resources to fund them. We started this work with UNDP and UN Women in Tanzania, Uganda and Bangladesh, and will be expanding it in 2019.

We see the same kinds of impacts in our work on financial inclusion.

Our aim is to leave no one behind in the digital arena, with a focus on leaving no woman behind.

Since 2012, we have helped reach 13 million digital clients in 12 countries, including through ground breaking work in the Pacific region through our joint programme with UNDP.

We work with regulators, governments, mobile network operators, fintech start-ups, and banks to build strong ecosystems for digital economies.

Underpinning our work is data analytics and research on women’s access, usage and agency. Our data diagnostics have helped 18 countries design financial inclusion roadmaps since 2014, and are helping other countries understand why increased access does not always translate into increased usage for women.

We provide grants or technical assistance to incentivize providers to design products that help small business grow and meet the needs of poor women. In Uganda, we partnered with businesses working along coffee, dairy, maize and seed-oil value chains to register some 175,000 mobile money customers and digitize the payments of 40,000 smallholder farmers.

We also host the Better than Cash Alliance, which has grown to over 70 members and is helping companies, NGOs, governments and international organizations digitize their payments to reduce poverty and accelerate inclusive growth.

We are leveraging digital solutions to improve the livelihoods of forcibly displaced populations with UNHCR and others. Since 2014, we have been using financial inclusion to expand clean energy access and have helped our partners sell 230,000 clean energy products benefiting over 1 million people in Ethiopia, Myanmar, Nepal and Uganda.

As you heard from the UNDP Administrator, we host the secretariat to the U.N. Secretary General’s Task Force on the Digital Financing of the SDGs, which the Administrator co-chairs. This work is seminal in helping to understand how our work today can help shape the new realities of a digitally integrated world, and to ensure it is applied for positive benefit in the last mile in LDCs.

Expanding financing innovation

In the investment finance space, we are adding value in market segments that the DFIs and private investors are not addressing. Anders gave you a good picture of where we are. What is important to note is that with all those pieces in place, we are ready for take-off. If our UNCDF investment platform is capitalized with a start-up $10 million, and with $2 million for project preparation, we could be supporting 40 - 60 projects a year, paving the way for more investors – particularly domestic investors and banks - to enter these markets.

Equally exciting is the potential for our investment platform to provide a ready-made service to the UN. We are working with other UN entities to refer possible project pipelines that have promise but are not being reached by existing financing mechanisms, and we are in active discussions with UNDP and UNICEF about 5 guarantee transactions related to their work.

To really do this right, we need to reach our Strategic Framework funding targets, so we can demonstrate not just transactional potential but the possibility of real demonstration and scale.

In terms of System-wide engagement, we participate in joint programmes and initiatives in 26 countries, covering some 30 percent of our programmatic expenditure in 2018. Together we are implementing proposals in Cambodia, Guinea, and Senegal funded by UNDP’s country investment facility.

As the UN looks to engage in the strategic financing space, UNCDF’s expertise, experience, and capital tools are increasingly called upon, including by RCs, RRs, UNDCO and the UN inter-agency architecture. Our ability to respond is limited only by our footprint and funding, to ensure we can provide maximum value to UNDP and UNCTs in LDCs. By way of example, we currently participate fully in only 12 UNCTs because of the lack of a senior enough staff presence, even in countries where we have signed the UNDAF. As a non-resident entity, we are eager to support the new Cooperation Frameworks at country level, and recognize that resource constraints can make it difficult in many countries where our work is clearly relevant.

Evaluation and evidence

Our evaluation function is a cornerstone of our “learning by doing” approach. Last year we completed two mid-term evaluations. On mobile money, the evaluation found that adopting a market development approach builds the capacity of private sector partners who attributed specific changes in organizational processes, strategy and increased managerial buy-in and investment to UNCDF support. And on shaping inclusive finance transformations, that the programme’s challenge fund mechanism works well, but that in view of resource constraints, a more targeted focus going forward in support to regulators and service providers would also be important. We are pleased to organize an informal on these evaluations in the Fall.

We have increased our evaluation staff to three professional posts, and we continue to benefit from our close association with UNDP’s Independent Evaluation Office. IEO provided an independent assessment of our evaluation reports which points to their objectivity, relevance and high quality.

Institutional effectiveness

Of the 26 IRRM indicators on institutional effectiveness, 24 are on track or exceeding their targets.

We have had unqualified UNBOA audits for the last five years in a row. We have no long outstanding audit recommendations pending.

Our core contributions increased slightly in 2018 to $13.3 million, up from $12.6 million in 2017. In the context of the new Funding Compact, core resources constituted 19.2% of total UNCDF revenue.

On gender, our compliance with UN-SWAP 1.0 was 73% in 2018. We have put in place measures - including this Strategic Framework’s gender theory of the change, the adoption of a new gender strategy, and implementation of the gender marker - to achieve high compliance against UN-SWAP 2.0.

We have in place a “Prevention of Sexual Harassment and of Sexual Exploitation and Abuse Action Plan”. We are committed to making a workplace that is free of any kind of harassment or abuse, and where all staff know what resources are available to them and are able to raise their concerns without fear.

Total expenditure in 2018 was $64 million, slightly down from 2017. We anticipate delivery to increase again this year, with new programmes being launched.

The core shortfall against our $25 million per year target continues to confound our efforts to ensure robust, state-of-the art financing innovation for the last mile in more LDCs. Shortfalls against our capitalization target for the investment platform - $50m in the Strategic Framework ideal scenario – limits our flexible capital to respond to demand from other agencies. At the same time, our total funding picture and our non-core income remain steady, and we thank all our partners for their support.

We are very grateful to all Member States who provide core. Sweden, Switzerland, Australia, Luxembourg, Norway, the United States, and Austria were among our top core donors in 2018, and in many cases also provide multi-year core funding and additional non-core. I also thank Bhutan, Lao PDR, and Myanmar from the LDC group for their core contributions as well as China, Kazakhstan and Thailand for their ongoing support.

We welcome France for joining us as a new core donor in 2018. We thank the United States for doubling its core contribution for 2019.

We also thank Andorra and Norway for becoming donors to our Last Mile Finance Trust Fund, a lightly earmarked pooled funding vehicle we launched with Sweden.

The European Union, Multi-Partner Trust Fund Office, and MasterCard Foundation were our largest non-core contributors in 2018.

We have an important window of opportunity to get finance working for those left behind.

At UNCDF, we now have all the pieces in place to go to scale. We count on your support for our efforts to help make that happen.