UNCDF response to COVID-19 - UN Capital Development Fund (UNCDF)

In this time of crisis, the United Nations is calling for solidarity and increased funding to help some of the world’s most vulnerable countries scale up their efforts to combat the coronavirus pandemic.

On March 25, United Nations Secretary-General António Guterres launched the UN Coordinated Appeal for COVID-19 (Global Humanitarian Response Plan COVID-19), saying, “Now, the virus is arriving in countries already in the midst of humanitarian crises caused by conflicts, natural disasters and climate change,” and noting that these countries have the fewest resources to address the potentially disastrous impacts of the virus.

The Secretary-General’s top priorities for the crisis are : 1) coordination and cooperation to suppress the virus; 2) minimizing the social and economic impact of COVID-19 for everyone and stimulating a faster recovery everywhere, including by providing immediate liquidity relief to the private and financial sectors in the developing world; and 3) helping poor countries to “recover better,” with more inclusive and sustainable models of development.

In this context, UNCDF can support LDCs and other countries in need through its core mandate to build stable and resilient local economies and by leveraging a range of technical expertise and investment instruments to reduce and limit economic and social hardship for poor communities.

UNCDF offers a systemic value proposition to drive finance in more dynamic ways for poor people and excluded populations. UNCDF’s tools include supporting digital payments to enable key financial flows; boosting the capacity of local governments to accept and deploy funding quickly to meet local needs; and injecting targeted investment funds into small and medium enterprises (SMEs) to stabilize local economies and accelerate recovery.

Digital Innovations

UNCDF has broad experience in using digital innovations to support countries in crisis. These include:

Digital payments: UNCDF, working with UNDP and the Better than Cash Alliance, can bring its expertise on responsible digital payments to help governments and other partners introduce the relevant technology channels to pay emergency workers and other critical crisis responders reliably and on time. Today, given quarantines imposed by governments in most of the affected countries, the use of digital P2P (Person-to-Person), P2B (Person-to-Business) and B2P (Business-to-Person) payments—particularly of salary, stipends, pensions, scholarships and emergency payments —could help maintain social distancing and reduce the potential spread of COVID-19. The Better Than Cash Alliance is currently responding to multiple requests from its government and corporate members to accelerate responsible digital transfer payments to help mitigate the pandemic’s consequences. In this work, the Alliance and UNCDF are building on their experience, including that learned from digitizing payments to Ebola response workers during that crisis. For example, in Myanmar UNCDF plans to pilot a digital wage payment scheme aimed at garment factories affected by the Covid-19 supply chain disruptions. In the Pacific, UNCDF is working with MNOs to temporarily waive fees for domestic transactions and incoming remittances.
E-commerce and door to door delivery systems: During this confinement period, more and more households are trying to stock goods for longer periods without real visibility into the future. Lacking the ability to move freely, people may turn to the internet as a mainstream source to order food, goods, medicine or other necessary items. E-commerce platforms can play an important role in making it easier to buy goods from home. For example, in Malaysia UNCDF is launching a challenge to find solutions to improve the financial health of gig workers. In Uganda, UNCDF is supporting moto service SafeBoda to pivot its business from ridesharing to home delivery of food, medicines, and other goods. This will save the jobs of SafeBoda’s 18,000 drivers, help them reach at least 28,000 customers, create market access for 800 vendors, and enable successful social distancing efforts in Kampala
Chatbots: These virtual tools can help transmit information in a crisis. For example, once a consumer receives a digital payment, s/he can also receive key information via a chatbot about practical measures s/he can take to prevent getting the virus. The bot could also ask people if they are symptomatic—if the answer is yes, the bot can connect them with health care providers and add them to a contact tracing database.

Educational Apps: A chatbot can also allow users to download an application to further improve knowledge, awareness, myth-busting, and recommendations for protective behaviors. It can be deployed by mobile money agents, frontline health workers, and first responders, alone or to supplement contact tracing apps. For example, UNCDF is already supporting the deployment, awareness, and dissemination of a remote screening platform called DiagnoseMe to respond to the COVID-19 pandemic in Burkina Faso; a similar initiative, including telemedicine and virtual care, is also being discussed with the WHO in Nepal.
Contact Tracing: During an outbreak, contact tracing is a critical surveillance strategy that enables the rapid identification of new cases of a given disease so that those individuals can be isolated before spreading infection. This approach has been widely used for other Coronaviruses, including MERS-CoV, and is currently being used for COVID-19. Contact tracing was also used extensively during the 2014–2016 Ebola outbreak and played a crucial role in enabling countries to halt the transmission of the disease. The approach has been successfully applied to control previous Ebola outbreaks; however, contact tracing typically relies on the use of paper-based systems which limit impact, timeliness, and scalability.
Data Harmonization: UNCDF can support rigorous mapping and evaluation of current practices, resulting in a comprehensive set of recommendations to optimize data access, sharing, and use. UNCDF offers a variety of tools and integrations for data sharing and analytics, beginning with a series of ready-to-use reports that enable programs to monitor mobile app use, as well as more program-specific reports that can be customized and visualized to an organization’s specific needs. The application can be integrated with a government Ministry of Health’s preferred data visualization system to create dashboards for experts to track and monitor the disease’s spread.

Digital Initiatives on COVID 19

UNCDF is using digital innovations to support countries during this crisis with an array of initiatives in Africa, and Asia and the Pacific in response to the COVID19.

Subnational Finance to Accelerate the Covid-19 Response and Recovery

Local governments are leading the COVID-19 responses around the world. They are on the front line of citizen engagement, service delivery and management of public space. Every preventive and containment measure require resources and has a fiscal aspect. To finance their epidemic response, local governments rely on three major sources: own revenues, intergovernmental transfers and subnational borrowing. UNCDF’s expertise in local development finance can offer immediate options to help channel necessary resources to support local government officials to meet the needs of the immediate crisis, as well as strengthen their capacity to deliver services to their citizens afterwards.

Performance-based fiscal transfers to local governments: have proved very effective in delivering targeted resources at scale for specific purposes while enabling efficient delivery, cost-effective procurement, and transparent reporting. This mechanism leverages local knowledge and capacity and avoids costly parallel project structures. UNCDF has 30 years of experience in working with governments to design and operate performance-based fiscal transfers, including in crisis situations. In recent years the Local Government Climate Adaptive Living Facility has become a platform for performance-based climate-resilient grants to 16 countries. Other platforms exist in countries or regions in crisis such northern Uganda and Somalia.
UNCDF, with country governments and WHO / OCHA substantive support, can provide the capacity to immediately transfer resources for testing, disinfecting and treatment to all parts of a country, in line with the demographic and epidemiological requirements. This will be accompanied by the capacity to report and monitor results. This mechanism operates equally effectively in urban and rural areas. UNCDF stands ready to provide this expertise immediately. Given the imperative for a swift response, this support will be divided into:

- Immediate: Support to countries that can implement within days and weeks, as there is no time to waste. The readiness and willingness of national and city governments (and their IGFT & PFM systems) will be a key determinant of where this can happen. This would leverage existing relationships with immediate effect and supports the establishment of local systems for crisis response and recovery that span financial and procurement systems. In fact, under UNCDF’s performance-based grants approach, this additional local autonomy produces greater efficiency, effectiveness, and transparency than heavily centralized or project-based approaches.
- Medium-term: To ensure that cities and localities recover and are equipped to prevent further outbreaks, this support can follow directly on from the immediate work of outreach through the existing UNCDF local government network. New ways of working will be required that minimize social contact while maintaining the social fabric. Specifications and procurement standards will need to be improved, e.g. infrastructure will need to be retrofitted to better include sanitation facilities. UNCDF has effective tools for public financial management, procurement, and fiscal planning between citizens and local governments that build the legitimacy and social contract necessary for cohesion and development in critical moments.
For example, UNCDF provided technical support in Bangladesh to modify the formula-based fiscal transfer system to include a COVID19 protocol certified by the relevant authorities. With resources from Sweden and the European Union, UNCDF is testing this out with the government by channeling US$169,000 through the fiscal transfer system to 72 local governments in Bangladesh as an Emergency Operational Expenditure Block Grant. This is used to purchase sanitizing materials, masks and gloves as well as to print publicity materials on COVID-19 and social distancing. It provides a direct means to complement the guarantee scheme for garment workers operated by the central government. This is a local government finance model that can be rapidly expanded nationally to mitigate the impact of COVID19 on the health and social fabric of Bangladesh. Similar platforms exist and could be deployed in countries or regions in crisis, such northern Uganda and Somalia.

Guidance Note for immediate responses to the COVID19 recommended for local governments

This note is about immediate responses to the COVID19 recommended for local governments. It is advisory and generic and can be adapted to individual circumstances.

Policy and Regulatory Support to Governments

UNCDF’s development work is accompanied by strong policy and regulatory support to governments on issues including:

Rebuilding fiscal space: Local governments will face a severe reduction in fiscal space whilst being expected to support the recovery and ensure social inclusion and local economic development. Central governments will also face a fiscal challenge. UNCDF will provide support policy and regulatory support to ensure that local governments can rebuild their local fiscal space and local economies, including by driving local economic development that benefits local income, reviewing arrangements for fiscal transfers and the structure of local revenue sources – given that some sectors will gain and others will lose from the post Covid19 economy.

Consumer protection measures: The security and privacy of financial services are essential for ensuring quality delivery of financial services to vulnerable populations. UNCDF supports regulators to implement requirements to protect new and existing users of digital services from poor security or fraudulent activities.
Regulatory forbearance: Financial institutions will struggle to meet capital demands at this critical time and need fiscal flexibility from regulators. UNCDF will support regulators to identify and help financial institutions that have the farthest reach into vulnerable and rural populations; these include electronic money and microfinance institutions.

Investment Instruments

UNCDF’s on-balance sheet investment Fund seeks initial capitalization at $50m, per the organization’s Strategic Framework. SMEs are the backbone of economic activity in any LDC, and many will suffer because of the pandemic. Last mile communities will be the most exposed to this economic downturn; to preserve their livelihoods as much as possible, people in these communities will likely focus consumption on essential goods and services, such as food and healthcare. As a result, microloans might stop being repaid, purchases of solar energy might be halted, and supply side disruptions of agricultural value chains might take place. Many companies will go bankrupt. The $50m in the UNCDF fund can be directed toward SME stabilization and resilience, which are critically needed to shore up local value chains, local economic activity, and local jobs; and to help equip SMEs that are below the radar of the DFIs and banking sector to survive the crisis.

Performance-based grants (PBAs): This type of grant can be offered to social enterprises and non-profit organizations directly engaged in the healthcare response to COVID-19. UNCDF would prioritize organizations that have a one-time cash need of up to $500,000. PBAs are to be deployed based on a grantee’s precise calendar of activities and demonstrable results.

Short-term bridge loans:
Lost revenue: In scenarios where a social enterprise has funding but encounters an unexpected short-term cash crunch, UNCDF can provide short-term bridge loans. Potential areas of support could include health care supplies, food chain safety, or communication services that allow emergency workers to share information. These funds could be helpful to thousands of enterprises suffering economic disruption caused by the COVID-19 crisis.
Earlier deployment of pledged donations: As the swift deployment of funding will be critical, UNCDF bridge loans can accelerate emergency funding from donors into the bank accounts of social enterprises and nonprofits. The targeted borrowers will be frontline organizations already approved to receive emergency funding from DFIs, governments, multilateral and other institutional donors. UNCDF has streamlined its loan underwriting process and can fully process applications and disburse funds within a short period.
In these challenging times, as countries around the world grapple with the impacts of Covid-19, UNCDF’s work to use innovative finance in LDCs to demonstrate new models, create markets, and push systemic change to make finance work better for poor and excluded communities can play a key role in supporting the world’s most vulnerable countries and people.

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