As Prepared for Delivery for
Impacts of COVID-19 on SMEs in LDCs and the Role of Blended Finance in Supporting a Resilient Recovery
Introduction and context
Dear Excellencies, Ambassadors, Permanent Representatives, and colleagues. Thank you for joining UNCDF at this event on the “Impacts of COVID-19 on SMEs in LDCs and the role of blended finance in supporting a resilient recovery”.
My name is Preeti Sinha, and I am very pleased to have joined UNCDF officially last week as its new Executive Secretary. I bring to this role 30 years of experience in investment banking and development finance, which I will draw on to help build bridges between public capital and private finance, including capital markets, to benefit the LDCs.
This is an unprecedented time in our history. The COVID-19 crisis has exacerbated pre-existing vulnerabilities faced by our constituencies, the Least Developed Countries (LDCs). The socio-economic impacts of the pandemic risk halting and even reversing progress made in recent years. And now more than ever we as a development community need to act to support LDCs to build back better and achieve the Sustainable Development Goals by 2030.
The preparatory process for the Fifth UN Conference on the LDCs is our chance to reflect, take stock of successes, think through challenges and look ahead at how we collectively can better respond to the needs of the LDCs. It is an opportunity to develop together a new narrative to promote economic transformation and sustainable development in LDCs.
Throughout the LDC5 process and during the next programme of action, UNCDF stands ready to work with you and your countries toward achieving your priorities.
Role of UNCDF
Let me briefly introduce the United Nations Capital Development Fund. With a capital mandate unique in the UN development system, UNCDF is a dedicated support mechanism for LDCs.
UNCDF’s “last mile” finance models unlock public and private resources, especially at the domestic level, to reduce poverty and support local economic development. These work through three channels: (1) inclusive digital economies, which connect individuals, households, and small businesses with financial eco-systems that catalyze participation in the local economy; (2) local development finance, which capacitates localities through fiscal decentralization, innovative municipal finance, and structured project finance to drive local economic expansion and sustainable development; and (3) investment finance, which provides catalytic financing for small business and investment projects that drive SDG impact.
As we look forward, our aspirations are for the ‘C’ – the Capital at UNCDF – to be highly catalytic in mobilizing public and private finance to deliver scalable development impact for the LDCs.
With UNCDF’s focus on innovation and testing new approaches to bring capital to the last mile, I am especially interested that we continue to push the boundaries in engaging capital markets and mobilizing international and domestic private capital to sustainable investment opportunities in the world’s frontier and pre-frontier markets. This includes focusing especially on making capital more accessible for SMEs, which are the backbone of LDC economies, create the majority of formal jobs and which can help drive SDG achievement in a myriad of ways. With the next evolution of UNCDF, we are ready to play our role and to scale up the use of our innovative financing instruments to help fill gaps in the development finance architecture and unlock additional financing for the SDGs.
During today’s session, you will hear about some of our analytical work to understand finance challenges and opportunities in LDCs, along with practical experiences to test innovative blended finance approaches to improve access to capital.
First, we will share with you the findings of a survey entitled “The State of Small Businesses in the Least Developed Countries: Taking the Pulse of SMEs in the LDC markets during COVID 19”, which we undertook in 2020 with a range of partners. The findings of this survey point to the growing need for capital and financial assistance for SMEs including through blended financing.
This survey was guided by four basic objectives. First, to take the pulse of LDC-based SMEs and see how they have been impacted by COVID-19 and how they have had to adapt. Second, we wanted to set up a baseline to track progress on a continuous basis in future survey exercises. Third, we are using the survey data as a basis for dialogues to identify specific policy recommendations. Finally, we want the survey to serve as a unique platform for small business leaders in last mile markets to have a voice.
Blended Finance Report
Second, we will also share analysis from our 2020 report on Blended Finance in the Least Developed Countries, the third edition in this series. These reports provide a unique set of data and analysis about blended finance in the LDCs and how it can be enhanced to help mitigate risks, catalyze local market development and attract further investment for the Sustainable Development Goals. This edition is especially important, as it demonstrates how blended finance can play a strategic role to help LDC economies recover and rebuild better from COVID-19.
While we believe that blended finance should play a more catalytic role in the recovery efforts, we are aware of the concerns about blended finance and its limitations. In today’s environment, precious ODA resources are more important than ever and should not be diverted away from critical social sectors towards private investments with unclear development impact.
At the same time, and as our reports show, private investment is not mobilized at anywhere near the scale needed to create dynamic economies in LDCs. Capital investments to build productive capacities and catalyze economic transformation are more critical than ever, including to finance small and medium sized enterprises, leverage digital technologies and support economic opportunities for women. Blended finance is one important tool in the toolbox to achieve this.
Our vision is that the analysis and recommendations in this report will inspire real action and change. The report provides concrete recommendations and an action agenda for how to scale blended finance for COVID-19 recovery in LDCs. These actions could be incorporated in the next LDC Programme of Action to help guide countries on how to pursue blended finance solutions as part of their SDG and climate financing strategies.
It is our hope that the outcome of the LDC5 Conference includes concrete solutions that make finance work better for the LDCs and to leave no one behind. In our view, this should include a commitment by global stakeholders to establish a dedicated blended finance de-risking facility focused on providing catalytic capital to SMEs and small investment projects that helps unlock further commercial and semi-commercial investment. In UNCDF’s experience, there is a significant financing gap in LDCs for these types of projects and new mechanisms and commitments are needed to bridge this gap and help demonstrate investment viability in markets perceived as too small or risky by more traditional financiers.
It is our intention that this side event today will provide concrete, solution-oriented examples that illustrate and help inform the type of SME financing solutions that will be needed for LDCs to achieve their development aspirations in the Decade of Action.
I look forward to building a new narrative of inclusive economic transformation for LDC5 and delivering on it together.
Thank you very much.