UNCDF is playing an increasingly active role in mobilizing investments in local economies through the application of catalytic loans and guarantees that mitigate risks for public and private investors. The enabling mechanism for these activities is the LDC Investment Platform (the “Platform”), which is creating new opportunities for UNCDF to expand its support for local infrastructure and businesses in the last mile. In addition, if the funding and demand are there, the platform could eventually be expanded to consider last-mile finance pipelines from UNDP and the wider United Nations Development System.
Through the LDC Investment Platform, in 2017 UNCDF provided a new generation, concessional subordinated loan of $250,000 to an agribusiness company in the United Republic of Tanzania. The loan, together with UNCDF technical assistance and a guarantee scheme from the Private Agricultural Sector Support Trust, mitigated risks of the project and unlocked $765,000 in loans from a local private bank. This will enable the project developer to enhance productivity and build a regional value chain that will benefit some 7,500 smallholder farmers working with the company. This demonstrates how UNCDF can unlock local private sector capital for sustainable development in markets perceived as too risky by some investors.
The LDC Investment Platform is helping UNCDF programmes to structure, produce credit ratings and mitigate risks in investment opportunities they have sourced, both from the private and public sectors. UNCDF has put in place new loan and guarantee policies, strengthened its due diligence requirements and transaction documentation, launched a credit scoring model and enhanced the process to support the selection and approval of relevant loan and guarantee transactions.
The Platform also strengthened its legal framework based on support from the UNDP Office of Legal Affairs as well as pro bono support received from two top international law firms in New York. The Platform introduced support tools to field investment staff and has increased human capacities to manage and oversee the loan and guarantee operations, while ensuring robust due diligence, credit scoring and risk assessment.
To ensure development and financial additionality, the LDC Investment Platform looks to invest in niche market opportunities, where finance is not yet flowing predictably because of real and perceived risks; where the recipient can make productive use of the capital and ensure repayment; where UNCDF has the potential to mobilize additional capital flows; and where there is scope to achieve significant development results.
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