As the UN Subnational Financing Hub and an hybrid DFI that collaborates with UN Agencies to solve unmet needs for Sustainable Development for Cities and Local Governments, UNCDF's Local Transformative Finance team works for countries to meet the triple challenge of human wellbeing, planetary health, and urban growth. This challenge requires the economic structural transformation and environmental sustainability The holistic nature of which means that it is most effectively achieved through local government finance – that expands fiscal space and capital availability
Over half of the population in the world’s 46 least developed countries (LDCs) live on less than $1.25 per day and billions of people still do not have the services and employment necessary for the enjoyment of a decent quality of life. Yet many LDCs have made significant progress in economic development as measured by national statistics and indicators.
Without changing the current system it will not be possible to transform our economies and meet the triple challenge of human wellbeing, planetary health, and urban growth. The building blocks of the ecosystem for local finance needs to be assembled to meet the needs of the Green, Urban and Productive transition.
Building on the policy agenda put forwards by the Malaga Coalition under the impulsion of UNCDF , UCLG and FMDV and further fleshed out in the UNCDF 2022 publication “Local Government Finance is Development Finance”, the Local Transformative Finance team at UNCDF works on the building blocks of a financial ecosystem for local infrastructure finance.
Building blocks for a financial ecosystem thats works for Cities:
Expansion of local government finance, development of local capital markets, the strengthening of local climate finance mechanisms, the expansion of local fiscal space, the support of multi-level development finance for the full implementation of the Rio Conventions and the New Urban Agenda.
The Local Transformative team addresses three problems that prevent the benefits of growth from reaching all sections of the population and all parts of the territory:
- Fiscal resources and domestic capital markets are not investing in local governments and local economies in a way that promotes sustainable and equitable growth, which is holding back structural transformation and economic resilience;
- Local governments and local economies are not able to attract development finance and therefore the benefits of growth are bypassing many populations;
- Finance is not available for local catalytic infrastructure projects with high impact in critical themes such as women’s economic empowerment, climate change, clean energy and food security.
UNCDF's Local Transformative Finance team works for countries to meet the triple challenge of human wellbeing, planetary health, and urban growth. This challenge requires the economic structural transformation and environmental sustainability The holistic nature of which means that it is most effectively achieved through local government finance – that expands fiscal space and capital availability
To promote and support transformative investment through local governments and domestic banks in LDCs by piloting and scaling up innovative financing mechanisms and policies in the public and private sectors.
LDCs will have robust policy environment, strong institutional capacity and effective financing vehicles that contribute to diverse, inclusive and resilient local economies and societies by 2030. Graduation from LDC status to middle income country status will benefit all sections of the population.
We adopt a transformative impact financing approach to promote service delivery, infrastructure investment and local economic development that retains value within the local territory. This builds local fiscal space and local fixed capital formation. Working with local governments, domestic banks and local businesses, we design, pilot and test out financing mechanisms and business models in both public and private sectors that support locally designed public investments and revenue generating capital investment projects. The investment financing toolboxes include Fiscal Decentralization, Local Development Funds for public capital investment programming, Structured Project Finance, Municipal Finance, SME Finance, and Public-Private Partnerships. Learn more about our Theory of Change.
During the past two decades, our work has delivered measurable impact in areas such as job creation, women’s economic empowerment, clean energy, resilience to climate change and strengthened food security, which contributes to local economic growth, peacebuilding and more importantly, improvement in people’s quality of life at the grassroots level. For example, we bring Green Climate Fund resources to LDC local governments; we support private investment that reduces land degradation and boosts food security; we support peacebuilding by strengthening the relationship between the citizens and the state at the local level through responsive local government investments.
- Local governments and national governments
- Financing agencies (the World Bank, domestic commercial banks and investment institutions)
- International partners: UCLG, ICLEI, CLGF, FMDV, Cities Alliance, The Hague Academy for Local Governance, IIED, KEI, WRI, DeLoG, OECD
- UN partners: UNDP, UNDESA, UN-Habitat, FAO
- Development partners : Sida, BTC, EU, SDC, Global Affairs Canada
To learn more about UNCDF's approach in Local Transformative Finance and its investment instruments, please download our Local Transformative Finance brochure