Remarks by Judith Karl, UNCDF Executive Secretary, at the 2016 Executive Board Annual Session

  • June 09, 2016

  • New York, USA

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

Thank you Ambassador Khiane Phansourivong for chairing this session. And thank you to the Associate Administrator of UNDP for those introductory remarks. As you mentioned, the strong synergies at the country and headquarters levels between UNDP and UNCDF are designed to bring maximum benefit to country partners.

If fully implemented, the commitments of the Addis Ababa Action Agenda, the 2030 Agenda, the Paris agreement, and the Istanbul Programme of Action midterm review, together present a once-in-a-generation chance to transform LDCs.

UNCDF’s work has proved to be highly relevant to this development landscape, with its focus on supporting LDCs to apply a range of finance models in the last mile. The emphasis on leaving no one behind compels us to focus on the approaches needed to support localities, households, and small businesses which are under-served and where resources are most scarce. The roles of sub- national finance and financial inclusion are well recognized in all these agendas, as critical accelerators of local growth, empowerment, participation, and resilience.

Building on our contributions to the Addis Ababa Action Agenda, the 2030 Agenda and Paris Agreement in 2015, UNCDF also took part in the World Humanitarian Summit where we arranged an important dialogue on the promise that digital financial tools, such as mobile-phone based money transfers, hold to improve the delivery of financial assistance during humanitarian crises. This builds on the lessons UNCDF and UNDP learned in the application of digital payments during the Ebola response in West Africa. With growing recognition that cash payments should become a higher proportion of overall humanitarian assistance because they can be an important accelerator for early recovery, we believe that the digital payments agenda in crisis situations has an important future.

Immediately after, UNCDF was in Antalya for the midterm review of the Istanbul Programme of Action. Congratulations to all organizing and participating partners for that event, which saw renewed commitments from LDCs, development partners, and UN agencies to support LDC graduation. UNCDF collaborated with a number of government and private sector partners to present case studies and lessons on bringing last mile finance innovations to LDCs, and discussed how we see these models supporting LDC graduation ambitions. These included lessons on how financial intermediation can give poor households, businesses, and localities access to adapted technologies; how innovations in financial inclusion are supporting inclusion, household resilience, and women’s economic empowerment; and how ODA can be leveraged to de- risk the sub-national economic space and crowd in domestic and international resources. Together with UNDP we also presented a Last Mile Action Agenda, based on research and six case studies, with actions that prioritize sub-national finance, financial inclusion, and participation in order to tackle exclusions and inequalities in the context of achieving the SDGs.

Our Integrated Annual Report on Results for 2015 and Mid-term Review of the Strategic Framework captures the results these approaches continue to deliver.

We have achieved overall positive programmatic and institutional results over the first two years of the Strategic Framework as measured against the Integrated Results and Resources Matrix indicators and targets. Over 75% of programme outcomes and outputs are ‘on track’, with one falling behind and the others either not in demand or not yet measurable at the mid-term.

Many of you were involved in our Partner Perception Survey. 70% of respondents ‘strongly agree’ or ‘agree’ that UNCDF is achieving intended results against its Strategic Framework. 86% of partners ‘strongly agree’ or ‘agree’ that UNCDF contributes to global and national policy.

Behind these headline numbers is an important story of how we have been innovating; leveraging resources; empowering women; and, in the process, changing investor behaviour.

Looking back three years to the baseline year of the Strategic Framework, the strategic investments made then with core resources have become flagship programmes today that provide critical lessons on innovative finance in the last mile.

First, on financial inclusion. Financial inclusion is a target under seven of the SDGs, and an important enabler for sustainable development. Yet, around two billion adults, over half of them women, remain financially excluded. Through our global, regional, and country-level work, we are extending the reach of formal financial services and helping poor people manage their financial lives better.

MicroLead is one such flagship. With an initial core contribution of $5 million back in 2009, UNCDF mobilized $20 million more to launch this programme. UNCDF invested the funds in financial service providers from the South that brought $100 million of their own equity to expand in 13 LDCs. After five years, they had reached over one million depositors, mobilizing savings balances of $450 million.

The MicroLead Expansion programme, begun in 2011, challenges formal financial service providers to reach out to rural populations, particularly women. By deploying alternative delivery channels, the programme makes the business case to serve populations previously considered unbankable. This was confirmed in a recent mid-term evaluation, discussed at our informal on 19 May. It concluded that the programme has the potential to make significant contributions in countries where exclusion is high and financial depth is low.

MicroLead Expansion is on track to reach an additional 1.3 million clients in eleven countries and mobilize $190 million in deposits. In its next phase, it is seeking to reach two million customers across ten countries.

Our investments are yielding important innovations as we pilot new products in new markets. This includes responding to the challenges and opportunities associated with youth employment and digital solutions.

From 2010 to 2015, UNCDF secured a contribution of $11 million for a youth finance pilot in eight African LDCs. YouthStart more than tripled the pilot’s original target, providing over 600,000 youth with access to financial and nonfinancial services. They saved over 16 million dollars, and over 80,000 young entrepreneurs were provided with 11 million dollars in loans. The programme’s final evaluation, also presented last month, found that almost 80% of youth sampled reported that YouthStart positively influenced their lives.

Based on the evaluation’s recommendations, UNCDF will, with sufficient funding, deepen the programme’s integration with vocational training and employment opportunities, and expand the programme to more LDCs. YouthStart Global’s objectives include reaching 800,000 youth in this next phase. Feedback from youth participants indicates that savings programmes give youth a strong stake in their local economies, and motivates them to pursue productive engagement in those economies as they transition from school to employment. We believe such financial inclusion programmes have great potential to provide hope and productive opportunities to youth in fragile settings.

Building on lessons learned from our Pacific Financial Inclusion Programme, UNCDF launched Mobile Money for the Poor to enable the adoption of digital financial services at scale. UNCDF core resources of $1 million, combined with $860,000 in cost-sharing, launched the programme in four countries. Based on this pilot, the programme was able to attract an additional $6 million for work in Uganda, and an additional $26 million for expansion to Benin, Senegal, and Zambia. It helped raise funds for UNCDF’s digital finance efforts in Lao PDR and Nepal. The goal is to see at least 15% of adults using digital financial services in the eight markets where it operates. This equates to ten million people.

UNCDF hosts the Better Than Cash Alliance which supports governments, companies and international organizations to accelerate the transition from cash to digital payments. This alliance has grown rapidly to 50 members in its first few years, signalling the growing recognition of the benefits to transparency, efficiency, and access that digitizing payments can bring.

UNCDF has also been testing financial intermediation as a route to clean energy access.

CleanStart was launched late in 2012 in Nepal, and has since grown to cover Cambodia, Ethiopia, Myanmar and Uganda. By the end of 2015, it was reaching some 50,000 clients. Now, CleanStart is raising funds to launch at least five new energy access challenge rounds that could lead to as many as 300,000 clients through at least 25 new partners, mostly using digital payment platforms. This is expected to benefit up to 1.5 million people.

We are also seeing results through data-driven and market eco-systems approaches that reveal opportunities to public and private sector investors. Our Making Access Possible programme adopts a robust diagnostic approach that helps governments and national stakeholders develop financial inclusion strategies and roadmaps. Early evidence indicates that demand-side data and roadmapping can incentivize private sector investment in financial inclusion, particularly by revealing the potential of untapped markets in the last mile. Between 2012 and 2015, the programme grew from the initial four country pilot to 16 countries across Asia and Africa. MAP is also becoming a useful engine for South-South learning and has already produced a knowledge publication series that is available on our website.

Now I would like to turn to our second practice area, local development finance. Achieving structural transformation and the SDGs requires much greater empowerment of local authorities and the investment of domestic public and private finance in local economies. Without this transformation LDCs may continue to grow but miss the opportunity to bridge the gap to a sustainable and equitable growth path. This has been called the “LDC trap” and our work in this space is dedicated to broadening and deepening transformative change through more effective public and private investment at the local level.

Resource flows and transparent implementation platforms for infrastructure, food security, renewable energy, climate change, and women’s economic empowerment, at the local level have proven acceleration effects for poverty reduction and local economic development. Rural and Urban local governments play a fundamental role in this process, as newly recognized by the Paris Agreement and the New Urban Agenda that is expected to emerge from Habitat III in Quito. This agenda foresees a fresh partnership between sub national and central government to achieve the SDGs. This is built upon recognition of mutual strengths.

This imperative is because continuing population growth and urbanization are projected to add 2.5 billion people to the world’s urban population by 2050, with nearly 90 per cent of the increase concentrated in Asia and Africa.

In response, UNCDF deploys a growing range of financing tools and instruments to unlock investments in local infrastructure and services.

One way UNCDF does this is through innovations in fiscal decentralization that build local capacities, strengthen accountability, and boost public financial management. We have seen this expand the financial bandwidth of local governments to make and manage investments in infrastructure and services, as has been the case in Niger. A striking example is UNCDF supported reform in Guinea that ensures a proportion of royalties from extractive industry is re-invested into local economies through local governments using UNCDF’s Local Development Fund and Local Finance Initiative methods.

Furthermore, municipalities can face difficulties in attracting the investments they need to provide people with opportunities and decent living standards. We are diversifying the sources of their financing by tapping into loans, public-private partnerships, and bonds, and carving out innovation space for sources such as crowd-funding. We do this as a full member of the Cities Alliance and in full collaboration with the United Cities and Local Governments (UCLG) as part of our contribution to the Global Taskforce for Localizing the SDGs. The Municipal Finance work has begun in Senegal, Tanzania, Uganda and Bangladesh.

Structured project finance is proving to be another impactful way of empowering local authorities and filling their financing gap. UNCDF’s Local Finance Initiative, which began in 2012, set out to show that prioritized local infrastructure projects can attract domestic funding. By directing ODA to de-risk these investments, this Initiative has demonstrated that domestic private and international finance can be leveraged at a rate of at least 1:10.

In Tanzania, $1.2 million in seed capital spent through this programme has so far unlocked $52 million from the domestic private sector, and this number is growing. The programme is now emerging as a national platform for investable projects across Tanzania. In Bangladesh, Benin, Lao PDR, Senegal, and Uganda it is in various stages of operationalization.

We also deploy our toolkit to tackle vulnerabilities. To this end, we promote financing mechanisms and institutions that provide sustainable resources for local climate resilience and improve food security.

Since its launch in 2011 in Bhutan and Cambodia, our Local Climate Adaptive Living Facility (LOCAL) has expanded to eleven countries with grants transferred to 10 of them. With an investment of $1 million in core resources, UNCDF tested and proved the innovation. It has since leveraged more than $18 million in non-core. Over the last two years, dozens of local authorities have been capacitated to manage performance-based climate resilient grants, representing a population of some 10 million people.

In Bhutan, 47 infrastructure projects have been implemented, including the construction of fortified roads and elevated bridges. The demonstration effect encouraged the European Union to take the LoCAL mechanism to scale through budget support.

Last year, the LoCAL programme board, comprising the 11 participating governments, agreed that LoCAL should become a recognized mechanism for local governments to directly access the Green Climate Fund. Cambodia began that process last year. Other LDCs have interest in joining LoCAL.

Because UNCDF has traditionally operated in rural areas, food security has become an essential element in our approach over time. The Finance for Food programme supports planning, budgeting and monitoring tools to strengthen local food systems and link rural productive areas to urban markets.

It was launched in 2015 to act as a global umbrella programme for UNCDF’s local development programmes working on food security. It now includes already-existing programmes in Niger, Mali, Benin, Burundi and Mozambique that have mobilized nearly $25 million in non-core resources since 2009. Over the same period, UNCDF core spending on the same programmes amounted to $6.5 million, the bulk of which was for programmes in Mali and Niger.

The overall result of these efforts is a portfolio of programmes that is successfully reinvesting resources locally to reduce inequalities and to build resilience and improve lives and livelihoods at the grassroots level.

All these initiatives promote gender equality, as do those in our growing portfolio of programmes specifically empowering women.

Our Inclusive and Equitable Local Development programme seeks to help governments and the private sector at the local level design, plan, implement and sustain local public and private investments for women’s economic empowerment and entrepreneurship. It is a joint UNCDF, UNDP and UN Women initiative. The average size of a project will be in the range of $5 million and our typical average grants will range from US$100,000 to US$200,000. As such, the leverage that the grants can unlock for each project will be between 1:25 and 1:50. This has begun in Bangladesh and Tanzania.

The Shaping Inclusive Finance Transformations seeks to accelerate financial inclusion and women’s economic participation in the ASEAN region. The programme started in mid-2014 with a core commitment of $500,000 to initiate work in Cambodia, Lao PDR, Myanmar and Viet Nam, and to support policy processes at the ASEAN level. Since then, a further $13 million has been leveraged in non-core and parallel funding for interventions in ASEAN and adaptation in the SAARC region, starting with Bangladesh.

The programme has completed five deals aimed at reaching 75,000 women through crowding-in $1.6 million in new private sector investments. A further 19 deals have been identified which, if the full project co-financing from UNCDF were available, would reach over 2 million women through over $8.5 million in new private sector co-financing investments.

For each of these programmes to move from innovation to scale, they needed a careful mix of the following:

  1. The initial core resource investment to innovate the model, learn lessons for replication, and create the conditions for leveraging additional resources;
  2. The right staff to manage partnerships and provide technical expertise;
  3. The seed capital to conduct feasibility studies and incentivize investor behaviour change;
  4. Patience to shift the dynamics of how finance flows.

Now, these programmes are poised to scale up and replicate successes in more LDCs. But many lack the funds to do that and respond to growing demand.

There are also exciting new frontiers ripe for innovation, if the resources are available. These include:​

  1. Using financial intermediation to bring adapted technologies to the last mile;
  2. Expanding the reach of micro-insurance;
  3. Making it easier and cheaper to send and receive payments and remittances;
  4. Using innovative finance to support secondary cities to meet the demands of a new urban agenda;
  5. Using geo satellite data to prioritize local climate adaptation finance in LDCs;
  6. Using digital technologies to improve crisis response;
  7. Making concessional finance work for LDCs at the subnational level.

Now let me turn to the institutional effectiveness front. We continue to improve how we operate. 85% of institutional effectiveness outputs are ‘on track’ or ‘above track’.

UNCDF is more fit for purpose today than it was a year ago. We concluded an organizational realignment process that led to a streamlined staffing structure, new efficiency measures, and savings of approximately 20% of staff costs against the core.

Total expenditure in 2015 was $70 million, $8.2 million higher than in 2014. This underscores our focus on effective programme delivery against available resources. We were also able to preserve the minimum 40 percent capital component in our expenditure profile. In 2015, the capital component against total programme resources stood at 46 percent.

We’ve finalized our enterprise risk management policy, and will continue to strengthen our capacity to identify, monitor and mitigate risks associated with our capital investment mandate, in close cooperation with UNDP. We will also continue embedding greater transparency as a core operating principle for the organization.

Staff provide the backbone of our knowledge-intensive organization, and we seek high employee engagement. We also seek gender parity in the workforce. We have achieved an overall increase in female staff to 49 percent, up from 27 percent in 2013. This is excellent progress, but we still have work to do to reach parity in the P5 and higher categories.

At the same time, our potential to innovate and bring pilots to scale is constrained by the worrying reduction in our core resource envelope. It has dropped from $16 million in 2013 to $11.6 million in 2015. It is projected to come in under $10 million this year based on currently confirmed pledges. That is only 40 percent of the $25 million annual target needed for presence in 40 LDCs.

Allow me to thank all those donors who provide us with our core resources, who champion our work, and who support innovation and risk-taking through the core. In 2016, those who have confirmed contributions include Sweden and Switzerland, our champions for the core, Luxembourg, Australia, Norway, the United States, Austria, Myanmar, Lao PDR and Thailand. We recognize donors like Switzerland that provide multi-year funding, and welcome that Australia joined as a core donor for the first time last year, and increased its contribution this year, as did Sweden. We also recognize Sweden for the role they are playing to champion the Last Mile Finance Trust Fund we just launched over lunch today. We urge other Member Sates to follow suit.

We are also grateful to our many and diversified non-core donors, many of whom are in this room, and for your readiness to pilot, replicate, and scale up with us. As we travel along the “maturity” journey of innovation to scale together, we are generating critical momentum and learning that we know can help accelerate LDC progress toward graduation.

Core resources ensure our strategic engagement at country level. The “projectisation” of our country footprint – highlighted as a concern by partners in our perception survey - is a direct result of reduced core. Just as the core investments of three years ago seeded our current flagships, so we need a strong core to seed tomorrow’s flagships and today’s country presence to leverage those new programmes.

Because of the down-turn in the core, 2016 is at risk of being the first year when we fall short of the 40% capital target against total programme resources, and the first year when the proportion of resources invested in innovation falls below the critical amount required to pilot the new approaches that could become the flagships of tomorrow. Also, as the core resource base shrinks, the only way to ensure that we preserve the innovation to scale continuum in each of our programmes, is to reduce the number of countries where we work.

By the end of 2015, UNCDF was able to maintain programmes – and sometimes with a very thin presence – in only 31 LDCs. Without a reversal in the core, up to 10 of these are at risk of further reduction by the end of 2016.

In order to maximize the incentives to partners to engage with UNCDF’s business model, we have reinforced our four-window funding architecture. As window one, the core remains the bedrock of our country presence, innovation and risk capacity. The other three windows provide a continuum of options from lightly earmarked, to earmarked, to special purpose through which we aim to strengthen partnerships across the spectrum of public, foundation, and private sources. Taken together they provide a compelling mix of flexible and directed finance that will help expand UNCDF’s financial toolbox under the new development agenda.

As innovators and incubators of those models that make finance work for the poor, we must ensure that LDCs are well-placed to benefit from shifts in development finance. We’ve revised our loan policy and aim to increase our use of loans. This is linked to our efforts, as the Associate Administrator mentioned, to seek the authority to borrow from the growing number of concessional windows, so we can demonstrate how LDCs can make best use of these concessional windows in the last mile. I will be coming back to you in the coming months on this vehicle.

I thank our many partners for their collaboration towards the results I have highlighted. I commend UNCDF staff for their dedication, often under very difficult circumstances.

As we enter the second half of the Strategic Framework period, we are also beginning our reflection on our next Strategic Framework. I look forward to our exchanges in the coming year as we embark on that new path together.

Thank you.