Statement of Judith Karl, UNCDF Executive Secretary, to the First Regular Session of the UNDP Executive Board 2015

  • January 30, 2015

  • New York, USA

Mr. President (Chairman),
Distinguished Members of the Executive Board,

Allow me to begin by congratulating H.E. Mr. Fernando Carrera, Ambassador, Permanent Representative of Guatemala to the UN, on his election as President of the UNDP/UNFPA/UNOPS Executive Board, and the Vice Presidents, from Japan, Lesotho, Nepal, and Armenia.

On behalf of UNCDF, I would also like to offer to the distinguished delegate of Sweden my most heartfelt condolences for the sudden passing of H.E. Mr. Mårten Grunditz. He was a great colleague and friend to us all.

I am now in the job as UNCDF Executive Secretary for six months. Let me thank all of you for the warm welcome and support you have extended to me and to UNCDF during this transition period. I would also like to thank the UNDP Administrator and Associate Administrator for their trust and support.

In my statement today I will:

  1. Update you on UNCDF’s contributions to global development processes;
  2. Brief you on progress on the implementation of UNCDF’s Strategic Framework and our organizational changes;
  3. Emphasize our on-going commitment to measure our performance, evaluate our interventions and strive to improve;
  4. Provide an overview of UNCDF’s resources, and emphasize the importance and urgency of investing in UNCDF’s presence in LDCs.

Post-2015 Development Agenda

As you know, UNCDF works primarily in two interconnected areas: we promote financial inclusion as a critical pathway to equitable growth, and to create opportunities for the poor to engage more actively in their local economy. We do this by ensuring that financial services are accessible to all segments of society, notably the “unbanked”, at a reasonable cost, and responsibly provided on a sustainable basis. At the same time, we assist programme countries to structure local development finance in ways that promote social, economic, and climate change goals at the local level, reaching outside the capital cities to rural areas and secondary cities. Our models aim to “crowd in” domestic investment in local economies, using our capital financing in the form of grants, loans and credit enhancement to de-risk and “prove concept” so that others gain confidence to invest.

Against this background, I’d like to highlight four key issues that, from the UNCDF perspective, are important to the post-2015 and financing for development agenda.

  1. First, ODA is a key driver to mobilizing domestic savings and capital. In UNCDF’s experience, strategically placed Official Development Assistance (ODA) for local economic development through inclusive and local finance can leverage domestic resource mobilization at ratios of 1:10 or more.

    UNCDF does this by mobilizing savings ‘out of the mattresses’ and into the real economy, and by attracting domestic investment dollars out of the capital cities and into the local economic space. This includes fiscal decentralisation, innovative municipal finance and structured project finance for social and economic impact at the local level. The UNCTAD 2014 LDC report supports the view that investment in social and productive infrastructure at the local level provides the basis for a more equitable growth model.
  2. Second, financial inclusion supports the achievement of several development goals, not only by providing financial planning, services, and safety nets for the unbanked poor, but also by strengthening the reliability and stability of national financial systems. Financial literacy helps poor people to engage more dynamically with their local economies, to improve their livelihoods prospects, and to send their children to school.

    Inclusive finance means that Ebola health workers deployed on the front lines receive salaries electronically and can focus on achieving their tasks instead of having to travel into town to collect their pay, with all the inherent risks. Inclusive finance means also that domestic remittances can be transferred directly from cell phone to cell phone, dramatically reducing fees as high as 20% traditionally paid to commercial middlemen, and cutting transaction costs such as travel as well.

    Overall, relevant studies show that financial inclusion not only increases economic growth but it also helps to reduce income gaps.
  3. Third, climate finance: climate disruption and extreme weather affect particularly the poorest and most vulnerable communities in LDCs. Directing climate finance to the local level can build on decentralized capacities of local administrations and empower them to build climate resilient infrastructure where it is needed most.

    Through capacity building of local governments, and utilizing Performance-Based Climate Resilient Grants (PBCRG), UNCDF’s Local Climate Adaptive Living initiative (or LoCAL) is designed to help governments channel global climate adaptation finance to local governments, who are at the frontline of dealing with the effects of climate change, and enables them to invest in building local resilience. The LoCAL Facility connects to existing national intergovernmental fiscal transfer systems and supplements capital grants to local governments with performance-based climate adaptation funding, while at the same time ensuring ownership, accountability and results.
  4. Fourth, the last decade has seen a resurgence of attention paid to the role of investment in local development. Whether because of the desire to respond to the expected rapid pace of urbanization and its associated infrastructure needs, take advantage of technological change in telecommunications and energy, or reduce an LDC’s carbon footprint, governments at all levels of development have recognized the need to increase investment at the local level.

    Recognizing that a blend of public and private investment will be required to meet the needs of local development, UNCDF’s Local Finance Initiative (LFI) works in harmony with on-going local development programmes to test ways of unlocking private finance for potentially transformative infrastructure projects. In keeping with the division of labour traditionally established with the IFIs, UNCDF focuses on small infrastructure projects at the local level such as feeder roads, bridges, micro hydro - projects that fall below the radar of the IFIs or impact investors’ “triple bottom line” but that have potential to be significant drivers of food security, women’s economic empowerment, renewable clean energy, and local economic development. UNCDF applies a variety of investment modalities including structured project finance, public private partnerships, and municipal bonds.

UNCDF’s aim is to create models that connect investment in improved infrastructure with investment in sound household financial management in ways that improve livelihoods and market access, thereby transforming infrastructure corridors into economic corridors for local economic development.

We believe these approaches are relevant to the FfD and post-2015 agendas, and have considerable potential for learning and scale-up at an inter-country level.

Now let me turn to UNCDF’s Preliminary Results for 2014

2014 was the first year of implementation of UNCDF’s Strategic Framework 2014-2017. It was a transitional year for UNCDF, with a focus on becoming an even more catalytic, effective, and efficient organisation.

In our Inclusive Finance Practice:

  1. Based on an initial pilot in several countries, UNCDF is now ready to scale up our Making Access Possible (MAP) programme, a multi-country initiative to support financial inclusion through evidence-based country diagnostic, stakeholder dialogue, and roadmap development. MAP provides a powerful data-driven platform for harmonization and coordination of financial inclusion actors at the country level, and is led by national authorities. The pilot phase of MAP has gained a great deal of visibility and support as a key enabler for public and private investment in financial inclusion, and we are very excited to expand MAP to 20 countries during the expansion phase.
  2. We have expanded our Mobile Money for the Poor (MM4P) programme. It will now be able to increase mobile-enabled delivery channels for financial services to serve 17.75 million active digital financial clients, representing a net increase of 11.58 million users across eight LDCs. These targets aim to catalyse the uptake needed for the market to have sufficient momentum to ultimately reach the majority of the adult population.
  3. In 2014, the Better Than Cash Alliance (BTCA) – a public-private partnership hosted by UNCDF whose members are committed to accelerating the shift from cash to electronic payments – is supporting the United Nations Development Programme (UNDP) in the battle against Ebola, working with UNMEER and the Governments of Guinea, Liberia and Sierra Leone to ensure the payments of thousands of treatment centre staff, lab technicians, contacts tracers and burial teams by electronic means where possible.

    BTCA – which in 2014 was invited to be an official Implementing Partner of the G20 Global Partnership for Financial Inclusion – has also seen a steep increase in the number of new partners who have made the concrete commitment to transition from cash to digital payments in their work and has reached a total of 35 members in 2014.
  4. In Nepal, CleanStart – a UNCDF global thematic initiative to help poor households and micro-entrepreneurs to access financing for low-cost clean energy – collaborates closely with the Central Renewable Energy Fund, a $120 million multidonor wholesale fund dedicated to renewable energy, to build confidence among commercial banks about the prospects of financing the clean energy sector. In 2014, four financial institutions in Nepal extended loans for solar home systems, biogas and improved cook stoves to over 10,000 clients, testing innovations in consumer financing for clean energy.

During 2014, three of our flagship Inclusive Finance global programmes ended their first phase, achieving a number of high profile results:

  1. MicroLead provides an excellent example of how UNCDF leverages its funding to catalyse domestic savings: With an initial core contribution of USD 5 Million UNCDF mobilized USD 20 million from the Bill & Melinda Gates Foundation to launch MicroLead. UNCDF invested the funds in Financial Service Providers (FSPs) from the South who brought about USD 100 million of their own equity to fund their expansion in LDCs. After 5 years of operations, these FSPs combined to reach over one million depositors, with loan and saving balances of USD 450 Million, with growth continuing. This is a powerful leverage from an initial USD 5 M core funding from UNCDF provided by its donors. The MicroLead Expansion programme is now halfway through implementation working with a variety of providers with targets to reach an additional 1.3 million clients and mobilize $190 million in deposits while moving further into rural markets with demand-driven and responsibly priced products.
  2. YouthStart has reached more than double its initial target of providing financial services to 200,000 youth, with 450,000 youth having gained access to financial services. These youth clients have accumulated over US$13 million in savings while the young entrepreneurs accessed over US$5.7 million in loans to either start up or expand their own business. YouthStart is planning to build on these results, and is currently mobilizing partners to reach an additional 800,000 youth in the next phase.
  3. The first phase of the joint UNDP/UNCDF Pacific Financial Inclusion Programme (PFIP) reached almost 700,000 Pacific Islanders with a new financial product or service, including almost 400,000 people with regulated savings products. The private sector has introduced and scaled up some of the programme’s first and most successful technology-linked financial service delivery channels, including mobile money, branchless banking and low-cost international remittances. PFIP’s expansion was approved in 2014 with a target of adding an additional 500,000 clients with financial services.

In 2014, we launched the new Shaping Inclusive Finance Transformations (SHIFT) programme, which aims to improve the current level of financial inclusion in the ASEAN region by facilitating the transition of at least six (6) million low-income people’s use of financial services from informal mechanisms to formal, regulated and higher value services.

Now let me turn to our Local Development Finance Practice, where UNCDF’s impact will be measured by the extent to which programmes trigger increases in net local fiscal space and increases in gross fixed capital at the local level.

  1. UNCDF approved the design of a diagnostic tool on Local Development Finance called LOOKING which will be piloted in Papua New Guinea, Nepal and Mali. LOOKING provides least developed country governments with an analysis of how to accelerate growth and increase the equity and resilience of their economies by focussing local development, and re-investing fiscal receipts and private sector capital, in the local economic infrastructure and in service provision. LOOKING analyses the territorial dimension of public finance, the capacity of local institutions, and the state of local economic development. This results in a roadmap for policy reforms accompanied by the testing of mechanisms for mobilising domestic resources for the local economy through UNCDF’s local development finance instruments of fiscal decentralisation, project finance and municipal finance.
  2. Least Developed Countries are working with UNCDF on the Local Climate Adaptive Living Facility (LoCAL) that, as referred to earlier, recognizes the critical role that local governments play in strengthening resilience to climate change through local investments. LoCAL is governed by the LDCs and seeks to become their mechanism for climate finance at the local level. LOCAL is currently active in 12 countries, and the Kathmandu meeting of Asian LDC governments endorsed the mechanism at their December 2014 meeting.
  3. The Local Finance Initiative, referred to earlier, supports LDCs to unlock their domestic capital markets for catalytic investment in local economic development, and is monitored by indicators that measure the transformative effect on the local economy. The LFI is operational in 5 LDCs, and is most developed in Tanzania with a $120 million pipeline of 30 investment projects for which domestic financing is unlocked by UNCDF seed capital.

    During 2014 the scaling up of this programme began through the training of 120 bankers, local government project sponsors and private project developers. A number of these key national partners will play a role in the national ecosystem for local economic development that will provide a sustainable mechanism for local infrastructure finance to be established in 2015.
  4. UNCDF is also moving forward on major initiatives in food security, municipal finance, and in women’s economic empowerment as a joint initiative with UN Women and UNDP. The objective of each is to support LDCs to mobilise funding for local infrastructure investments through local governments, project finance and municipal borrowing.
  5. Qualitative, transformative capital development is not the same as simply increasing the quantity of available resources to an economy. Local development means connecting capital with local resources and people so that meaningful benefits are retained within the locality and that value chains do not drain capital out of local economies. It means demonstrating how ODA can drive domestic resource mobilization which can translate this growth into sustainable and inclusive local development. During 2014 a Booster Fund was established to finance investible pipelines of public and private projects monitored and measured by impact on local development indicators. The initial financing windows are for food security and climate resilience. Gender awareness is mainstreamed throughout the fund and will be applied using the LFI and LoCAL programmes.
  6. Finally the Local Development Finance practice continued to work through country level programmes to establish sustainable fiscal decentralization. In most cases the country programmes in Local Development Finance are second and third generation innovations that build on the intergovernmental fiscal transfer system already scaled up following previous rounds of UNCDF support. In country after country, these decentralized capacities built over years of support and scaling up – frequently with the help of the World Bank - are proving to be indispensable to building strong platforms for local economic development mentioned in the earlier parts of my statement.

UNCDF’s approaches and partnerships continue to evolve. In order to stay innovative and relevant, UNCDF’s portfolio is built on a tradition of learning. This is why UNCDF has maintained its strong commitment to evaluation, so that lessons inform the evolution of our approaches and models, and allow us to account rigorously for the public resources with which we are entrusted.

The 2014 evaluation plan included one final evaluation of a food security programme in Benin which has been completed, and programme evaluations of UNCDF’s Youth Start and MicroLead programmes which are well underway. We have also begun a thematic evaluation looking at the performance of UNCDF’s Local Development Fund programmes. The results of these evaluations will be presented at the Annual Session of the Executive Board in June.

Implications for UNCDF of the UNDP Evaluation Policy Review have already been discussed at this Board so I will not repeat those points now. I will just say that we very much look forward to more systematic treatment of UNCDF contributions to results in the context of independent thematic evaluations and ADRs, which will provide us a greater range of lessons and scope for meta-assessment of performance.

In conclusion, allow me to update you on UNCDF’s resource picture.

Despite financial challenges, many of UNCDF’s partners have made important efforts to maintain their contributions at previous levels. Let me start by expressing my gratitude for all the funding assistance that has been provided by all of our partners.

In 2014, total non-core resource contributions amounted to $73 million (including receivables), 27% of which originated from 8 major private sector foundations and corporations. I am pleased to report that contributions to non-core funding increased by 51% from 2013. The non-core is a mix of thematically and geographically earmarked contributions, and to a lesser extent, what we call “flexible” non-core that allows us to prioritize within a set of agreed criteria. This is the good news part of our resource picture.

On the core funding, our position continues to be precarious. You will recall that the UNCDF Strategic Framework approved by the EB in 2014 calls for $25 million per year in order to maintain programmatic presence in at least 40 LDCs. This aims to reverse the tide of country closures that has led to our current coverage of only 33 LDCs.

Despite this, in 2014 we saw a continuation in the downward trend in contributions to UNCDF’s regular resources, with core contributions (including from UNDP) totalling $14.7million, a 9% decrease from 2013. In order to stay within approved resource planning figures, I have taken a number of remedial steps. We reviewed our direct project costing model and made a number of one-time adjustments; we undertook a structural realignment; and we are reinvesting in identifying flexible sources of finance to allow re-opening of offices in LDCs where we have closed.

The realignment was designed to achieve six broad objectives:

  1. Reinvest in country presence in the LDCs where UNCDF should be engaged – 40 countries per the Strategic Framework (compared with the current 33);
  2. Clarify delegations of authority, accountabilities, standard procedures, and systems (in response to audit findings);
  3. Invest in cross-practice synergies and knowledge management ;
  4. Ensure the organization’s financial sustainability;
  5. Improve operational efficiency and drive delivery commensurate with the growth in the non-core;
  6. Maximize results on the ground.

The process has resulted in a more streamlined architecture – one that is more in line with the size and scope of the organisation. Once one-time costs of the realignment are covered, the annual savings against core will amount to approximately $1.1 million. A slightly modified and slimmed down organigram is now in place, and measures to implement the changes are on-going between now and approximately June of this year.

Let me reiterate why core funding is so important. A critical mass of core resources is critical to finance our technical expertise, presence on the ground, and corporate management and oversight systems. Without the core, we do not have the seed capital to re-establish programmes in LDCs. Typically we require one year to 18 months of core to establish a country presence and develop a programme; then we know from our proven track record that for every US$1 of core, UNCDF raises an additional US$4 in non-core, which will leverage an additional US$10 or more in other resources, primarily domestic capital in the countries we serve. Without core, we also have to battle against the tendency to become overly projectized, with in-country staff silo’d in projects rather than lending UNCDF’s cross-cutting, strategic support to governments, UNCTs (through the UNDAF), and country strategy based approaches. UNDP and UNDG partnerships are absolutely central to our impact at country level – through both joint programmes with UNDP and a range of agency partners, and through synergies that we build through participation in regional and country dialogue. We are taking steps to address these challenges posed by unpredictable presence, but it is a structural difficulty that needs to be met at least in part with flexible resources.

All this being said, we remain in excess of $10 million short of the Strategic Framework annual target. This means that we remain at risk of further country closures, despite the cost-cutting measures we undertook in the realignment.

So allow me to reiterate my call for full funding of the UNCDF Strategic Framework, and to thank our new and existing donors for their support.

I believe the year 2015 will be a critical time for LDCs to benefit from proven, scalable, and blended finance models to pursue inclusive and equitable growth at the local level.

I believe this is the time to reinvest in UNCDF’s core.

Thank you for your attention.