UNCDF in Somalia

Financing hope: advancing resilience and stability for displaced persons

Somalia’s displacement crisis—affecting nearly a quarter of the population—remains one of the country’s most pressing development priorities. In response, UNCDF, with support from the Swiss Agency for Development and Cooperation, launched the ’Financing Durable Solutions for Forcibly Displaced People’, known as the FDS Initiative, in 2022. Anchored in four pillars—policy reform, increasing own source revenues and strengthening fiscal health, infrastructure investment, and private sector engagement—the FDS initiative delivers integrated, locally driven durable solutions for internally displaced persons (IDPs).

Two components have proven particularly transformative in enhancing resilience: a Sharia-compliant credit facility and targeted infrastructure interventions. Working through RAAS microfinance institution, UNCDF provided 137 micro small and medium-sized enterprises (MSMEs) with loans worth an average of $1,200 using a revolving fund model. Almost 70 per cent of the recipient MSMEs are IDP-owned, 60 percent are owned by women, and 28 percent are owned by youth under the age of 35.

At least 62 jobs have been created through UNCDF-supported MSMEs, excluding 137 business owners, with women holding 50 percent of these positions. Assuming each earner supports an average household of six, the combined 199 earners (137 owners and 62 employees) indirectly support roughly 1,200 people.

Innovative revenue-generating infrastructure investments have improved IDP livelihoods and created jobs. These include the Barwaaqo Market in Baidoa and solar-powered irrigation scheme in the city of Baidoa in Southwest State and a women-friendly marketplace in the city of Bosaso, which lies in the semi-autonomous state of Puntland. The Barwaaqo Market provides 48 stalls, allocated 60 percent to IDPs and 40 percent to host communities. In Bosaso, a modern, women-friendly market—the first of its kind—was completed and is now fully operational. It features 57 trading stalls, two-thirds owned by displaced women, along with dedicated breastfeeding rooms, child-friendly spaces, and safe sanitation facilities to promote inclusivity and safety.

Turning the tide: financing resilient WASH services in fragile contexts

Somalia faces one of the world’s most acute water, sanitation, and hygiene (WASH) crises. Decades of conflict, climate shocks, and institutional fragility have left almost 8 million people in urgent need of water, toilets and other necessities. Only 52 percent of the population has access to safe drinking water, with even fewer accessing sanitation and hygiene facilities. The implications of such shortages are most dire for the health, protection and dignity of women, children, and displaced populations.

In response, UNCDF, in partnership with UNICEF and the Government of Somalia, launched the WASH-FIT initiative to deliver inclusive, sustainable WASH financing solutions. A feasibility study on WASH financing was undertaken, the findings include the following: Somalia’s WASH sector is constrained by severe infrastructure deficits, systemic inefficiencies among PPP operators, affordability and access barriers for low-income households, limited innovation, insufficient public and private sector capacity, and weak governance frameworks—all of which undermine sustainable service delivery, deter investment, and hinder the sector’s long-term viability.

Anchored on four pillars—governance, enterprise support, access to finance, and regulatory reform—UNCDF seeks to pilot four blended finance approaches: a revolving Social Fund that finances household water connections, an innovation accelerator that enables entrepreneurs to test context-appropriate WASH solutions, a project development facility that de-risks and prepares bankable WASH investments, and an incentivised efficiency scheme that provides PPP operators with repayable capital to reduce non-revenue water and operational costs.

Investing in local legitimacy and sustainable peace through fiscal reform

Somalia’s local governments face deep and persistent fiscal and institutional constraints that undermine service delivery, weaken public confidence, and entrench fragility. With a national tax-to-GDP ratio of just 4.4 percent—the lowest in Africa—subnational authorities remain heavily dependent on external aid and limited, unpredictable intergovernmental transfers. This structural vulnerability restricts their capacity to fulfil constitutionally mandated functions and respond effectively to local development needs.

In partnership with the African Development Bank, and backed by a USD 1.35 million performance-based grant, UNCDF is launching an initiative to strengthen domestic revenue-mobilization systems in four districts—Baidoa and Hudur in Southwest State, and Kismayo and Afmadow in Jubaland State. The programme will promote the adoption of digital tax systems, improve asset-management practices, and reinforce internal audit and compliance functions. Together, these measures will help advance inclusive, accountable, transparent, and responsive local governance.

By addressing foundational weaknesses in fiscal administration and institutional performance, the intervention is expected to enhance local resilience, restore institutional legitimacy, and contribute meaningfully to Somalia’s broader peacebuilding and sustainable-development agenda. Importantly, these reforms will also lay the groundwork for more investable, creditworthy, and economically vibrant cities capable of attracting private capital and sustaining long-term growth.

Advancing locally led adaptation through performance-based grants

Somalia remains acutely vulnerable to the escalating impacts of climate change. Yet local governments—on the frontlines of this crisis—often lack the fiscal space and institutional capacity to lead effective, locally driven adaptation efforts. To address this gap, UNCDF, with support from the Government of Denmark, is rolling out the Local Climate Adaptive Living Facility (LoCAL). LoCAL combines performance-based climate resilience grants with targeted technical assistance to help local authorities integrate climate adaptation into planning and public financial management systems.

Building on a national scoping study, climate vulnerability assessments, and broad stakeholder consultations, the approach is being piloted in three districts in Puntland. Through LoCAL, local governments will gain access to climate finance and build their institutional capacity to deliver inclusive, community-led adaptation responses to the impacts of climate change. Additionally, LoCAL provides a tested, scalable model for anchoring adaptation at the local level—where climate risks are most acutely experienced and solutions can be most impactful.

LoCAL Somalia has achieved the following:

• Developed a comprehensive Performance-Based Climate Resilience Grant (PBCRG) guideline, established a standardised clear framework for allocating, managing and disbursing climate resilience grants to 43 local governments in Puntland and currently piloting 3 districts (Galkio, Gardo and Jariban), covering 100% of participating districts and enabling transparent allocation of adaptation funds.
• Reviewed and updated the existing performance assessment framework and minimum conditions, strengthening accountability and results-based financing by introducing 6 additional climate indicators, improved monitoring processes, and contributing to measure improvement. These changes contributed to a 20-30% improvement in local government compliance scores in subsequent assessments.
• Designed and delivered the PBCRG training tool, supporting Puntland’s 43 local authorities and implementing partners across the state and enabling all trained districts (100%) to integrate the performance-based resilience grants into annual planning, budgeting, and implementation cycle, resulting in timelier fund utilization and improved quality of locally led adaptation investments.
• Conducted a national climate risk analysis for adaptation decision-making in Somalia, generating evidence on climate hazards, exposure, and vulnerability across key sectors and providing an analytical foundation to prioritize adaptation investments at national and subnational levels.

In support of nationally-led efforts to address internal displacement in Somalia, UNCDF is part of the Internal Displacement Solutions Fund (IDSF) project, a joint UN action to catalyse durable solutions for displacement-affected communities. This initiative is embedded in the Government of Somalia’s National Solutions Pathways Action Plan (2024–2029) and the National Displacement and Durable Solutions Strategy, which provide a strategic framework for advancing sustainable, inclusive, and locally owned responses.

Within this context, UNCDF has supported domestic resource mobilisation at the local government level through the development of two district-level revenue enhancement strategies and targeted capacity building in revenue administration—efforts aimed at strengthening the investability and financial resilience of local authorities. By deploying catalytic capital, risk mitigation tools, and targeted technical assistance, the facility will unlock displacement-sensitive financing. The goal is to enhance the economic agency of displaced communities and build institutional capacity to deliver equitable services.