united nations capital development fund

1

United NationsCapital Development Fund

Investing in the Least Developed Countries

Executive Board MeetingJanuary 2006

2

UNCDF makes investments in the Least Developed Countries:

-Currently working in 28 Least Developed Countries.

-Current investment portfolio about $125 million.

Our Mission: Reduce poverty in these countries and help them achieve the Millennium Development Goals.

Our Method: Investing in human and institutional capacity at the local and national levels and funding and supporting Local Development Programmes and Microfinance Institutions (MFIs).

Our Approach: Long-term outlook seeking local and national capital formation and human development.

Our Capital: Flexible, high risk and innovative.

UNCDF Summary: Investing in the LDCs

3

UNCDF Background and Context.

UNCDF Today.

Primary Goals, Activities, and Outcomes.

Practice Areas: Local Development and Microfinance.

Quantitative Review of UNCDF Activities.

Alignment with the Brussels Programme, the Millennium Development Goals, and UNDPs Practice Areas.

Growth and Expansion Plans.

Organization and Management.

Business Development Strategy.

Presentation Overview

4

1966: UNCDF was founded as an independent instrument of the UN with a special Mission:

“…to assist developing countries in the development of their economies by supplementing existing sources of capital assistance by means of grants and loans…”

Assistance is given:

“in a flexible manner…and should be given to support general development plans…or to meet general development requirements.”

Resources should be:

“large enough to make a significant contribution to the achievement of accelerated and self-sustained economic growth of the developing countries.”

Contributions should be designed to:

“ensure the provision of assistance on a long-term and continuing basis” and “should be pledged or indicated as far as possible for a number of years.”

UNCDF Background and Context

General Assembly Resolution 2186 (XXI) on the Establishment of the United Nations Capital Development Fund, 1492nd Plenary

Meeting, 13 December 1966

5

1973: Mission further elaborated to focus exclusively on the Least Developed Countries (LDCs).

1999: UNCDF Practice Areas refined to focus on:

Local Development.

Microfinance.

June, 2005: Business Plan adopted by Executive Board for 2006-2007:

Confirming importance of UNCDF Practice Areas to LDCs.

Supporting significant expansion of UNCDF activities into additional LDCs.

“Mainstreaming” $5 million UNCDF annual administrative costs in UNDP Biennium Budget for 2006-2007.

August, 2005: New Executive Secretary joins UNCDF.

UNCDF Background and Context

6

Uniquely situated within UN System and International Development Community:

Neutrality and access of UN affiliation.

Close partnership with UNDP.

Close partnership with LDCs and local governments.

Only UN entity working “on the ground” exclusively in the LDCs.

Only UNDP entity able to commit capital and make investments.

Significant flexibility in design and breadth of financial instruments.

Ability to develop new, creative, pilot investment programmes and accept considerable financial risk.

Practice Areas closely aligned with Brussels Programme of Action, Millennium Development Goals (MDGs), and UNDP Practice Areas.

UNCDF Today

7

Currently working on more than 36 projects in 28 LDCs with total investments of approximately $125 million.

Independently assessed record of effectiveness; track-record of success; internationally recognized technical expertise.

Planning growth by:

Expanding to 45 LDCs by 2010.

Increasing investment amount per country.

Investing in inclusive financial sectors.

Financing additional Microfinance Institutions (MFIs).

Expanding investments in Local Economic Development.

Expanding investments in Post-Conflict countries.

UNCDF Today

…continued

8

• Actively engaged in organizational restructuring to enhance efficiency and effectiveness:

Reduced Headquarters staff to focus on strategic management.

Increasing staff in Regional and Country Offices to be closer to “clients” and investments.

Effective use of reduced administrative budget for maximum impact.

Strengthening partnership with UNDP:

Leveraging investment mandate to complement/supplement UNDP programmes and activities.

Increasing joint programming in LDCs.

Participating in “Integrated Package of Services.”

Closer financial and administrative management.

UNCDF Today

…continued

9

Two Primary Goals

UNCDF has two primary goals:

Goal #1: Contributing to the reduction of poverty and the achievement of the Millennium Development Goals in the LDCs.

Goal #2: Assisting LDCs to climb the development ladder so they gradually become “Lesser Developed” and eventually “Middle Income” Countries.

Low-income economies (59): GNI = < $825

Lower-middle-income economies (54)GNI = $826-$3,255

Upper-middle-income economies (40)GNI = $3,256-$10,065)

High-income economies (55)GNI > $10,066

Th

e “d

eve

lop

men

t la

dd

er”

Least Developed Countries (50)GNI = $750 (less than $2/day)

Sources: World Bank List of Economies, July 2005; UNCTAD, 2005

10

Two Primary GoalsM

DG

200

5 P

rog

ress

Ch

art

Goals and Targets Sub-Saharan Africa Southern Asia

very high poverty

very high hunger

high poverty

very high hunger

GOAL 1 | Eradicate extreme poverty and hunger

Reduce extreme poverty by half

Reduce hunger by half

low enrolment moderate enrolment

GOAL 2 | Achieve universal primary education

Universal primary schooling

low coverage

very low coverage

high coverage

very low coverage

GOAL 7 | Ensure environmental sustainabilityHalve proportion withoutimproved drinking water

Halve proportionwithout sanitation

far from parity far from parity

GOAL 3 | Promote gender equality & empower womenEqual girls’ enrollment in primary school

very high mortality high mortality

GOAL 4 | Reduce child mortalityReduce mortality of under- five-year-olds by two thirds

very high mortality very high mortality

GOAL 5 | Improve maternal healthReduce maternal mortalityby three quarters

Target is not expected to be met by 2015, if prevailing trends persist

Target already met or close to being met

Target is expected to be met by 2015, or the problem that this target is designed to address Is not a serious concern to the region

No progress, or a deterioration or reversal

11

To accomplish these Goals, UNCDF engages in four primaryActivities:

1. Providing grant-based Human and Institutional Capacity Building Investments at national and local levels to prepare for and support Local Development and Microfinance Investments.

Primary Activities

Capacity Building Investments help nations and local communities to:

– Develop in accordance with their own circumstances and priorities.

– Own the development process.

– Establish participatory, multi-stakeholder, decentralized decision making and

administrative processes.

– Create and implement enabling policy and regulatory environments at national

and local levels that support Local Development and building inclusive

financial sectors.

– Attract, manage, use, and accumulate capital efficiently.

– Work in partnership with donors, development agencies, civil society, and the

private sector.

12

2. Providing capital and technical assistance through its Local Development Investments to assure adequate access to social services and socioeconomic infrastructure at the local level.

3. Providing capital and technical assistance through its Microfinance Investments to assure access to financial services for the poor and to support Microfinance Institutions during their start-up and expansion stages.

4. Conducting research and communicating and sharing the learning and knowledge that are derived from UNCDF Investments.

Primary Activities

…continued

13

Activities designed to achieve five primary Outcomes:

1. Enhanced local democratic governance process and capacity for Local Development and Microfinance Activities.

2. Enhanced local community access to social services and economic infrastructure.

3. Enhanced access to financial services at the local level.

4. Enhanced Local Economic Development on a sustainable basis, including the development and support of strategic partnerships with donors, development agencies, civil society, and the private sector.

5. Scaling and replication of methods and results at national, regional, and global levels and maximum policy impact.

Primary Outcomes

14

1. “The key to escaping the poverty trap is to raise the economy’s capital stock to the point where the downward spiral ends and self-sustaining economic growth takes over.”*

2. Capital creates capacity + Capital follows capacity.

3. Scaleability and replicability must be institutionalized.

4. Always work at four levels: local, national, regional, and global.

5. Gender equity and mainstreaming, environmental sustainability, and appropriate use of information and telecommunications technology must be embedded in every programme and investment activity.

6. Partnerships are critical to our success.

7. UNDP is our most important partner.

Seven Guiding Principles

* UN Millennium Project (2005) Investing in Development (Overview Report), p.19

15

Summary of Goals, Activities,

Outcomes and Principles

16

Local Development Investments focus on:

Sustainable, scaleable decentralized planning, delivery, and management of basic socioeconomic infrastructure and services:

Demand-driven, participatory process.

Working with local and national governments within established governmental structures: “National Ownership” strategy.

Focus on poor, rural areas.

Small-scale, largely grant funded capital investments in infrastructure and access to social services:

Feeder roads.

Health clinics

Schools.

Markets.

Practice Areas: Local Development

Water and sanitation.

Agriculture.

Environment.

17

Investments made primarily through Local Development Programmes and Local Development Funds:

Local Development Programmes consist of:

Institutional capacity building to strengthen local democratic governance and improve local infrastructure and service delivery on a decentralized basis.

Reforming Public Expenditure Management to deliver infrastructure and services—increasing effectiveness, efficiency, equity and accountability.

Integration of local government planning and Performance-Based Budgeting with national planning, budgeting and fiscal systems.

Public information and accountability systems to enable citizens to hold local governments to account.

Greater local government collaboration with civil society, private sector, national sector activities.


…continued

18

Local Development Funds consist of:

Unconditional block grant transfers—flexible within agreed limits to be allocated to local priorities.

Decentralized capital investments in essential infrastructure and social services.

Performance-linked funding facility at local government level.

Simulated fiscal transfers that will later replace the Fund facility to permit continued national financing of local investments.


…continued

19

Building inclusive financial sectors:

Objective: enhance access of the poor to financial services.

Geographic focus: Sub-saharan Africa.

Key programme elements:

• Multi-stakeholder financial sector assessment.

• Development of national policy, strategy and action plan.

• Multi-year Implementation focused on developing:

- Local capacity of Microfinance Institutions (“MFIs”).

- Policy, legal and regulatory environment.

- Support environment and services for local MFIs.

- Broader access to financial services and products.

- Increased private sector participation.

Practice Areas: Microfinance

Microfinance Practice Area consists of two primary investment themes:

20

Investing in Microfinance Institutions:

Objective: invest in start-up and emerging MFIs with a view to creating sustainable, growing, financially viable enterprises.

Institution and capacity building focus.

Flexible and innovative financial instruments.

Microstart Programme: performance-linked microcapital grants with Technical Service Providers from South to provide capacity building, support to local MFIs.

Micro Save Programme: develops market research tools for MFIs seeking new products and services.

Practice Areas: Microfinance

…continued

21

Priority areas for reconstruction in Post-Conflict situations per 2005 Human Development Report:

Repair infrastructure and provide credit for private sector recovery.

UNCDF investing in the transition from conflict to stability:

Strengthening local government.

Building participatory and decentralized institutions.

Practice Areas in Post-conflict Situations

Infant mortality rate, 2002(deaths per 1,000 live births)

Democratic Republic of Congo

Source: IRC 2004

Conflict Makes a Bad Situation Worse

50

75

100

125

150

175

200

225

East DRC

West DRC

Sub-Saharan Africa, average

Local Development and Microfinance Practice Areas relevant and important to Post-Conflict situations:

22

UNCDF rebuilding the local economy and services to support human development:

Providing investment capital for small-scale infrastructure reconstruction and enhanced access to social services.

Establishing enabling environments to build inclusive financial sectors.

Providing investment capital to establish and support local Microfinance Institutions.

Developing enabling environments and investment programmes to strengthen private sector and civil society participation.

Seeking to coordinate and work closely with BCPR.

Practice Areas in Post-conflict Situations

…continued

23

Currently working in 28 LDCs:

Where UNCDF Works

24

Total population of UNCDF client countries: approximately 573 million*.

Average GNI per capita: approximately US$ 338*.

14 of UNCDFs clients are landlocked or small island countries.

18 are also in Conflict or Post-Conflict countries.

In all countries UNCDF works closely with national and local governments, with UNDP, and with wide variety of other development partners.

UNCDF: well-established “on the ground” in many of the poorest and most difficult working environments in the developing world.

* Excluding Liberia for which data not available

Where UNCDF Works

…continued

25

Number of LDCs 23

Total Population of LDCs 558 million

Number of investments in LDCs 29

Geographic distribution of investments 70% Africa

20% Asia

Total UNCDF financing required for Current Investments Approx. US$113m

Estimated UNCDF financing required for Pipeline Investments Approx. US$160m

32 investments

32 countries

Indicative key data for 2004• Number of local governments supported• Number of investments made in infrastructure and access to social services• Average amount per investment• Estimated number of direct beneficiaries• Average investment per capita

377

2,492

$2,4004,554,000

US$1.31

UNCDF Activities in Local Development

Quantitative Review of UNCDF Activities

26

14% Education

13% Health

14% Water

15% Institutional Support

3% Markets

21% Roads/ Bridges

20% Ag/environ

Local Development Investments by Sector in 2004


…continued

27

Number of LDCs 11

Total Population of LDCs Approx. 65 million

Number of investments in LDCs 11

Geographic distribution of investments 90% Africa

Total UNCDF financing required for Current Investments Approx.$12 million

Estimated UNCDF financing required for Pipeline Investments by 2010

Approx. $90 million

16 investments

16 countries

Indicative key data for 2004• MicroStart investments – results to end-2004

• New MFI investments in 2005• Number of Post-Conflict countries building inclusive financial sectors

68 MFIs

21 countries

450,000 new clients

5 LDCs

4

2 in “hard” pipeline

UNCDF Activities in Microfinance


28

Highlights of the International Year of Microcredit

More than 100 Countries participated in Year activities. 61 National Committees established. 30 Countries participating in Global Microentrepreneurship Award

programme. More than 350 conferences and events. Nearly 100 academic institutions involved. Forum held 7-9 November at UN Headquarters with more than 700 guests. Seminar hosted by NY Federal Reserve Bank on 9 November to focus on

regulatory and supervisory issues. Blue Book on Building Inclusive Financial Sectors for Development to be

released on 17 January 2006. Data Project initiated with World Bank and IMF to establish

framework for evaluating and monitoring access issues in emerging countries and LDCs.


29

“Assessment of UNCDF’s programmes confirmed that UNCDF’s mission, programmes and goals are relevant to the achievement of the MDGs. Its programming supports the Programme of Action for the LDCs for the decade 2001-2010 and responds to the local needs of the countries in which it intervenes.”

“UNCDF’s areas of expertise are very much in demand in LDCs… In fact, LDCs are asking for more of UNCDF’s services.”

“[UNCDF] fulfils an important risk-taking, innovation role that other development agencies and LDC Governments are interested in expanding and building on…”

“UNCDF programming models in both microfinance and local governance demonstrate a clear and innovative niche…”

“The Fund has contributed to significant results through both its microfinance and local governance programmes in poverty reduction, policy impact, and replication of its projects by donors…”

“UNCDF is praised by the majority of its stakeholders as a flexible partner that is active in developing knowledge, effective in implementing projects, and influencing the orientation of the sectors in which it works…”

Independent Assessment of Results

2004 Independent Impact Assessment confirms UNCDF relevance, expertise, niche and results:

Source: Universalia (2004) Independent Impact Assessment of UNCDF: Final Synthesis Report, ppii, iv

30


…continued

2004 OECD-DAC Review of 19 donor decentralization programmes confirms UNCDF “success”:

“UNCDF’s programme is the only example whereby a programme was successfully institutionalized and replicated nation-wide. The programme was a success because it was implemented in close co-operation with governments and aimed at promoting sustainable and replicable institutional development of Local Government from the outset…

Source: OECD (2004) Lessons Learned on Donor Support to Decentralization and Local Governance

31


…continued

2005 CGAP Review of UNDP Microfinance Portfolio confirms “success” of UNCDF’s MicroStart and excellence of UNCDF technical services:

“The successful model is the MicroStart programme pioneered by the microfinance unit of UNCDF…MicroStart’s ‘hit rate’ of successful projects was 69 percent, which represents strong performance, not only compared to other donors, but also in absolute terms.”

“UNDP has privileged access to the excellent technical services of the internationally recognized, dedicated microfinance unit of UNCDF.”

Source: CGAP (2005) Review of UNDP Microfinance Portfolio, pp2, 3

32

UNCDF Alignment with Brussels Commitments, MDG Priorities and UNDP Practice Areas

• Brussels Commitments

• MDG Priorities

• UNDP Practice Areas

People Centered Policy Framework

Democratic Governance

Effective Governance

Good governance

Human and Institutional Capacities

Poverty Reduction

Capital Accumulation

Productive Capacities

Public Investment

Priority Countries

Crisis Recovery

33

Local Development Microfinance Geographic expansion to more LDCs, including Post-Conflict countries Target: 40 by 2010 Target: 25 by 2010 Increase investment size per country Target: $5 million per country Increase investment size per investment. Expand local investments to more multi-sector projects.

Expand regional and country sector approach to building inclusive financial sectors

Target:$6 million investment per country Identify new MFIs and supporting

institutions for investment. Target: 50 by 2010

Enhanced investment support for new financial services institutions to supplement and complement microcredit.

Invest in broader and deeper products and services for Local Economic Development: Local Economic Governance. Social and Community Development. Locality Development. Enterprise Development.

Invest in broader and deeper offerings of financial products and service: Credit Savings Insurance and risk allocation Remittances

Increase gender equity and mainstreaming in all programmes Increase environmental programme components

Increase utilization of information and telecommunications technology Strengthen partnerships with national governments, multi-lateral and bi-lateral agencies,

donors, private sector, and civil society.

Growth and Expansion Plans

34

Streamlined HQ to focus exclusively on strategic functions and management: 41% reduction in HQ posts. Addition of Business Development and Operations Advisors by 28 February

2006. Expansion of presence at Regional level: 100% increase in Regional personnel. Expansion of presence in Country Offices in LDCs: 25% increase in Country

personnel.

Organization and Management: Restructuring

Consistent with UN Reform initiatives, UNCDF is restructuring to achieve greater decentralization and improved operating efficiency and effectiveness:

HQ Regional Country Offices JPOs

2005

2006

2007

37

22

22

9

11

12

42

51

5619

19

5

Totals

97

103

109

35

Principal impacts of restructuring:

More field presence closer to LDCs.

Enhanced field presence supported by programme funds.

More cost-effective structure for delivering service in the field.

Reduced HQ overhead costs.

Enhanced capability to mobilize resources and manage operations efficiently.

Restructuring programme began 1 August 2005.

Headquarters restructuring completed by 31 December 2005.

Regional and Country Office expansion begun.

Full implementation expected by 30 June 2006.

Organization and Management: Restructuring

…continued

36

Participating in development of “Integrated Package of Services”.

Focus on joint programming at regional and country levels.

Specific UNCDF products and services to be included.

Specialized products and services under consideration for Post-Conflict countries.

Integrating UNCDF technical experts in UNDP Regional Centres and Country Offices.

Clarifying, coordinating, simplifying, harmonizing roles and relationships between UNDP and UNCDF:

Practice Area definitions.

Service delivery.

Business Development.

Public-private partnerships and private sector involvement in Local Development, Local Economic Development and Microfinance.

Operational systems and policies.

Exploring more efficient utilization of UNDP administrative services and support.

Organization and Management: UNCDF and UNDP

37

Budget Forecast 2006-2007: Expenditures

2004

Investments

2006 2007

Country Investment Support

Admin (UNDP since 2006)

Regional Investment Support

$41.7 million

$54.4 million

$29.2 million

$4

9.4

mil

lio

n

$3

6.7

mil

lio

n

$5 million $5 million

38

2006-2007 Growth Summary

2006 2007 2008-10

Total annual programme expenditures

$36.7m $49.4m $54.2m

Local Development $27.5m $32.8m $33.0m

Microfinance $9.2m $16.6m $21.2m

Total number of LDCs 28 35 45

Local Development 23 31 40

Microfinance 7 16 25

UNCDF Personnel 103 109 109

39

Business Development: the biggest challenge and constraint. Long-term nature of Goals, Activities, and Outcomes requires long-term, consistent

financial support from donors and partners. Low-income countries need “a bold, needs-based, goal-oriented investment

framework [to 2015] aimed at achieving the MDG targets.” 10 year framework should contain:

• “A public sector management strategy.”

• “A clear strategy for decentralizing target-setting, decision-making, budgeting and implementation responsibilities to the level of local governments.”

• “A clear private sector strategy to promote economic growth and have countries ‘graduate’ from donor assistance in the longer term.”

Key conditions for maximizing impact:

• “…early priority on up-front investments to deliver services on the ground, adopting replicable and locally appropriate delivery mechanisms.”

• “…long-term predictable donor funding… covering capital and recurrent costs…”

All references from UN Millennium Project (2005),Investing in Development Overview Report.

Business Development Environment

40

Broaden and diversify the donor base of Member States, including approaching Middle Income and Southern Member States.

Seek long-term, predictable funding from Member States: focus on common long-term development objectives.

Broaden and diversify and development partner funding:

Work closely with existing partners and expand with them into new LDCs.

Develop and formalize long-term relationships with additional partners (including in the Southern Member States):

• Multi-lateral agencies.

• Bi-lateral agencies.

• NGOs and foundations.

• Private sector.

Business Development Strategy

41

Assure appropriate Local Government and local MFI participation in funding of all activities.

Develop long-term relationships with civil society, academia, and private sector as partners in UNCDF programme design, financing, implementation, and evaluation.

Coordinate Business Development Plan with BRSP, Regional Bureaus, and Resident Representatives.

Formalize Business Development Plan for 2006-2007 with new Business Development Director.

During 2006 seek to develop 1 or 2 large scale thematic or regional investment programmes of sufficient impact and interest to attract significant funding from long-term institutional partners.

UNIFI: Building Inclusive Financial Sectors in Africa.

Local Economic Development: Investments Focused on Rapid Private Sector Development.

Business Development Strategy

…continued

42

Resource mobilization: HQ, Regional and Local.

Managing the decentralization process.

Managing growth and expansion plan.

Successfully developing / implementing new initiatives: BIFSA and LED.

Concluding and implementing MOU with UNDP.

Developing and implementing appropriate communications strategy.

Developing and implementing appropriate research programme.

Key Challenges and Constraints

43

United NationsCapital Development Fund

Investing in the Least Developed Countries

Executive Board MeetingJanuary 2006

united nations capital development fund

Documents