United Nations Capital Development Fund

1. United NationsCapital Development Fund Investing in the Least Developed Countries Executive Board Meeting January 2006

2. UNCDF Summary: Investing in the LDCs • 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.

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. High-income economies (55)GNI > $10,066 Upper-middle-income economies (40)GNI = $3,256-$10,065) The “development ladder” Lower-middle-income economies (54)GNI = $826-$3,255 Low-income economies (59): GNI = < $825 Least Developed Countries (50)GNI = $750 (less than $2/day) Sources: World Bank List of Economies, July 2005; UNCTAD, 2005

10. Two Primary Goals Goals and Targets Sub-Saharan Africa Southern Asia GOAL 1 |Eradicate extreme poverty and hunger high poverty very high poverty Reduce extreme poverty by half very high hunger very high hunger Reduce hunger by half MDG 2005 Progress Chart GOAL 2 |Achieve universal primary education low enrolment moderate enrolment Universal primary schooling GOAL 3 |Promote gender equality & empower women Equal girls’ enrollment in primary school far from parity far from parity GOAL 4 |Reduce child mortality Reduce mortality of under- five-year-olds by two thirds very high mortality high mortality GOAL 5|Improve maternal health Reduce maternal mortality by three quarters very high mortality very high mortality GOAL 7 |Ensure environmental sustainability Halve proportion without improved drinking water low coverage high coverage Halve proportion without sanitation very low coverage very low coverage 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 primary Activities: 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 privatesector.

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 MicrofinanceInvestments 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: Enhanced local democratic governance process and capacity for Local Development and Microfinance Activities. Enhanced local community access to social services and economic infrastructure. Enhanced access to financial services at the local level. 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. Scaling and replication of methods and results at national, regional, and global levels and maximum policy impact. Primary Outcomes

14. “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.”* Capital creates capacity + Capital follows capacity. Scaleability and replicability must be institutionalized. Always work at four levels: local, national, regional, and global. Gender equity and mainstreaming, environmental sustainability, and appropriate use of information and telecommunications technology must be embedded in every programme and investment activity. Partnerships are critical to our success. 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. Practice Areas: Local Development …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. Practice Areas: Local Development …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 Local Development and Microfinance Practice Areas relevant and important to Post-Conflict situations: Conflict Makes a Bad Situation Worse Infant mortality rate, 2002 (deaths per 1,000 live births) Democratic Republic of Congo 225 East DRC 200 175 150 125 West DRC 100 Sub-Saharan Africa, average 75 Source: IRC 2004 50

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. Where UNCDF Works Currently working in 28 LDCs:

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. Quantitative Review of UNCDF Activities UNCDF Activities in Local Development

26. Quantitative Review of UNCDF Activities …continued Local Development Investments by Sector in 2004 21% Roads/ Bridges 14% Education 13% Health 20% Ag/environ 14% Water 3% Markets 15% Institutional Support

27. Quantitative Review of UNCDF Activities 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 establishframework for evaluating and monitoring access issues in emerging countries and LDCs. Quantitative Review of UNCDF Activities

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. Independent Assessment of Results …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. Independent Assessment of Results …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 Good governance Human and Institutional Capacities Productive Capacities Capital Accumulation Public Investment Effective Governance Priority Countries Democratic Governance Poverty Reduction Crisis Recovery

33. 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 Totals 37 5 42 9 97 2005 2006 22 19 51 11 103 2007 22 19 56 12 109

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 $54.4 million Investments $41.7 million $29.2 million $49.4 million $36.7 million Country Investment Support Regional Investment Support $5 million Admin (UNDP since 2006) $5 million 2004 2006 2007

38. 2006-2007 Growth Summary

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

40. Broaden and diversify the donor baseof 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 Meeting January 2006