The Role of Local Government in Rural Finance

1. United NationsCapital Development Fund The Role of Local Governmentin Rural Finance Kadmiel Wekwete Director, Local Development Practice Area International Forum on the Eradication of Poverty United Nations | 15 November 2006

2. Linkages between local government and Rural Finance weak, and and poorly articulated Local Government focus is on rules, regulation and control; sometimes viewed as negative to promoting rural finance. Local Governments viewed as taxing authorities and undermining local business. Background

3. Rural Finance - part of the domestic financial system and tends to be fragmented, and is unable to meet the finance needs of the rural population. Rural Finance refers to the provision of financial services to a heterogeneous rural farm and non-farm population at all income levels. Rural communities lack secure and accessible deposit facilities and savings are held in cash or assets which are hard to mobilize. Background Continued.

4. Conceptual and practical challenge of connecting local government and rural finance. Connection is more evident in local economic development, seeking to transform the economic and social potential of places. More specifically, LED provides a framework for linking LG and rural finance, through focus on enterprise development. Background

5. Empowerment through enhancing local governance Devolution and improved public expenditure management Enhanced Local Services Delivery Financial Services Development Local Economic Development Local Development Framework

6. High risks in the rural economy related to dominance of small scale agriculture Access to borrower information impeded by lack of efficient transport, communications infrastructure and well functioning asset registries and databases Poorly defined property and land use rights which undermine collateral for many of the rural households in the rural economy Addressing Rural Finance Challenges

7. Organization and management of rural economies –steering local development Provision of basic infrastructure and services and increasing “accessibility” Organization of registry on land and land ownership with traditional authorities Household Asset Registries for collateral purposes The Role of Local Governments in Promoting Rural Finance

8. Transforming LG from passive administrative units to active development agencies Building LG into accountable and measurable planners and implementators Fiscal decentralization implemented Focus on Local Economic Development Transforming the Role of Local Government

9. UNCDF LDPs support increased access to basic infrastructure (through LDF) and supporting service delivery (through LG recurrent expenditure). Strengthen and empower LG; creating conditions for vibrant, pro-poor local economic development. UNCDF Local Development Programmes

10. To recognize that land and property upon it are assets; That to register these assets is the foundation for collateral; Collateral is the key to accessing (even unconventional) micro-financing; Micro-financing is the counterweight to public infrastructure/services provision. Vibrant LED? The Role of LGs?

11. Next generation programmes to focus on importance of rural financial systems for local economic development. Combine traditional focus on infrastructure / service delivery with business development and rural financial development. Local Development Programmes

12. The fusion of public with private investment – a major theme of Unleashing Entrepreneurship; and The dynamic role of LG – embracing all sources of revenue (local; government; donors), to ensure success in its total performance. The Bottom Line for UNCDF