UNCDF’s is the United Nation’s capital investment agency for the world’s 48 least developed countries. It ensures financial services reach poor people and small businesses and ensuring formal financial systems include poor people by increasing access to microfinance and investment capital. UNCDF programmes help to empower women and young people, and catalyze larger capital flows from the private sector, governments and development partners, toward fulfilment of the Millennium Development Goals.
Established by the General Assembly in 1966 and with headquarters in New York, UNCDF is an autonomous UN organization affiliated with UNDP. UNCDF is the UN’s capital investment agency for the world’s 48 least developed countries.
UNCDF focuses on Africa and the poorest countries of Asia, with a special commitment to countries emerging from conflict or crisis. It provides seed capital – grants and loans – and technical support to help microfinance institutions reach more poor households and small businesses, and local governments finance the capital investments – water systems, feeder roads, schools, irrigation schemes – that will improve poor peoples’ lives.
UNCDF works to enlarge peoples’ choices: it believes that poor people and communities should take decisions about their own development. Its programmes help to empower women – over 50% of the clients of UNCDF-supported microfinance institutions are women – and its expertise in microfinance and local development is shaping new responses to food insecurity, climate change and other challenges. All UNCDF support is provided via national systems, in accordance with the Paris Principles.
UNCDF works in challenging environments – remote rural areas, countries emerging from conflict – and paves the way for others to follow. Its programmes are designed to catalyse larger investment flows from the private sector, development partners and national governments, for significant impact on the Millennium Development Goals, especially Goal 1: Eradicate Extreme Poverty and Hunger, Goal 3: Promote Gender Equality and Empower Women, and Goal 7: Ensure Environmental Sustainability.
Financial inclusion is universal access, at a reasonable cost, to a wide range of financial services, provided by a variety of sound and sustainable institutions. The range of financial services includes savings, short and long-term credit, leasing and factoring, mortgages, insurance, pensions, payments, local money transfers and international remittances. Sound institutions are guided by internal management systems, industry performance standards, and prudential regulation as appropriate, and may be private or public, and of institutional types ranging from commercial banks to microfinance institutions, from cooperatives to non-bank financial institutions, and more. Sustainable institutions refer to their ability to provide on-going access to financial services and to invest in new products and new markets over time.
90 percent of people lack access to formal financial services in the Least Developed Countries. UNCDF works to ensure that more households and small businesses gain access to credit, savings, insurance and other financial services that expand opportunities. UNCDF’s ability to provide risk capital directly to the private sector (unique in the UN system) helps bring microfinance to underserved markets and spur new innovations (e.g. mobile phone banking).
UNCDF ranked in the “very good” category, improving its score from 73 in 2009 to 83 in the 2011 “SmartAid Index” of overall effectiveness in microfinance. UNCDF operates inclusive finance programmes in 27 LDCs in sub-Saharan Africa and Asia/Pacific through a financial inclusion sector-development approach and thematic initiatives. It also supports UNDP inclusive finance activities in 14 countries where UNCDF does not have its own programmes—primarily non-LDC countries.
The G20 Seoul Summit Leaders’ Declaration of November 2010 reiterated the G20 commitment to financial inclusion and officially launched the Global Partnership for Financial Inclusion. This platform which includes G20 and non-G20 countries as well as relevant stakeholders, will promote knowledge sharing, policy advocacy and coordination. It will moreover carry out the G20 agenda on financial inclusion through the implementation of its Financial Inclusion Action Plan. This Action Plan emphasizes, among others, the need to develop diagnostic tools at the country level that will help identify constraints and opportunities to promote financial inclusion.
Against this background, UNCDF started to develop, in partnership with the South Africa-based institution FinMarkTrust, CENFRI2 a diagnostic and programmatic tool to promote financial inclusion. This tool will build on UNCDF’s extensive experience in promoting inclusive financial sectors (including through the development of national microfinance strategies), as well as FinMark Trust’s highly regarded financial inclusion assessment methodology FINSCOPE.
It will also incorporate lessons from the new developments that have revolutionized access over the past few years, such as agent and branchless banking, and will reflect promising developments such as linking conditional cash transfers to savings accounts. That programmatic framework will moreover integrate the knowledge gained through the CLEAR4 exercises developed by the Consultative Group to Assist the Poor (CGAP) on ways to promote donor effectiveness and cooperation at the country level. The objective of this tool is, in short, to help governments and national stakeholders develop National Compacts on Financial Inclusion that will fulfil the vision set up by the G20.
UNCDF and FinMark Trust / CENFRI will develop this approach in close cooperation with the leaders of the G20 Global Partnership for Financial Inclusion: the Consultative Group to Assist the Poor (CGAP) and the Alliance for Financial Inclusion (AFI), as well as the Bretton Woods institutions, World Bank and IFC. UNCDF plans to use this programmatic tool in LDCs and carry out joint diagnostics with other donors in those countries. It will use it not only for future programming but also to update its existing sector development programs. In doing so, UNCDF’s vision is to help develop National Compacts on Financial Inclusion in at least 20 LDCs within the next five years, which will reflect in a concrete and tangible manner the G20’s commitment to promote financial inclusion globally. While UNCDF will focus its own efforts in LDCs, this tool will also be relevant to and available for non-LDCs.
Based on learning from other successful initiatives (such as at Xac Bank on clean energy products and Micro-Energy Credits on carbon markets), UNCDF is preparing an initiative to work with microfinance market leaders to develop appropriate financial services that will enable poor clients to transition to clean energy sources. The initiative will also help link the MFIs concerned to the voluntary carbon market. CleanStart’s objective is to enable 2,5 million people to move out of energy poverty by 2017.
Based on successes of the Village Savings and Loan Association (VSLA) methodology around the world, UNCDF is looking to launch a global programme that would complement its existing efforts in the LDCs, at low cost and at scale in the most remote and underserved regions.
As one of the first funders to endorse the Smart Campaign for client protection in microfinance, UNCDF is working to promote a strong pro-client industry globally. It encourages partners to adopt and implement client protection principles. It engages with local stakeholders to identify and address client protection issues through a mix of self-regulation, building financial capability, and appropriate regulation and supervision.
UNCDF also houses the Special Advocate for Inclusive Finance for Development (UNSGSA) office and coordinates the wider UNSGSA reference group. In September 2009, UN Secretary-General Ban Ki-moon designated HRH Princess Máxima of the Netherlands to this newly created role.
As UNSGSA, HRH Princess Máxima advocates for greater financial inclusion among policymakers and regulators and raises awareness of the issues and opportunities among financial service providers and other potential collaborators, including the public at large. The themes which form the core of her advocacy work include access to a range of financial services, starting with savings; a continuum of inclusion, from individuals to SMEs; responsible finance, with protected clients empowered to make sound choices; the mutually reinforcing relationship between financial integrity and financial inclusion; and the importance of data for decision-making.
In addition to the national market level work being pursued above, the UNCDF also works on the thematic front of inclusive finance, to support the development of innovative products and client-oriented initiatives.