“The danger is that resources will continue to be allocated in ways that entrench exclusions and inequalities between and within countries rather than overcoming them. Important initiatives with the potential for transformational impact at the local economic level in least developed countries may continue to fall ‘below the radar’ of public and private investors.”

This passage comes from UNCDF’s Strategic Framework and the danger being referenced regards a global financial architecture that does not enable finance to flow to the areas where development needs are greatest, namely the world’s 46 least developed countries.

So, how can UNCDF make the global financial architecture work for these very markets, notably micro, small and medium sized enterprises (MSMEs) that are the backbone of economic inclusion and sustainable growth? Instead of telling you, let us show you.

For the past five years, UNCDF has managed the Last Mile Finance Trust Fund (LMF-TF), a flexible funding vehicle to pool lightly earmarked resources towards shared thematic priorities that was seeded by the Swedish International Development Cooperation Agency (Sida) with the intention of testing new approaches. Fast forward to 2020, when US$ 180,000 of LMF-TF funding was disbursed to UNCDF’s team in Zambia. That funding supported smaller grants to MSMEs and the onboarding of a digital finance expert. With these grants and the expert on board, UNCDF was able to help Zambian MSMEs develop a strategy involving agency banking that would empower MSMEs to become drivers of entrepreneurship and financial health in the digital economy context; a strategy that would position UNCDF to apply for a guarantee from Sida.

The results and insights of this project helped UNCDF to raise a 600k$ in funding from the Swedish Embassy in Zambia to carry out a scoping of the Zambian market with the objective to frame a detailed approach to empower MSMEs via innovative financing approaches. The scope of the program is the establishment of a Loan Guarantee and Technical Assistance Facility for digitally enabled MSMEs and agent networks in Zambia, with the end goal to accelerate the development and financing of inclusive digital economies that support MSMEs to enhance market participation, resulting in poverty reduction, improved livelihoods and economic growth. Based on the results of the scoping there is the potential to partner with Sida to set-up this guarantee and technical facility valued between US$ 5 million and of up to 20 million. By partnering with local financial institutions, it has the potential to catalyse a significantly higher amount in private capital by absorbing the early losses on behalf of private investors; otherwise referred to as blended finance.

But the story does not end there.

The designing of the Zambia proposal coincided with discussions in Burkina Faso around a similar programme to support access to finance for MSME in agricultural, forestry and clean energy value chains; with the specific goal of supporting food security, income growth and employment for youth and women. The Zambia proposal was used by the UNCDF team in Burkina Faso to create and submit a proposal to the Swedish Embassy in Burkina Faso—a proposal that resulted in US$ 350,000 during the inception phase, which will ultimately total to US$ 2.5 million in financing, which will also help in deploying guarantees on behalf of Sida to catalyze further blended finance investment.

Two successful proposals currently valued at roughly US$ 1 million, as well as guarantees with the potential value of up to US$15 million with the potential to leverage into greater funding. And this is all started with just US$ 180,000.

This reflects a larger point. When UNCDF can take its tools and expertise in last mile finance; and combine it with the support, commitment and leadership to sustainable development from a partner like Sida, what we can see is a true multiplier effect. The example of the LMF-TF in Zambia and Burkina Faso demonstrates the impact of lightly earmarked funding in experimentation resulting in larger opportunities that are more targeted and impactful.

But we’re not only multiplying capital, but we are also multiplying development impact, alongside the hope that the global financial architecture can finally be a tool for overcoming inequalities and exclusions. Not entrenching them.