Ahead of the upcoming third conference of the Malaga Global Coalition for Municipal Finance from 5-6 October 2023 to be held in Malaga, Spain, the United Nations Capital Development Fund (UNCDF) is producing a policy brief series featuring the five areas of the Malaga Coalition agenda. This policy brief is highlighting how Mobilizing City-Friendly Investment Funds can help achieve local Transformative Finance.

The Malaga Global Coalition for Municipal Finance created by UNCDF and UCLG in collaboration with FMDV advocates for a global financial ecosystem that works for cities and local governments. Based on the outcomes of the first two Malaga Coalition Conferences, five elements of the financial ecosystem have been identified as the policy agenda towards the Third Conference: intergovernmental fiscal transfers, own source revenue, domestic capital markets for long-term debt financing, city friendly equity finance, and a guarantee fund for cities.

These five interlinked elements will create an ecosystem for sustainable subnational financing, ensuring that external investment is balanced with strengthened local revenue and capital markets, and further reinforced with mechanisms to defray sovereign credit rating risk.

City-friendly investment funds increase the ability of local governments and other sub-sovereign entities to address key urbanization challenges, such as local infrastructure gaps, through sustainable sources of public and private financing. In particular, this type of solution can work for certain infrastructure investments with dedicated revenue streams, such as mass transit systems. Such funds open up the local market for further investments by promoting policy and regulatory reforms, strengthening domestic capital markets for subnational finance, expanding international capital deployed to subnational finance, and building the capacity of local governments to access finance.

In these investment funds, risk is mitigated by an investor owning the asset and managing it privately while producing the transformative outcome required.

When these funds are designed and implemented through the “city-friendly” perspective, they can demonstrate the potential of municipal and local government finance to national regulatory authorities and international investors to deploy public and private capital for infrastructure needs of cities and local governments.

Read about City-Friendly Investment Funds in this policy brief.