UNCDF in Bhutan

UNCDF in Bhutan

The Challenge

The Kingdom of Bhutan has undergone significant changes in recent years, evolving from an absolute monarchy into a constitutional monarchy, while pioneering its unique development vision of Gross National Happiness. All policy, planning, programmes and legislation are guided by this concept. Whereas Bhutan has made good progress in terms of poverty reduction, one in four Bhutanese remains in income poverty. Despite declining child and maternal mortality rates, chronic malnutrition affects one in three children. In the 2012 Human Development Report, Bhutan was ranked 140 out of 187 countries. Moreover as a least developed, mountainous and landlocked country, Bhutan’s population and ecosystems are extremely vulnerable to climate change. The human cost of extreme climate shocks and gradual climate changes include the increasing risk of hunger, disease, poverty, and lost livelihoods.

How We Are Helping?

UNCDF has been a partner of the Royal Government of Bhutan since 1979. From an early focus on infrastructure and agriculture, UNCDF interventions have increasingly turned toward decentralization, local governance and microfinance.

Currently UNCDF is helping Bhutan meet its development challenges through its joint Local Governance Support Programme with UNDP, a multi-sector effort to establish an effective system of local government. The programme supports the Royal Government plan to disburse annual block grants to local governments while helping to develop the capacity of local institutions. This initiative aims to make finance systems effective and transparent for local government service delivery, while strengthening the central government’s policy, regulatory, supportive and supervisory functions. Its strategy is to assist local governments in implementing block grants allocated for improving local-level infrastructure and in providing public services, while offering training and capacity development for local personnel and officials.

UNCDF has increased its support to help the local level respond to the growing challenges of climate change. In July 2011, the Royal Government signed an agreement with UNCDF to pilot its Local Climate Adaptive Living Facility. The facility, known as “LOCAL”, increases climate change adaptation financing while strengthening the capacity of local governments and of the local climate change adaptation planning process through a system of performance-based grants. This UNDP/UNEP-administered pilot initially targets two village groups (Gangtey and Nangkor) within two municipalities (Wangdue and Zhemgang, respectively) as well as the Phobjica valley, a critical habitat for the endangered black-necked crane.

Moreover, UNCDF is active in the inclusive finance area in Bhutan through the Least Developed Countries Fund for savings-led market leaders for inclusive finance (MicroLead), which aims to increase access to financial services for low-income populations in LDCs;

In Detail


Local Government Support Programme

Goal To make finance systems effective and transparent for local government service delivery while strengthening central government policy, regulatory, supportive and supervisory capacity.
  • Assisting local governments in implementing block grants allocated for local infrastructure;
  • Providing training and capacity development for local personnel and officials.
Period 2008-2013
Partners UNCDF, UNDP, Royal Government of Bhutan, Danish International Development Agency (DANIDA), Austria, Swiss Agency for Development and Cooperation (SDC), One UN Fund.
Total project cost and UNCDF contribution USD 7,320,000
USD 800,000

Local Climate Adaptive Living Facility (LOCAL)

Goal To respond effectively to climate change while strengthening local government capacity and local climate change adaptation planning.
  • Increase funding for adaptation to climate change through subsidies based on the results.
Period 2011-2013
Total project cost and UNCDF contribution USD 1,500,000
USD 700,000


Goal To increase access to financial services, particularly savings, by supporting the expansion of microfinance savings-led market leaders in underserved countries.
  • Offering grants and loans that incentivize leading providers to start up new, or strengthen existing financial institutions that target low-income people, especially with savings, in underserved areas, particularly countries struggling to recover from crisis and conflict;
  • Through a competitive process to select leading indigenous microfinance providers from developing countries to expand their reach by implementing a variety of approaches including greenfields, transformations of MFIs to formally regulated deposit-taking institutions, and providing technical assistance to in-country MFIs;
  • Supporting technical advisors who work to help those providers to develop the institutional capacity to extend their reach.
Period 2008-2017
Partners UNCDF, Bill & Melinda Gates Foundation, The Mastercard Foundation, LIFT Myanmar.
Total project cost and UNCDF contribution USD 58,562,939
USD 7,871,850

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