Local Finance Initiative (LFI)

Local Finance Initiative (LFI)

The Challenge

Public-private partnerships have become a mainstay of growth and development for rich and poor countries alike. With the growing awareness that inclusiveness in public goods and services is a fundamental condition for private economic stability and sustainability, an era of social enterprise and cooperation has taken hold.

The emergence of new partners from rising economies, eager to apply the best practices of development cooperation close to home, has prompted a re-imagining of what can be achieved in developing countries using private resources to finance public projects at local and district levels.

Problems LFI is addressing:

  • Domestic (public and private) capital markets are not investing in local economies in a way that promotes sustainable and equitable growth
  • Local economies are not able to attract investments and therefore the benefits of growth are bypassing many populations
  • Finance is not available for catalytic projects with high impact in critical themes like women’s economic empowerment,  climate change and adaptation, clean energy and food security

How We Are Helping?

LFI is designed to promote sustainable, inclusive and equitable growth in Least Developed Countries (LDCs) by developing local investment opportunities that can deliver transformative impact for financing by the private sector and preferably domestic capital markets. The design phase of the programme confirmed that domestic capital is not used to support small and medium-scale infrastructure development at the rural and sub-national level. Also it is not available for local economic development actors, whether they are local governments or private businesses.

The UNCDF technical team delivers the LFI approach and its methodologies (project finance, SME finance, and public-private- partnership) to select projects during development and financing stages. In other words, projects that are otherwise un-bankable are de-risked and taken the “last mile” to an investment ready stage where they are prepared to access commercial capital. Selection of projects is based on a) impact to local communities; b) potential for commercial viability; c) priority infrastructure areas e.g. energy, agro-processing, public facilities infrastructure, and other traditional and industrial small and medium size infrastructure.

The risks that are present at all stages of project development (pre-feasibility, financial structuring and closing, construction and operation) require significant capacity and experience of the developer in order to be properly managed and mitigated for investors, lenders, contractors, and other third parties. The LFI technical team provides this capacity through specific support activities (e.g., project structuring, financial evaluation and structuring, investment memorandum preparation and introduction of risk mitigation strategies) that enables projects to reach financial closure. Additional support is provided in the form of grants for technical studies, seed capital, subordinated debt, loan guarantees, credit enhancements and options that reduce last mile transaction costs. The non-recourse project finance approach, as one example, has been deployed successfully in developed countries to access long-term private finance for infrastructure projects, yet is not widely applied for small and medium infrastructure projects in LDCs. UNCDF’s use of this approach is a critical element to leverage limited public funds needed to unleash private capital to scale up local development.

In Tanzania, LFI is supporting 25 infrastructure projects, originated by both public and private developers, at different stages of development. These projects spread across agro-processing, renewable energy, community infrastructure, telecommunications, and industrial-manufacturing sectors. The five most advanced projects are expected to reach financial closure in the next six to nine months and expected to access US$26 million of domestic capital in the form of debt and US$3 million of grants.

LFI follows a holistic approach to engage all actors along the project development and finance continuum: Project sponsors, Technical Service Providers, Investors, Lenders, DFI/IFIs, DPs, local governments, central government and its relevant agencies.

To learn more about the Local Finance Initiative, please download the LFI brochure.

In Detail

Project

Local Finance Initiative (LFI)

GoalTo unlock flow of domestic capital to finance local projects needed to promote inclusive local economic development.
How

The LFI Programme is executed through four main programmatic components: 

  • Technical support to project developers throughout the project development cycle, including business plans, financial models, feasibility studies etc.
  • Finance and credit enhancement instruments such as seed capital, guarantees and grants to kick-start projects.
  • Capacity-building to public and private project developers to help them identify, design and manage bankable projects.
  • Monitoring and evaluation of development projects to ensure impact to communities and contribution to local economic development.
PeriodOngoing (2014-2017)
Active InBenin, Tanzania, Uganda.
PartnersUNCDF, Government of Tanzania President’s Office-Regional Administration and Local Government; Government of Benin Ministry of Decentralization, Local Governance and Administration of Land; Government of Uganda Ministry of Local Government and Sida
Total project cost and UNCDF contribution$33,250,645
$5,150,000

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