The forerunner Local Government Options Study (LGOS), formulating policy options, and the Local Development Programme (LDP), piloting future local decentralized planning & financing arrangements, and local assemblies, were merged into the Local Governance Support Programme (LGSP) at end 2006. The LGSP builds upon the achievements of two previous projects in the area of decentralization and local governance. LGSP has the primary objective of supporting the establishment of a fully-fledged and effective local government system in Timor-Leste, and will do so:

1. By providing policy-relevant lessons from pilot activities,

2. By assisting the Government in formulating a comprehensive legal and regulatory framework for local government, and

3. By supporting implementation of local government reforms. Through achieving its primary objective, LGSP will thus contribute towards improving infrastructure and service delivery and reducing poverty.

The LGSP is now the national support programme to develop and implement decentralization policy and the establishment of elected local government in Timor-Leste. The Government of Timor-Leste (GoTL) is funding the block grants and Irish Aid and the Government of Norway areco-funding LGSP.

• Although Timor-Leste does not yet have a fully-fledged local government system in the sense of elected local bodies, there is a constitutional commitment to decentralisation in one form or another, and a genuine political commitment to establish local government as soon as this is feasible. In addition, both LGOS and the LDP have helped the Government to decide on a local government system based on Municipalities. There is now official recognition of the Government's preferred option for local governance;

• The LGSP will be an amalgam of LGOS and the LDP. As such, LGSP will:

  • Continue to pilot local governance and local development procedures and processes in order to generate further policy-relevant lessons that will be of practical value in formulating and implementing decentralisation policy;

  • Once the basic policy has been adopted, provide the government with technical and other support in the fine-tuning and finalisation of its policy on decentralisation and local government;

  • Assist the government in actually establishing a functioning local government system.

  Decentralisation, by endowing accountable local government bodies with greater responsibilities for planning, budgeting, and implementation of infrastructure and service delivery, would result in an improved focus on the rural poor, greater allocative efficiencies, better implementation arrangements, and enhanced responsiveness.

• LGSP will undertake the following types of activity in order to improve the extent to which women are involved in local governance issues:

  • Putting into place affirmative action policies that ensure women's representation in local decision-making bodies (Local Assemblies, Municipal Assemblies);

  • Establishing Standing Committees on Gender in all Local and Municipal Assemblies, with a mandate to ensure that women's needs are being adequately addressed in local infrastructure and service delivery;

  • Providing women Assembly members with special training in leadership, in gender and the like, so as to enable them to be more actively involved in Assembly discussions and better informed;

  • Linking up women Assembly members with national gender networks in an effort to enhance their political empowerment;

  • Supporting greater use of local media (community radios, etc.) as a way of highlighting gender issues and informing local citizens about the role and needs of women.

• National Directorate for Local Development and Territorial Management (DN-DLOT), Ministry of State Administration and Territorial Management (MSATM)

• 8 Districts

• 473,323 people (about 51% of the total population)

• Various TRMs

• Mid-term Evaluation planned in 2009

• Piloting Local Development Programme component was expanded from 4 to 8 districts in 2008 with the Government's budget;

• Drafting of Local Government legislations (e.g. Law on Territorial and Administrative Division, Law on Local Government, and Municipal Electoral Law) were completed for the consultation and approval by Council of Ministers and the National Parliament;

• Decentralisation Strategic Framework Part II was prepared to provide the Government with a roadmap for local government reforms and lays out the steps that will need to be taken by the Government in order to establish and sustain an effective, transparent and accountable system of local government in Timor-Leste.

• Communication Strategy was developed and is being implemented to support local government reform.

• LDP support to the new municipalities after the scheduled municipal elections in 2009;

• Continued support to the policy framework toward the approval by the CoM and NP of three draft legislations

• Mid-term Evaluation mission (scheduled in 2009)

The overarching goal of the INFUSE Programme is to contribute to the achievement of the Millennium Development Goals, in particular the Goal 1 of cutting absolute poverty in Timor-Leste by one third by 2015, by increasing sustainable access to financial services for the poor and low-income people, both male and female.

INFUSE will focus on increasing access by poor and low-income people to sustainable financial services while taking a sector approach in addressing these issues. Three mutually reinforcing programme outputs include:

1. Policy development and strategic coordination to enhance the enabling environment;

2. Facilitating the growth and long-term sustainability of the retail financial service providers, so that they can reach an increasing number of the poor and low-income people; and

3. Establishment of a financial business support infrastructure in Timor-Leste.

Given the low level of economic activity and diversification in rural areas, strategic partnerships will be developed with other programmes and actors that are strengthening the economic base, and diversifying the rural economy.

• Timor Leste's recent progress was disrupted in April 2006 when conflict erupted, 'reopening wounds not fully healed'. However, for quite young microfinance industry, the overarching message that emerged from this crisis is that the stronger institutions survived - not through good luck, but through courage and professionalism of their managers and staff. For these institutions, this programme is even more timely as they seek to expand their operations to assist the economy to rebuild.

• The poor and low-income earners ("Bottom of Pyramid" (BOP)) in Timor-Leste make up around 85% of the economically active population, but they are largely excluded from access to financial services, and thus form the core target group for the development of an inclusive financial sector, serving the majority of the people. While their number will decrease as employment generation efforts take effect, the high population growth partially offsets this trend.

• The financial sector in general is expanding, and the microfinance industry, which serves the BOP, has progressed beyond the start-up phase to launch Inclusive Finance in Timor-Leste. A range of institutions, including commercial banks, offer a relatively wide array of financial services, and AMFITIL, the association of microfinance institutions, has been formed with a focus on sustainable operations. However, the outreach of the financial service providers (FSPs: Commercial Banks, NBFIs, Credit Unions, NGO-MFIs, Credit Cooperatives) is limited. With coherent and focused support, the financial sector should be able to increase its outreach, especially to BOP, by 20-25% per year, reaching a total of 78,100 BOP borrowers (70% of projected BOP households) and mobilizing savings in 187,100 voluntary deposit accounts (70% of projected total households) at the end of the project.

• The level of capacity building, institutional development and loan capital required in order to attain these targets is considerable. The business support infrastructure (training, audits, insurance, IT etc.) for financial services in Timor-Leste has not developed in the young, small and subsidized economy. Attracting high-quality business service providers to the market would contribute to a more sustainable able sector development and lower the cost of FSP operations. The present policy environment is fragmented, but presents no immediate constraints for financial service providers to develop and expand. There is much scope for increased coordination of investments, as good practices for funding of sector development takes root.

• The adoption by the Government of Timor-Leste of a shared vision policy statement and funding mechanism for the development of financial services to the lower segment of the market as an integral part of the financial and private sectors would expedite growth. This would also provide a framework within which the donor community supporting FSPs could confirm good funding practices and align current and future investments. The INFUSE programme proposes three interlinked results to support a dramatic scaling up of outreach to build an inclusive financial sector in Timor-Leste.

• The Ministry of Economy and Development (MoED)

The core target groups of INFUSE are:

• The Ministry of Economy and Development (MoED) will be supported with technical assistance as needed to facilitate the accomplishment of a national Policy/Vision Statement on Inclusive Finance and provide input to the next National Development Plan.

• The Banking and Payments Authority (BPA) as well as the Ministry of Economy and Development will be supported with flexible funding/technical assistance to study emerging trends such as the needed regulatory framework for mobile-banking, source short-term technical assistance, and draft, review and consult new legislation for the sector as needed;

• The wide range of financial services providers (FSPs) in Timor-Leste will have equitable access to a broad range of funding through the Fund for Inclusive Finance. Applications will be selected competitively, based on sound business plans and agreed performance targets; and

• The existing (and future) professional networks and associations, as well as providers of business support services to the financial sector will have equitable access to temporary and declining funding through a special window of the Fund for Inclusive Finance. Applications will be selected competitively, based on sound business plans and agreed performance targets.

• The ultimate beneficiaries will be the Timorese in general, and in particular the poor and low-income majority of the population, whose access to a broader range of appropriate and sustainable financial services will increase.

• The programme is subject to an independent evaluations (mid-term and final), managed by the UNCDF Evaluation Unit, to assess its overall performance, the outputs and outcomes produced against its initial targets, the impact it has brought or would likely to bring about with a focus on the progress toward sustainability of the FSPs, its relevance to the national context, and management efficiency. The evaluation will be forward looking offering lessons learned and recommendations to improve programme performance or national policy for the next phase of the project. The mid-term evaluation should be completed and available before the end of the first phase of the project to provide input to management of the phase II.

• Establishment of Microfinance Committee of Inclusive Finance (MCIF)

• Request for the applications from the FSPs;

• Assessment of applications and awarding the successful FSPs;

• Monitoring and Evaluation of the performances of awarded FSPs.