Established in 1966 as a special purpose fund primarily for small-scale investment in the poorest countries, the United Nations Capital Development Fund (UNCDF) has come in recent years through intense, necessary and far-reaching changes. Today, UNCDF works to help eradicate poverty through local development programmes and microfinance operations. Through its focus on two areas of concentration, UNCDF has strengthened its identity and competence. That was the principal conclusion of the 1999 external evaluation of the Fund subsequently endorsed by its Executive Board in September 1999.

UNCDF is a member of the United Nations Development Programme (UNDP) group, and reports to UNDP’s Executive Board. As such, UNCDF works in close partnership with UNDP in areas ranging form joint programming to administrative and logistical support. The UNDP Resident Representative represents UNCDF at the country level.

The Fund derives its resources from voluntary contributions made by member states, and from co-financing by governments, international organisations and the private sector. UNCDF is committed to results-based management, combining quality programming with financially sound management, combining quality programming with financially sound management. The Fund produces concrete results through programmes that pilot innovative approaches to local development and microfinance for replication on a larger scale.

UNCDF recognises that finding new solutions means not only providing the infrastructure that is necessary for development- wells, rural roads, bridges, markets, schools, health centres- but also supporting the conditions for accountability, change and growth that continue beyond the duration of any one project. Good governance and participatory development are central to this strategy. UNCDF encourages the participation of individuals and community groups in local planning processes and formulates its programme activities with a wide range of partners, including local authorities, non-governmental organisations and field representatives from various UN agencies and other multilateral and bilateral organisations.

UNCDF relatively small size gives it the flexibility to finance innovative and sometimes risky new initiatives to respond and adapt quickly to local needs and to experiment with pilot programmes. It also enables to bring capital assistance to a level that larger donors often cannot reach. Though UNCDF is active in Asia and Latin America, at least two-thirds of its work and budgets are spent in effort to improve the living conditions of the rural poor in sub- Saharan Africa. In an effort to increase the impact of its programmes, the Fund decided in 1998 to concentrate its future programme in 15 " concentration countries": Bangladesh, Benin, Bhutan, Burkina Faso, Cambodia, Ethiopia, Guinea, Haiti, Malawi, Mali, Mozambique, Nepal, Senegal, Tanzania and Uganda.

Local governance

UNCDF promotes poverty reduction in direct partnership with local authorities and community institutions. UNCDF supports programmes which promote a decentralised participatory approach to the provision of basic infrastructure and the management of natural resources, in order to ensure that local investments match local needs, are managed efficiently, and are sustainable in the long run. UNCDF uses seed capital to develop local institutional capacities in planning and financial management by coupling technical assistance with real resource management responsibilities.

UNCDF invests with the poor by supporting the development of reliable and sustainable microfinance institutions (MFIs). Its Special Unit for Microfinance (SUM) supports experienced practitioners to help develop a range of financial services for the poor. These services enable poor households to build assets, mitigate risks and reduce their vulnerability. MFIs encourage and promote self-employment by placing start-up funds for income-generating activities within the reach of micro entrepreneurs. SUM supports the MicroStart programme, which seeks to innovate in the development of new microfinance ventures by supporting young and promising financial operators in a sustainable manner. SUM also supports the MicroSave programme, which promotes saving systems in Africa that are secure, flexible and appropriately regulated and supervised.

First project began: 1981

Total portfolio amount: US $ 16.5 million

In the north of Bangladesh, in the province of Rangpur, UNCDF partnered with the Grameen Krishi Foundation (GKF) to improve the access of landless and small farmers to land and water through deep tubewell irrigation systems and to improve the provision of extension services. This project also benefited women through the expansion of a credit program and farmers through the development of marketing channels for surplus food crops and alternative cash crops.

In contrast to past, highly centralised activities, this local development fund project will attempt tot demonstrate how local governments can be used to further local development. As with all new UNCDF interventions, this one began with a thorough community consultation process that involved an investigative formulation team that assessed local capacity and a study of the local situation in terms of poverty, infrastructure, socio-economic indicators and local government organisations. It then involved two participatory stakeholder workshops, at the district and national levels, where the local communities determined the scope of the project. The project is expected to provide a sound basis on which the government can develop national policies and procedures for the planning allocation and management of decentralised services nation-wide. It is also expected to provide valuable lessons for similar projects in other countries.