United Nations Capital Development Fund The Role of

United Nations Capital Development Fund The Role of Local Government in Rural Finance Kadmiel Wekwete Director, Local Development Practice Area International Forum on the Eradication of Poverty United Nations | 15 November 2006

Background § Linkages between local government and Rural Finance weak, and poorly articulated § Local Government focus is on rules, regulation and control; sometimes viewed as negative to promoting rural finance. § Local Governments viewed as taxing authorities and undermining local business.

Background Continued. § Rural Finance - part of the domestic financial system and tends to be fragmented, and is unable to meet the finance needs of the rural population. § Rural Finance refers to the provision of financial services to a heterogeneous rural farm and non-farm population at all income levels. § Rural communities lack secure and accessible deposit facilities and savings are held in cash or assets which are hard to mobilize.

Background § Conceptual and practical challenge of connecting local government and rural finance. § Connection is more evident in local economic development, seeking to transform the economic and social potential of places. § More specifically, LED provides a framework for linking LG and rural finance, through focus on enterprise development.

Local Development Framework § Empowerment through enhancing local governance § Devolution and improved public expenditure management § Enhanced Local Services Delivery § Financial Services Development § Local Economic Development

Addressing Rural Finance Challenges § High risks in the rural economy related to dominance of small scale agriculture § Access to borrower information impeded by lack of efficient transport, communications infrastructure and well functioning asset registries and databases § Poorly defined property and land use rights which undermine collateral for many of the rural households in the rural economy

The Role of Local Governments in Promoting Rural Finance § Organization and management of rural economies –steering local development § Provision of basic infrastructure and services and increasing “accessibility” § Organization of registry on land ownership with traditional authorities § Household Asset Registries for collateral purposes

Transforming the Role of Local Government § Transforming LG from passive administrative units to active development agencies § Building LG into accountable and measurable planners and implementators § Fiscal decentralization implemented § Focus on Local Economic Development

UNCDF Local Development Programmes § UNCDF LDPs support increased access to basic infrastructure (through LDF) and supporting service delivery (through LG recurrent expenditure). § Strengthen and empower LG; creating conditions for vibrant, pro-poor local economic development.

Vibrant LED? The Role of LGs? § To recognize that land property upon it are assets; § That to register these assets is the foundation for collateral; § Collateral is the key to accessing (even unconventional) microfinancing; § Micro-financing is the counterweight to public infrastructure/services provision.

Local Development Programmes § Next generation programmes to focus on importance of rural financial systems for local economic development. § Combine traditional focus on infrastructure / service delivery with business development and rural financial development.

The Bottom Line for UNCDF § The fusion of public with private investment – a major theme of Unleashing Entrepreneurship; and § The dynamic role of LG – embracing all sources of revenue (local; government; donors), to ensure success in its total performance.