Local Finance Initiative (LFI)

A key challenge in LDCs is to unlock domestic private resources to fund local infrastructure and services that have substantive impact on local economic development (LED). Even when local capital is available, banks are reluctant to fund local investments due to the perceived risks and lack of knowledge regarding this sector. LFI is designed as an investment mechanism and set of instruments to unlock domestic capital for infrastructure projects critical for unleashing the potential of local economies. It aims to bring supply and demand to an optimal level by reducing the perceived risks and transaction costs of financial services for all LED stakeholders and participants in the financial market. The overall outcome sought is to crowd in additional domestic and private capital for inclusive and sustainable LED. The aim is to structure and execute demonstration projects coupled with targeted capacity-building and build a national platform that enables the financing of local investments.

Implementation of these projects, identified through a participatory and inclusive process, will be supported by the provision of project development and financing support. Seed capital and credit enhancement support will be provided to jump-start the process of project identification, development and structuring of deals. Capacity-building activities will include training and the development of appropriate tools for public and private stakeholders. Impact measurement and performance tracking will provide benchmarking and information for replication. The effort will be to mobilize private financial resources from commercial banks and institutional investors through the selective leveraging of public resources. The limited public resources including ODA is leveraged by attracting private capital using financial structures and instruments that mitigate risks. This increases the effective use of scarce public resources, deepens private sector engagement, increases the capacities of local stakeholders and enhances domestic capital markets.

June 2016