Welcome to the United Nations
Henri Dommel
Director of Inclusive Finance
UN Capital Development Fund
We cannot talk about economic development in Least Developed Countries without talking about agriculture. It underpins food security, employment, and exports in these countries.
Smallholder farmers that typically work on plots of land smaller than 2 hectares are the unsung heroes that make up the vast majority of the agriculture workforce. Despite limited access to markets and basic services like electricity, information, they plough through and try to make ends meet.
Nagayets, O. (2005). Small farms: current status and key trends. Paper prepared for the Future of Small Farms Research Workshop
In recent times, however, farmers say living conditions have even worsened. Case in point: Uganda’s National Household Survey in 2016/2017. Farmers are faced head-on with the effects of climate change and market fluctuation.
Technology, while not a panacea, has the potential to level the playing field for smallholder farmers. It can help improve productivity in yields, accumulate assets, access information, and more.
The technology is there. But bringing it to the last-mile is a different business proposition with unpredictable returns. For companies that are traditionally focused on quick returns, triple bottom line (social, environmental, and financial) is a nice-to-have but not a must-have. Companies that are geared towards the triple bottom line from the get-go do not get very far because capital markets prefer to invest in opportunities that have quick returns.
These companies need a nudge to see that there is tremendous opportunity to provide these products and services to smallholder farmers. Whether digital finance, solar or any other technology, smallholder farmers will pay for services if it is available, affordable, reliable and it offers them a real value proposition.
The United Nations Capital Development Fund (UNCDF), set up by the General Assembly in 1966 with a unique mandate to make investments in Least Developed Countries (LDCs), does just that. It “nudges” the private sector to go where they otherwise would not by providing de-risking capital and co-creating business models that has potential to be sustainable in the long-term.
In Uganda, Senegal, and Nepal, UNCDF works closely with a range of market actors from agriculture commodity off-takers that employ more than 150,000 smallholder farmers, large telcos, banks to fintech start-ups that incubate different ways of bringing digital financial services closer to smallholder farmers at scale. In Nepal and Uganda, we co-invest in solar companies that want to modernize farming through better irrigation, drying, and refrigeration powered by the sun.
The private sector will drive the future of off-grid solar energy and digital solutions. But like many innovations before it, public funds will play a key role in catalysing that future. Official Development Assistance (ODA) can overcome the capital gaps and invest in riskier ventures.
Benefits go beyond leveraging public funds. When asked, many companies we have invested in point out the challenge in building local partnerships or accessing and analysing data to understand market contexts. An individual company cannot solve these issues. With our existing local partnerships and pool of knowledge resources, we can provide the support needed for companies to succeed.
At the same time, UNCDF is leveraging its research and data capabilities so that we as market actors can be more data-driven in how we design and measure our product and service offerings for low-income people. For example, our year-long research on more than 500 customers of solar companies in Uganda provides insights on how people purchase and use solar solutions, thus offering insights on how companies can better market solar products to increase purchases. In Uganda, we also developed a financial inclusion dashboard that gives development partners real-time insight on the penetration and usage of mobile money in the country (at national, district and tower levels) using data records from the largest mobile network operators in Uganda. It enables UNCDF and other development partners to better identify digital penetration and usage and assess high-impact opportunities for smaller companies to focus their energy on.
Finally, our experience suggests companies need blended finance offerings – grants, loans, and guarantees - to satisfy the different growth stage of businesses. The UNCDF LDC Investment Platform is an important mechanism to meet this need by supplementing UNCDF’s grant instrument with loans and guarantees.
Never has the transformation towards sustainable and resilient societies been more possible. The technology and financing mechanisms are at our disposal. The private sector will lead the charge while ODA can act as “patient capital”. Most of all, the immediate benefits to rural communities make it a goal worth chasing.
