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

 Linkages between local government and Rural Finance weak, and 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

 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 Continued.

 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. Background

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

 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 Addressing Rural Finance Challenges

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

 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 Transforming the Role of Local Government

 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. UNCDF Local Development Programmes

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

 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. Local Development Programmes

 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. The Bottom Line for UNCDF