Fmdv de log financing sd gs subnational level

1. Local Financing, Local Revenue Mobilization:
Emerging Strategies, Mechanisms & Partnerships
for Financing the Implementation of the SDGs
Carlos de Freitas
Director of Programs
FMDV-Global Fund for Cities Development
cdefreitas@fmdv.net
On the basis of Research & Knowledge by
Dr. Barbara Samuels
Executive Director,
Global Clearinghouse of Development Finance
barbara@globaldf.org

2. 34. We further acknowledge that expenditures
and investments in sustainable development are
being devolved to the subnational level, which
often lacks adequate technical and technological
capacity, financing and support. We therefore
commit to scaling up international cooperation
to strengthen capacities of municipalities and
other local authorities.

3. Sub-National First-Time Recognition in Financing for Development
(Addis Ababa Action Agenda – Para. 34)
• Sub-National Breakthrough Recognition – capacity, financing, support:
“We further acknowledge that expenditures and investments in sustainable development are
being devolved to the subnational level, which often lacks adequate technical and
technological capacity, financing and support.”
• International Cooperation/Capacity-Building/Expanding Sectors to Transport/Energy:
“We therefore commit to scaling up international cooperation to strengthen capacities of
municipalities and other local authorities. We will support cities and local authorities of
developing countries, particularly in least developed countries and small island developing
States, in implementing resilient and environmentally sound infrastructure, including energy,
transport, water and sanitation, and sustainable and resilient buildings using local
materials.”
• Recognition of Revenues:
“We will strive to support local governments in their efforts to mobilize revenues as
appropriate.”
• Connecting National Sustainable Development Plans to Local Planning:
“We will enhance inclusive and sustainable urbanization and strengthen economic, social
and environmental links between urban, peri-urban and rural areas by strengthening
national and regional development planning, within the context of national sustainable
development strategies.”

4. Sub-National First-Time Recognition in Financing for Development
(Addis Ababa Action Agenda – Para 34) - continued
• Recognition of Debt:
“We will work to strengthen debt management, and where appropriate to establish
or strengthen municipal bond markets, to help subnational authorities to finance
necessary investments.”
• Recognition of DFI lending/risk mitigation:
“We will also promote lending from financial institutions and development banks,
along with risk mitigation mechanisms, such as the Multilateral Investment
Guarantee Agency, while managing currency risk.”
• Recognition of Local Stakeholder Engagement:
“In these efforts, we will encourage the participation of local communities in
decisions affecting their communities….”
• 2020 Commitment – Increase Capacity and Implementation:
“By 2020, we will increase the number of cities and human settlements adopting
and implementing integrated policies and plans towards inclusion, resource
efficiency, mitigation and adaptation to climate change, and resilience to disasters.
We will develop and implement holistic disaster risk management at all levels in line
with the Sendai Framework. In this regard, we will increase the number of cities
and human settlements adopting and implementing integrated policies and support
national and local capacity for prevention, adaptation and mitigation of external
shocks and risk management.”

5. Political Imperative: Delivering Urban Infrastructure with
Effective Private Sector Mobilization
• Delivering on urban infrastructure is dependent on the quality and scope of
private sector engagement
 Expertise, Services & Equipment: Unleashing innovation and technological change as
catalysts for economic growth, social transformation and improved standards of living
 Capital (debt and equity; includes Small and Medium-Sized Companies – SMEs, cooperatives,
local associations, national & international companies)
• Quality and scope of private sector engagement in turn depends on an
enabling environments and targeted inputs from the public sector
 Requirement for enabling policies and inputs that deliver on urban services and meet
sustainability/bankability/development criteria
 Requirements for Targeted Public Sector Interventions that mobilize private sector expertise
and capital
• Political Imperative - Failure not an option
Climate change and lack of urban essential services result in:
 Inability to develop the local private sector
 Inability to access markets & failed supply chains
 Ultimately lack of jobs, civil strife, terrorism, failed governments

6. The Challenge:
The Daunting Gap between Vision & Reality
Subnational Finance is perceived as integral component of the new global financing
framework but local, metropolitan and regional governments often cannot access the
funding and financing needed for projects that provide essential urban public services.
1. Lack of funding & enabling environments
• Limited funding from national government (underfunded subnational mandates)
• Limited own source revenue
• Lack of access to private markets (when existing)
• Limited availability of domestic long-term debt capital
• Lack of enabling regulations, laws, capital markets, institutional frameworks, etc.
2. Need for funding and technical support in identifying & developing viable projects
• Lack of empowerment & technical capacity
• Need funding for project development (often up to 12% total project costs)
• Need risk mitigation to address lack of creditworthy off takers; weak frameworks &
processes (institutional, regulatory, legal)
• Need to address project “viability gaps” where users cannot pay cost of service
(subsidized services are global norm)

7. 3. Many local “sustainable” projects are small in total cost (less than US$ 15 million)
• Not bankable (lack equity, perceived as risky, insufficiently developed)
• Lack the scale needed to attract and secure financing
• Have high transaction costs
The Challenge: The Daunting Gap between Vision & Reality -
continued

8. Project sponsors need to define,
develop, and finance sustainable and
bankable infrastructure projects and
entities.
Providers of expertise, equipment
and capital need to find projects &
their sponsors, interest depends on
targeted public support.
Addressing the Challenge at the Investment Entity:
Matching Demand with Supply
SUPPLY OF
PRIVATE
EXPERTISE &
CAPITAL
Providers of Services,
Equipment, Finance
DEMAND FOR
FINANCE &
EXPERTISE
Public and Private
Project Sponsors
Sustainable
Bankable
Projects/Entities
Closing the
BANKABILITY
GAP:
Identifying
Required Risk
Mitigation, other
Interventions
& Partners

9. • Annual SDG Funding Gap of US$ 2.5 Trillion (UNCTAD)
 Energy funding gap alone US$ 1 trillion (International Energy Agency)
 Priorities for action need to be renewable energy, climate smart and new technologies,
expanded models for agriculture and health, innovative business & finance models
• Failure to Date – In 2015 Private Sector Infrastructure Finance Only
US$ 112 Billion (4% Annual SDG Funding Gap) & Highly Concentrated
(World Bank PPI Database – incl. private participation in low/middle income countries)
 2015 Private Finance Concentrations:
 76% global investment in Europe, Central Asia and Latin America/Caribbean:
Europe and Central Asia 44 %, Latin America & Caribbean 32%, East Asia & Pacific 12%, Sub-
Sahara Africa 6%, South Asia 5%, Middle East & North Africa 2%
 Five countries accounted for 66% global investment (US$ 74 billion):
Turkey (US$ 45 billion - 40% global investment), Colombia (US$12 billion), Peru (US$7 billion),
the Philippines US$6 billion), Brazil (US$ 5 billion)
 Sector Concentration: Transport (63%), energy (34%), water & sewerage (4%)
 Large Projects: Only 350 projects financed (40 projects greater than US$500 million); average
size US$ 419 million (excluding Turkey’s airport at US$36 billion)
 Lack of finance
for priority lower income countries; sectors such as water/sanitation; “missing middle” and
subnational smaller projects
Overall Performance to Date:
Huge Funding Gaps in Mobilizing Private Sector Finance

17. Illustrating..
• Country Implementation Frameworks
• Subnational Pooled Financing Mechanisms
Other Entry Points:
• Relocalization of Economy & Finance
• Taxation and Incentives
• Green, General, Revenue Bonds
• Avoided Costs/New Business Models
• Technical Assistance by and for LMRGs

18. FMDV STRONG FOCUS - COUNTRY IMPLEMENTATION FRAMEWORKS
Program co-led together with GlobalDF
The envisioned project modules include carefully designed transformational interventions aimed at
leap-frogging and fast-tracking the required increased effectiveness in sustainable development
planning, increasing the pipeline of bankable projects and increased finance, as summarized below.
5 steps (see details in next slides)
1/ Establish Knowledge & Finance Hubs (“FinHubs)” of skilled professionals (international, regional,
national, local)
2/ Building a Local Marketplace
3/ Governments & Development Partners Provide Targeted Support
4/ Pilots of Demonstration Projects Mobilizing Local Finance with Innovative Finance Techniques
5/ Performance Tracking and Reporting
Note: There would be directories of projects in development (with information on purpose, expected results,
available project documentation, project development needs, contact of responsible person); Directories of
providers (Public, Private) on Expert services, Equipment, Project preparation facilities, Risk mitigation
(performance, credit, demand, off-take, etc), Finance Providers (covering grants, debt, equity with
criteria/process).

19. 1/ Establish Knowledge & Finance Hubs (“Hubs)” of skilled professionals (international,
regional, national, local)
The lack of available and affordable skilled professionals required to select, develop, and
finance projects (such as planners, financial advisors, project finance lawyers, sector experts,
environmental engineers, accountants, etc) is an imposing impediment undermining the
development of bankable SDG projects.
The establishment of “Hubs” can fast-track the needed supply of such experts to provide expert
fast-track support for the development of National and Subnational Sustainable Development
Plans and the development and finance of priority projects.
Hub experts can also provide open independent expert advise to government officials (national
and local). Important components of the Hubs are the establishment of global expert support
groups and peer-to-peer sharing of information and experiences.
2/ Marketplace
To successfully identify, develop, and finance projects, all countries – developed and
developing – need to have dynamic “marketplaces” that link the “demand” of projects to the
“supply” of expert services, equipment, and finance. In fact, development effectiveness is
currently impeded by knowledge and coordination gaps between project sponsors and
development partner programs, and between development partners themselves. To jump-start
this needed marketplace development marketplace, an on-line “Project Development
Marketplace” could be launched to expand the development of localized country and regional
marketplaces, activating the needed identification of needs and easy access to public and private
providers of services, products, and finance.

20. 3/ Governments & Development Partners Provide Targeted Support
The country implementation framework needs to set forth the required changes in national and
subnational enabling environments.
Specific processes that need to be streamlined include: developing cohesive national sustainable
development plans, coordinating with subnational plans; improving the capacity of National
Governments, Local Authorities, development partners, and foundations to coordinate in developing
bankable projects that can access private finance (e.g., project selection and development, risk
mitigation, subsidies, negotiation); empowerment of Local Authorities (e.g., coordination in
developing national and subnational sustainable development plans, ensuring adequate, timely, and
predictable intergovernmental financial transfers; ability to collect own source revenue, negotiate
and enter into PPPs; bankruptcy laws that ensures no contingent sovereign liability; etc.); and
support scaling up of financial instruments that have successful track records and innovative finance
(e.g., project finance, pooled finance, contingency refinancing facility, etc.).
4/ Pilots of Demonstration Projects Mobilizing Local Finance with Innovative Finance
Techniques
Formulating sustainable development plans and marketplaces can take years of consultation, but
demonstration pilots can provide momentum and scalable models for replication. It is also critical to
develop high-impact projects that are financed using local capital. In selecting projects, “quick wins”
are needed to create momentum and confidence, as well as feedback back on how to improve
coordination processes, business models, and finance structures.

21. 5/ Performance Tracking and Reporting
To capture successes, lessons learned, secure support and build market confidence, momentum and
learning, there needs to be an on-line “Country Project Tracking Application.”
This technical on-line tool would provide a simple framework for documenting transparently the
specific status of projects through their development cycle, covering critical project development
milestones, such as project concept note, prefeasibility study, development of business plan,
completion of financial model, creation of legal structure, securing of initial working capital and
equity, securing of legal access to land for project site, vendor negotiation and selection, securing of
risk mitigation, financial close, construction, and operation.
User-friendly reports on Project Performance would include the status of projects, impediments
(type/solutions), amount of public investment compared to private capital (leverage), reported
development impact, etc.
Information would be disclosed openly to local stakeholders, the government, development partners,
foundations, potential investors and providers of services/equipment, capital (public, private).
Modern visualization techniques would be used, enabling the use of the data (such as interactive
maps and detailed project summaries), enabling cost-effective streamlined coordination between
project sponsors, governments, development partners, foundations, and private sector providers of
services, equipment, and capital.

22. Subnational Pooled Financing Mechanisms
Long History > 100 Years of Mobilizing Private Finance – 1/2
• Since 1898 over US$ 1 trillion mobilized for large & small local projects in Europe
and United States, financing over 40,000 local projects
 Europe - Use of Local Government Funding Agencies:
 In 2014 alone, the Scandinavian and Dutch agencies issued bonds in various capital
markets for a total estimated value of €70 billion (specific asset class very much in
demand in international markets)
 Recent: New Facilities - France, New Zealand; Interest - South Africa
 US: Use of State Bond Banks and State Revolving Funds (water, energy, etc.)
 New York State Environmental Facilities Corporation –US$24 billion for over 2,000
projects (1970)
 US Water Over last 25 years, over 30,000 subnational publically-owned water
projects financed by US$100 billion (US$25 billion in federal grants matched 20% by
state grants, leveraged by US$ 65 billion in private finance)
• Since 2002 over US$ 2.6 billion mobilized for projects in developing countries
Mexico (US$1.1 billion), South Africa (US$744 million), India (US$458 million),
Colombia (US$215 million), Philippines (US$179 million), Czech Republic (US$44
million), Kenya (US$4 million)
Source: “Creating the Local Financing Framework for Sustainable Development Goals: The Potential Catalytic Role of Subnational
Pooled Financing Mechanisms,” an AFD & FMDV Policy Paper written by Barbara Samuels & launched at 2015 FfD Conference

23. Subnational Pooled Financing Mechanisms as Key Point in
Implementing Sustainable Development Agendas:
Greater Benefits for Sub-National Governments & SDGs - 2/2
1. Mainstream “blended finance” instrument to “crowd in” private sector
for micro-, small-, and medium-size projects that cannot normally access private
finance (institutional investors, social impact, foundations, SWFs, diaspora, etc)
2. Address urgent needs for climate smart & equity projects:
Sustainable climate smart approaches, lack of equity (social, gender, etc.) and deliver
“last mile” services to poor citizens in rural and underserved areas
3. Used to catalyze the new operational frameworks, building:
 Local capital markets in developing countries
 Required technical structures and processes
 Capacity to access finance for local infrastructure & essential services
4. Serve as local infrastructure development agencies
 Provide a prudent financial framework using investment criteria
 Ensure the prudent use of finance by local and regional governments in local
infrastructure and capital expenditures

24. • Relocalization of economy and finance
“Short circuit of economy and finance”
Crowdfunding, and participatory budgeting (eg with participatory
budgeting, we see better maintenance of infrastructure, reduced
maintenance costs, co-financing by the inhabitants of infrastructure and
equipment, effective consent to the tax compliancy)
"Mini-bonds": public offering based on local savings (typically more
expensive than the use of banking and financial markets BUT recreates
logics of ownership of the territory’s future by the inhabitant, new resources
for local businesses / Investment in the real economy, reducing "leakage" of
local savings to large urban centers with high financial performance,
creation of new savings products for the middle or poor classes, educational
value on finance logics, strengthening local banks)
Ex / Jozi'Bonds of Johannesburg, South Africa, to fund development
programs while providing dynamic savings for people unaccustomed to
these types of funding resources)

25. Cooperative banks and community development banks (resilience of these banks that invest in the
real economy and cautiously, governance and cooperative logics, innovation in commitment,
financial products adapted to local contexts, interventions for vulnerable populations)
Ex / the French Crédit Coopératif has created the concept of Voluntary Contribution on Exchange
Transactions (CVTC). The aim is to ensure stable funding for development aid. Since 1 March
2011, the CREDIT COOPERATIF reverse to recognized players in the international development
assistance field 0.01% of total interbank foreign exchange transactions processed - about 100,000
euros / year).
+ Examples of Community Development Banks in Brazil or USA.
Green local currencies (change behaviours, reduce the costs of public services, create "loops" of
economic and financial solidarity at the local level between stakeholders and strengthens value
chains and short circuits between consumer and producer of goods and services)
Ex / Several historic and actual or foreseen examples: Curitiba, Brazil, Rotterdam, Netherlands,
cities in Korea, in EU (Bristol, Barcelona, Chiemgauer, etc.)
But also national example (to show that the example is not just a fantasy or toy):
Eco Points, one of the Japanese devices stimulating eco-purchases and building energy
performance of dwellings. This “rewarding" complementary currency, issued between May 2009
and March 2012 for the eco-purchases part to the amount of 693 billion units, has allowed,
according to the Government 5 trillion yen in economic benefits. They would thus have stimulated
the purchase of 19.79 million flat screen TV, 1,330,000 air conditioners and 1,010,000
refrigerators, totalling about 2.6 trillion yen.
The carbon economy is estimated at 2.7 million of CO2 Teq per year.
Furthermore 320,000 jobs were maintained or created.

26. Local carbon markets (Tokyo in the first place - result: 23% emissions reduction in 2
years for companies included in the program for targets up to 6 to 8% - now extends to
China as Beijing, Shanghai , Chonquin and other cities) - exchange of closed loop
systems in the country, inciting change, energy efficiency, LMRGs support through
technical assistance and strong support to the most polluting / issuers + benefits
New economies and new technologies: circular, collaborative, smart (but still require
numerous regulatory or legislative adjustments and the development of converging
standards and methodologies).
Renewable Energy Production Cooperatives combining public resources and citizens
commitment & savings, decentralized/off-grid energy opportunities (cost reduction,
new setting of management models), etc. creating more resilience and generating
revenue for investment in other public/community service provision.
Creation of Territorial Endowment Fund (based on social and environmental
responsibility of local businesses) allowing for a diversification of local resources for
investment.
• Taxation & Incentives
Innovating through green taxes (polluter pays, redirecting consumption and production
patterns), taxes or other methods of intervention via the incentive for private or
institutional investors to enter the market of subnational finance (see

27. • Green, General Obligation, Revenue bonds (+ see retail bonds/Mini Bonds reference)
(difference of opportunities for different contexts and domestic markets - not for everyone -
see Jo'burg experience, the first African Green Bond issuer) – here there is an important push
to implement strong skilled Finance Team within local governments + get a sufficient
market of advisory companies able to accompany LMRGs in the processes (understanding
specifics of LMRGs)
• Technical assistance by and for LMRGs
FMDV is one example of unique Alliance of LMRGs in order to get an operational &
political instrument dedicated to these matters but also: the Project Preparation Facilities
in Climate Change adaptation and mitigation under discussion/implementation within city
networks (C40, R20) and project finance pipelines (TAP program ICLEI).
They are demonstration of LMRGs’ and their networks’ expertise to overcome the issue of
local capacity of public administration + the targeted decentralized cooperation on green /
climate / resilience (technical assistance, exchanges peer to peer)
• Work on planning, and the concepts and mechanisms for "avoided costs" and change
in consumption and production patterns/sector-based business models that allow for
huge amount of savings and operating and maintenance costs for local infrastructure
(energy efficiency, circular economy, etc. via retrofit funds or third party financing) for the
reinvestment of savings in deficit budget lines or in need of investment / subsidies.
Also see references to oriented/conditioned Local Procurement. Etc.