Money where it matters: local finance to implement the Sustainable Development Goals and Paris Agreement

IIED is working to highlight the importance of decentralising development and climate finance – to make sure that funding gets to those that need it most. The institute is also working with local groups and agencies to build their ability to access and manage financial resources.

The local dimension

The most effective way to reduce poverty and respond to climate change varies by location. This means that local actors – local governments, community organisations, NGOs, micro-enterprises and others – have a critical role in sustainable development.

They are best placed to know local concerns and priorities, whether an improved water supply, access to clean energy for cooking or microcredit after an environmental disaster. However, knowledgeable local actors too often lack the finance, authority or voice to act effectively.

Most barriers are upstream: only a small proportion of development finance and public resources reach local governments. An even smaller share is channelled to community organisations or small businesses.

Where money is invested in low-income and other marginalised communities, the intended beneficiaries often have little or no say over how funds are spent. If vulnerable communities are to become more resilient and prosperous, more finance must reach the local level and local actors must have more influence over how it is used.

Why act now?

The Green Climate Fund (GCF) was established by 194 governments to limit greenhouse gas emissions and support climate change adaptation in developing countries. The fund has more than US$10.3 billion to spend, with more to come – but a study by IIED and HIVOS showed that most climate funds still focus on large-scale investments rather than local community projects.

Fulfilling the Paris Agreement on climate change, the Sustainable Development Goals and the Addis Ababa Action Agenda on financing development will require strong action at the local level.

To achieve this, the GCF needs to work with ministries of local government and local organisations to ensure climate finance gets down to the local level. Local organisations need to be included in decisions about how money is spent and have enough funding to act effectively. Ensuring that funding is accountable to local communities as well as external donors will require significant changes to the way that international aid is spent.

What is IIED doing?

Drawing on more than 25 years of work on local finance, IIED is building international awareness of the benefits of decentralising finance, and building local capacities to access and manage those resources.

We continue to support specific initiatives and are currently partnering with local and national actors in Kenya and Tanzania to channel finance to the local level.

Building the evidence base

We are working with national governments, civil society and the private sector to review the successes and challenges of a range of different local financing mechanisms, including community-managed urban funds, devolved climate funds and finance for decentralised energy access.

We are identifying the architectural reforms that will increase the flow of climate finance to the local level. We are also developing and applying a methodology to find out how much development and climate finance actually flows to the local level.

Making the case for going local

We are building political support for locally-led adaptation in both national and international climate change communities. We are working with local groups and agencies to help them develop and strengthen relationships with national government departments.

With improved knowledge and relationships, national governments and international donors can work together to explore ways to deliver resources to local groups and agencies.

South-South learning

IIED will support South–South exchanges between countries where finance is being effectively devolved and countries where decentralisation of finance is still emerging. Sharing knowledge and experience will allow a wider range of government and community organisations to tackle the barriers to local-level finance.

Money where it matters

In December 2016, IIED hosted a two-day event entitled 'Money where it matters'. Financiers, decision makers, practitioners and researchers came together and examined the case for extending finance to the local level.

Additional resources

Good climate finance guide: lessons for strengthening devolved climate finance, Marek Soanes, Sejal Patel, Feisal Rahman, Barry Smith, Dave Steinbach (2020), Working paper

Closing the learning loop in locally led adaptation, Barry Smith (2020), IIED Briefing, 4 pages

Calling for business unusual: mechanisms for delivering change, Marek Soanes (2020), IIED Briefing

Reimagining the climate finance system with digital technology, Sam Greene, Marek Soanes, Anna Walnycki (2019), IIED Briefing

Calling for business unusual: reforming climate finance, Clare Shakya, Marek Soanes, Barry Smith (2019), IIED Briefing

Money where it matters: financing the Sustainable Development Goals and Paris Agreement through local finance, Sian Lewis, Clare Shakya, Paul Steele (2017), IIED Event Report

Money where it matters: an emerging agenda for local finance, Paul Steele, Clare Shakya (2017), IIED Reflect & Act

Going local: fast tracking climate finance to the most vulnerable, Neha Rai (2017), IIED Backgrounder

Delivering real change: getting international climate finance to the local level, Marek Soanes, Neha Rai, Paul Steele, Clare Shakya, James MacGregor (2017), IIED Working Paper

Local level finance: community-led contributions to delivering urban development, Wayne Shand (2017), IIED Briefing Paper

The Akiba Mashinani trust Kenya: role of a local fund in urban development, Jane Weru, Patrick Njoroge, Mary Wambui, Regina Wanjiku, Jacinta Mwelu, Ann Chepchumba, Evans Otibine, Omondi Okoyo, Tabitha Wakesho (2017), IIED Working Paper

Taking money to making money: SPARC, NSDF and Mahila Milan transform low-income shelter options in India, Sheela Patel, Aseena Viccajee, Jockin Arputham (2017), IIED Working Paper

Money where it matters: how to deliver finance to the local level, blog by Sian Lewis, 2016

Local development from global finance: how to extend and deepen the impact of 2030 development finance, Anna Walnycki (2016), IIED Working Paper

Where will the money come from? SDI and local level finance, Joel Bolnick (2016), IIED Working Paper

Remote but productive: using energy access investments to catalyse enterprises and income in Tanzania's rural communities, Sarah Best, Ben Garside (2016), IIED report

Unlocking barriers to financing sustainable SMEs: uphill struggle or attainable ambition?, Isilda Nhantumbo, Xiaoting Hou Jones, Anna Bolin, Geraldine Warren (2016), IIED Briefing Paper

Leave no one behind: finance flows for decentralised energy access in Tanzania, Erneus Kaijage, Shukuru Nyagawa, Sarah Best, Remigi Cosmas, Suzan Temba, Benjamin Mtwanga, Novetha Mahanga (2016), IIED Report

Local-level finance: improving the accountability and effectiveness of urban development programmes, Wayne Shand (2016), IIED Report

Local development with global finance (2016), Project info