Alliance of Subnational Development Banks in Latin America
Objectives of the Alliance of SDBs in Latin America
Following the Finance In Common Summit held in November 2020, the opportunity of creating a SDBs Alliance for Latin America has been led by the Banco de Desenvolvimento de Minas Gerais (BDMG), the French Development Agency (AFD), the Global Fund for Cities Development (FMDV) and the Institute for Sustainable Development and International Relations (IDDRI) with the following objectives:
- Align their initiatives, investments, and portfolios with the 2030 Agenda and its sustainable development goals (SDGs) and the Paris Agreement on climate;
- Promote sustainable investments through portfolios of urban and territorial development projects and boost the financial urban and municipal markets;
- Develop a strategic space for dialogues with peers, development institutions, governments, municipalities, and technical and financial partners in the region;
- Enhance the strategic role of SDBs and the contribution of the Alliance to the Global Agendas in international fora.
The Latin America Alliance represents the second regional chapter of the Global Alliance of SDBs after the Alliance for Africa has been created in 2016.
Presentation of the Alliance Steering Committee
The Alliance as multi-stakeholder initiative, is governed by a Steering Committee that is composed of representatives of the following constituencies:
- Subnational Development Banks and their associations,
- Development Finance Institutions,
- Local governments networks
- Research and academic institutions,
- International organizations,
- The Secretariat, as a facilitator.
Enhancing the strategic role of Subnational Development Banks to finance the implementation of the Global Agendas in Latin America cities and territories
The global agendas adopted in 2015, especially the SDGs and the Paris Climate Agreement on Climate recognized the strategic role of Local and Regional Governments towards their achievement. It is acknowledged that 65% of the SDGs may not be fully achieved without the involvement of urban and local actors. Moreover, SDG 11 and sustainable urbanization are a recognized as a key entry point to accelerate the implementation of the global agendas during the “Decade of Action” through until 2030.
However, while the global financial system provides the required amount of resources for the SDGs, these resources have not been channeled at the necessary scale and speed within the Agenda’s proposed time frame. Before the outbreak of the Covid-19 pandemic, UN-Habitat estimated a $5.8 trillion gap between the investment in infrastructure required to achieve the SDGs in the ‘Decade of Action’ and what was likely to be committed. Less than 10% of available global climate fund architecture disbursed were prioritized for locally focused climate investments. The COVID-19 crisis has exacerbated the dramatic underfinancing of Local and Regional Governments and urban and territorial policies.
Closing this financial gap and the systemic failure of local and urban financial markets is therefore a critical prerequisite to implement the global agendas.
Because of their unique mandate, Subnational Development Banks (SDBs) have been recognized by the international community as key stakeholders to contribute to close the financial gap and to localize SDGs. In this regard, the United Nations Framework Convention on Climate Change (UNFCCC) endorsed multiannual targets toward 2030 aiming at strengthening the role of SDBs though the development of a Global Alliance of SDBs, supported by the Global Fund for Cities Development - FMDV.
National Development Banks (NDBs)/SDBs are national public or public-private institutions mandated, partially (NDB) or exclusively (SDB) for providing funding and financing to local and regional governments for public services provision and investments in infrastructure projects, through a large panel of instruments from technical assistance, guarantees, credit enhancement, intergovernmental transfers, fiscal equalization, and debt; at concessional or market rates; directly or through commercial banks.
They have very high financing capacity potential, that is estimated for NDBs at least five times the volume of multilateral development banks. They can offer a range of specific benefits, including local currency financing and knowledge of specific local markets. They thus have a key role to play in steering and providing financing in particular for sustainable urban infrastructure.
For these reasons, SDBs are strategic institutions that can act both as Policy Makers and Market Makers for just local urban transitions.
- As Policy Makers, through their strategies and as implementing institutions of national policies on urban development, SDBs contribute to develop and drive national policies aligned with the goals of the global agendas, by integrating qualitative and quantitative objectives, standards and reporting methodologies in their operating procedures. Acting more commonly under ministries in charge of decentralization, local development or urbanization, they represent efficient instruments to orient, connect and align national and local policies.
- As Market Makers, they contribute to consolidate the local and urban financial markets, developing the enabling environment for urban investment, improving local capacities to formulate investment worthy projects, developing strong pipeline of projects, encouraging blended finance and partnering with international, national and private financial institutions
However, institutional and financial barriers still prevent SDBs in reaching their full potential. On the one hand, SDBs are in demand of diversifying their resources through mobilizing better credit lines, sectorial funds and investment from DFIs, private investors and accessing to the capital markets. On the other hand, they explore ways to diversify and improve their services offered to Local governments and stakeholders: project preparation facilities, financial instruments, risks mitigation & guarantees products, green/SDG bonds. Finally, they need to harmonize their practices and develop common norms and standards to better align their action with the SDGs and the Paris Agreement on climate.
They need to better understand the related existing opportunities, solutions and and consolidate their strategic dialogues with their ecosystems of partners, from national and local governments, DFIs, investors, to academia and think tanks.
Launching event of the Alliance – 6 April 2021
The Alliance's Steering Committee has decided to officially launch the Alliance in order to announce its creation and to offer the possibility to Latin American SDBs to join the initiative. This event, which is part of the Finance in Common initiative, will take place on April 6, 2021 at 16:00 Paris time and will be opened by the Chief Executive Officer of AFD, Rémy Rioux, and the President of BDMG, Sergio Gusmão Suchodolski.
During this high-level event, the Alliance will be officially launched and its objectives and activities discussed. For more information, please refer to the event page.
Publications & Research
Paper on the role of Subnational Development Banks in financing an urban and territorial resilient post-covid recovery, presented during the second edition of Finance in Common Summit on 19-20 October 2021
- Paper on the role of Subnational Development Banks in the financing of SDG’s, presented in the 14th AFD International Research Conference on Development
- Policy Paper published by the Policy Center for the New South high lightening the key aspect of resource mobilization for sustainable development projects on the ground
- Blog post within IDDRI platform on reconciling recovery and sustainability on the ground
- Article published by the Americas Quarterly about the importance of considering SDB's as a key aspect on COVID-19 response strategy
- The Climate action pathways endorsed by the Marrakech Partnership for Global Climate action, the multi stakeholder coalition led by the COP HIgh level Champions and UNFCCC
- Endorsed targets on the role of SDBs to catalyse climate finance in the Human Settlement Pathway - See Action table p 23.
- The Global alliance of SDBs supported by FMDV is a key component of the LUCI initiative (Leadership for Urban Climate Investment) supported by the German government launched during the 2019 United Nations Secretary General Climate Summit.
- Study published by IDDRI on scaling up public development banks’ transformative alignment with the 2030 Agenda for Sustainable Development
- Study published by IDDRI on reconciling recovery and sustainability on the ground: the role of subnational public development banks
- Study published by IDDRI on the role of Public Development Banks in supporting the post-COVID-19 crisis recovery in emerging and developing countries:
- Article published by IDDRI on Public development banks: gateways to transformative SDG financing