Development resources are shrinking as key donor nations revise their priorities and budgets. Official Development Assistance commitments are being cut back, delayed or redirected, placing international development organizations under unprecedented pressure to deliver results with fewer resources. It’s forcing all UN entities, large and small, to reassess. 

Senior UN representatives have been candid about this reality, including in these pages of UN Today. ODA from Development Assistance Committee member countries of the Organisation for Economic Co-operation and Development fell by 6.0% in real terms in 2024 and is projected to decline by a further 9-17% in 2025. UN agencies are grappling daily with the implications of tighter budgets, reduced voluntary contributions and heightened scrutiny over impact, sharpening the core question: how can the UN continue to deliver with less?

The answer lies in making every dollar in concessional finance work exponentially harder. While preserving its core purpose, public finance can unlock domestic capital and attract private finance, dramatically increasing the impact of the UN development system. This is precisely where the United Nations Capital Development Fund (UNCDF) comes in. 

A mandate for tough times 

UNCDF’s mandate is distinct within the UN family. It exists to mobilize and deploy capital for the world’s Least Developed Countries (LDCs), Small Islands Developing States and fragile settings. In short, markets that capital flows often bypass. The Sustainable Development Goal financing gap for the LDCs alone is considerably large at $246-285 billion per year, based on data from the International Monetary Fund. 

UNCDF specializes in deploying financial mechanisms that combine reimbursable investment grants, long-term, near-zero-interest-loans and guarantees to unlock larger pools of public and private finance to help close that gap. We aim to reduce risk, reward performance and crowd in additional investment, helping ensure that every dollar of scarce public finance works harder. 

Blended finance and the UN 

One of the most powerful tools in this context is blended finance. At its core, blended finance uses concessional public resources to attract commercial capital into sectors and geographies that would otherwise be overlooked. 

However, a closer look at the data reveals that only 6.1% of ODA and concessional private finance from major development banks went to LDCs on an annual basis between 2013 and 2023, according to UNCDF estimates based on the OECD creditor reporting system. Current blended finance solutions, when deployed by credit rated institutions, cannot always reach market segments that are considered sub-investment grade (C grade or unrated). The transaction sizes tend to be small, it’s expensive to deploy in such conditions given high uncertainty, and of course the risk profile is not aligned with that required for the expected returns that such institutions seek. According to Convergence (2025), most of the current blending within credit-rated institutions has been of public money blended with more public money. 

As a non-credit rated UN entity, UNCDF can absorb the risk others cannot and invest in early-stage and last-mile markets, first and foremost in LDCs, where commercial and development finance institutions are likely to be constrained. These markets are perceived as high-risk due to weaker or absent sovereign credit ratings.  

UNCDF is working with the UN system to catalyze more private finance to underserved markets by offering smaller, more flexible loans and guarantees. Ticket sizes are typically between $0.5m to $5m per transaction. Whether supporting local governments to invest in climate resilience or enabling small and medium-sized enterprises to access finance in developing countries, UNCDF’s blended finance solutions to crowd in private finance on the back of derisking capital are anchored in development outcomes.  

This matters because ODA alone, both at current and projected levels, cannot meet global needs. Lifting everyone out of poverty requires investment at a scale far beyond what public grants alone can provide. However, it is unrealistic to think of crowding in private sector finance without available public sector funding functioning as derisking capital. 

Working together 

Crucially, UNCDF does not operate in isolation. Its ‘value-add’ lies not in competing with other UN entities, but in augmenting their impact. By providing the financial architecture that others can plug into, UNCDF helps the UN system use public finance more catalytically and augment its impact. 

In practice, this means partnering with UN agencies that bring technical expertise, policy leadership or sectoral reach, while UNCDF supplies the financing and derisking tools that turn plans into investments.  

A moment of opportunity 

The current funding crunch is undeniably challenging. But it also offers an opportunity to reset how development finance is done. By embracing tools such as blended finance, and leveraging the complementarity of our mandates, the UN can remain ambitious even as budgets tighten and stretch the impact of each dollar even further. 

UNCDF’s role in this transformation is clear and laid out in its new 2026-2029 Strategic Framework. Its derisking capability, financial instruments investment expertise help unlock private and public finance in markets where traditional financial institutions may face constraints – effectively an off-balance sheet derisking vehicle to the traditional credit-rated, regulated financial institutions.  

UNCDF, in support of the UN system, goes first so that larger flows from credit-rated multilateral development banks, development finance institutions and, critically, domestic finance can follow and scale impact for those who need it the most. For UNCDF, and for the UN system as a whole, this is not a moment to retreat. It is a moment to engage, adapt and lead.