Economic Development

Human-centred design market scoping: how we can drive private finance to impactful projects in the Least Developed Countries

January 20, 2021


Human-centered design market scoping: how we can drive private finance to impactful projects in the Least Developed Countries

January 20, 2021

Xavier Michon

Deputy Executive secretary of the UN Capital Development Fund

Xavier Michon was appointed as deputy executive secretary of the UN Capital Development Fund (UNCDF) in late 2014. As part of his duties, he plays a critical role to support the executive secretary in providing leadership and shaping the strategic vision and direction of the organisation. He provides direct oversight to the development of the programme of work and plays an active role in the implementation of UNCDF’s capital development mandate and management of the organisation.

Unleashing the potential of frontier markets requires a profound shift away from old paradigms and towards a new mindset in which investors take a holistic view of investing, supported by ecosystem thinking and experience on the ground.

As January 2020 ushered in the Decade of Action to achieve the Sustainable Development Goals (SDGs), the development finance community was hopeful for a much-needed evolution in global markets. With innovative finance models coming online, the mainstreaming of impact investing within the institutional investment spheres and the fact that today’s least developed countries (LDCs) will be tomorrow’s frontier markets, the hope was that we would finally witness robust levels of investment finance being deployed to achieve sustainable development in the 47 LDCs.

Although covid-19 extinguished much of this hope, the finance trends that preceded the pandemic were hardly pointing to such an evolution. According to the UN Conference on Trade and Development (UNCTAD), while SDG achievement in the LDCs requires investment of US$120bn annually through to 2030, total annual finance flows—domestic and international, public and private—have been limited to roughly US$40bn.

And even when concessional finance is deployed in order to de-risk investments in overlooked LDC markets, private finance is unlikely to follow. Blended Finance in the Least Developed Countries 2020, a report co-published by the UN Capital Development Fund (UNCDF) and the OECD, found that only 6% of total private finance mobilised by official development assistance went to LDCs between 2012 and 2018.

One of the critical challenges is that anecdotes, misperceptions and lack of awareness surrounding the LDC investment climate prevail in place of a systematic, data-driven, field-level analysis supported by engagement. This is exacerbated by the remarkable lack of locally based commercial intelligence relating to frontier markets generally, and specifically regarding smaller investments with significant development and commercial potential.

So, what is the alternative to a top-down investment approach that under-appreciates local insights? UNCDF is leveraging several capabilities—which are currently offered to investors, small and medium- sized enterprises, development finance institutions, and the UN Development System—to craft a model that we call “human-centred design market scoping.”

Such scoping would not be designed to aggregate data and analysis to inform prospective investors. Instead, it would leverage actionable intelligence that empowers relevant actors to enhance a project’s investment potential, while providing investors with local, multi-sectoral scoping with accurate assessments of risk, development impact and suitability for commercial versus concessional capital lenders. UNCDF’s financial instruments adhere to the principle of “minimum concessionality”—concessional enough to de-risk investments, but without distorting markets.

The scoping begins with data for market development. Data relating to commercial viability is typically the best—and in many cases the only—motivating factor for stakeholders in the public and private sectors. Even better, such data can demonstrate that there are aligned interests among stakeholders. For example, data supporting investment in a large-scale digital finance project could empower stakeholders at various levels. Ministry officials would be prompted to enact regulatory changes, such as easing requirements to open digital accounts, to support financial inclusion; service providers would be incentivised to invest in digital infrastructure to reach new customers; and development agencies would be allowed to analyse potential SDG fulfillment. Such scoping identifies the precise data that relevant market actors need and then provides that data to empower them, while informing investors with the same actionable intelligence.

Next, there is a hyperlocal approach. A project’s capability to strengthen local economies is essential to its development potential, including enhancing that local government’s ability to deliver an array of services—from infrastructure and digital connectivity to healthcare and education. But accurately assessing this potential requires more than a desk review. Value-chain linkages—notably those critical connections between producers, suppliers and vendors—need to be analysed to determine if the project is expected to add value to the local economy. Even well-capitalised domestic banks with an appetite for risk can be inexperienced in identifying investable projects with local development potential. Human-centred design market scoping can provide the necessary transparency to help enhance local development potential—from leveraging local sourcing to unlocking domestic capital—that would also attract funding from concessional and return-seeking investors.

Thirdly, scoping involves technical assistance and blended financing. Many firms in LDCs are not yet able to meet commercial financing standards, but they have innovative business models, are financially, environmentally and socially sustainable, and possess the potential for development impact. These firms need technical assistance or business advisory services to enable them to become investment-ready or to attract larger ticket sizes. In addition to facilitating connections with providers of services and concessional capital, identifying these firms through scoping creates a signal effect with a new class of informed, early-stage investors, unlocking follow-on finance to allow emerging firms to become scalable and commercially attractive.

Finally, by understanding the nuances of the target market—be it Tanzania, Senegal, Bangladesh or Tuvalu—investors are not only able to connect the dots across the ecosystem, but also to build trusted relationships with parties. Demonstrating the commercial viability of entire LDC markets empowers the investor—the critical actor in this process—while ensuring that public and private finance is not confined to the safest bets, but rather is disbursed throughout an entire market. To conclude, human- centred design market scoping puts in place a mechanism for market discovery to develop viable and sustainable market entry strategies in new LDC markets.

The evolution that we are hoping for is possible. But we cannot wait until the day after covid-19 to bring the global markets that we desire to fruition. Human-centred design market scoping is a solution that we can use today. If nothing else, it is a tool that can help to ensure that the actions of the investment and development finance communities over the next ten years are worthy of being associated with the Decade of Action.


The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.

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