Investors often cite the same constraint when asked why more capital does not flow to developing economies: too few bankable projects, too much risk. Governments see the problem differently. Capital is available, they argue, but structured around isolated transactions rather than the reforms that would make markets investable.
Both are describing the same failure from different ends.
Developing countries face a US$4.3 trillion annual financing shortfall. In 2024, official development assistance fell by 7.1 per cent and humanitarian aid dropped by 43 per cent, even as debt burdens and climate pressures intensified. Global wealth exceeds US$600 trillion. The constraint is not liquidity. It is how financing systems are organized, and how incentives within them consistently direct capital away from where it is most needed.
Development finance remains structured transaction by transaction. Investors assess risk deal by deal. Donors report by project cycle. Development banks organize around individual facilities. Governments allocate budgets ministry by ministry. Each institution is rational on its own terms. The collective result is fragmentation.
The pattern is consistent: capital treats symptoms rather than the systems that produce them.
This is most visible in fragile and crisis-affected settings, where by 2030 three quarters of people living in extreme poverty are projected to reside. Yet between 2019 and 2023, only 54 of 620 blended finance transactions globally were implemented in such contexts. The system directs capital toward what is easiest to finance, not what is most urgent to transform.
The problem is not a shortage of instruments. It is misaligned incentives.
Consider what a single investment genuinely depends on. A renewable energy project requires functioning tax policy, land governance, grid regulation, credit markets and access to insurance. If those systems are weak, risk premiums rise and capital withdraws. A well-structured deal cannot compensate for structural uncertainty. Markets price systems, not projects.
The absence of bankable projects, in other words, reflects underinvestment in bankable systems.
This recognition is driving a practical shift. Eighty-six governments are now implementing Integrated National Financing Frameworks, nationally led strategies that connect public finance, private investment and development cooperation so that fiscal policy, debt management, climate commitments and market regulation reinforce one another rather than operating in parallel.
These frameworks serve a dual purpose: they introduce macroeconomic and policy stability that reduces risk for investors, while connecting interventions across sectors and supply chains in ways that reduce delivery risk. Countries applying them have mobilized US$16 billion in new financing and aligned a further US$32 billion with national development priorities. Since 2022, nationally led reforms supported through these frameworks have aligned more than US$900 billion in public and private finance toward sustainable development.
These figures matter less for their scale than for what they represent: a different model of development finance in which public investment creates the conditions for private capital, rather than substituting for it. Between 2022 and 2024, every dollar of support received by the United Nations Development Programme (UNDP) corresponded to nearly US$60 in aligned investment. That leverage comes not from funding projects but from strengthening the fiscal frameworks, budget credibility and institutional incentives that shape how capital flows.
What is emerging from this work is a distinct practice, which might be called systems finance, in which the unit of investment shifts from the individual transaction to the institutional architecture that determines whether transformation succeeds or fails. The evaluative question changes accordingly. Systems finance does not ask whether a single investment performs well within a diversified portfolio. It asks whether a portfolio of connected interventions, sequenced across sectors and capital types, can shift how an entire system works.
Systems finance does not replace project finance or blended finance. It addresses what sits underneath them: the fiscal credibility, regulatory predictability and cross-sector coordination that connects individual instruments toward coherence and transformation.
The difference becomes concrete at country level.
For example, in Zambia, a grant that builds the business capabilities of smallholder farmers reduces the risk of lending to a company that bundles solar panels with refrigeration, providing reliable energy and cutting post-harvest losses. That investment enables cold storage and logistics infrastructure, which allows an aggregator to collect higher volumes with less spoilage. More reliable supply allows food processing firms to sign long-term offtake agreements financed through debt.
Each intervention de-risks the next. The result is a cluster of investments with smoother cash flows, lower default risk and higher incomes, collectively less risky than three isolated deals with unconnected enterprises. This is what systems finance looks like in practice: not a single transaction, but a sequence of coordinated investments where the interactions between them generate value that none could produce alone.
Skepticism is fair. Integrated development has been discussed for decades, often producing strategies without implementation power. One distinguishing feature is the effort to embed coordination in enforceable standards rather than leave it to goodwill.
A new International Organization for Standardization (ISO) management system standard (ISO 53001), developed with UNDP and built from field experiments across countries, will allow investors and regulators to verify whether an organization’s decisions are genuinely aligned with sustainability objectives, not simply whether its reporting is. As practice evolves, so will the standards. When enterprises and investors operate under compatible, auditable frameworks, their activities become comparable and can be aggregated into portfolios linked to national reform priorities. That is what moves coordination from aspiration to infrastructure.
The deeper constraint, however, is institutional. Development banks earn fees on individual transactions. Fund managers are assessed on quarterly returns. Donor systems remain project-based. Public institutions are measured by disbursement rates rather than coherence.
These incentives reward activity over alignment, speed over system building. Managing interconnected portfolios rather than isolated projects demands a different kind of intelligence, the ability to track how interventions interact across sectors in real time and adjust course as conditions change. As access to data becomes cheaper, the value of reliable, decision-ready insight into what is working on the ground becomes a genuine competitive advantage for development institutions willing to invest in it.
Changing this requires strengthening the foundation that all other instruments depend on: domestic public finance. Credible tax systems, transparent budgeting and prudent debt management reduce investment uncertainty at its source. When fiscal systems are credible, risk-sharing and blended finance amplify investment rather than substituting for it. Public capital becomes catalytic because it lowers systemic risk, not because it absorbs losses one transaction at a time.
If national financing frameworks become genuine investment infrastructure, connecting fiscal reform, market regulation and private capital behind nationally defined priorities, money reaches the places the current system has neglected. That includes fragile contexts where economic stability depends on exactly the kind of coordinated investment that project-by-project finance cannot deliver.
The question is not whether capital exists. It is whether governments and development institutions will invest in the systems that make capital useful, or keep funding projects, one at a time, inside an architecture that has already failed.
The United Nations Secretary-General announced the appointment of Marcos Athias Neto of Brazil as UN Assistant Secretary-General, UNDP Assistant Administrator and Director of the Bureau for Policy and Programme Support (BPPS) on 30 October 2023. He assumed his responsibilities in BPPS from 1 November 2023. Mr. Neto has previously served as the Director of UNDP’s Sustainable Finance Hub, leading UNDP’s work on sustainable finance in more than 40 countries in collaboration with other UN agencies and partners.
