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The Role of Policy-Driven Institutions
Developing National Financial Systems for Long-Term Growth

Working Paper

Authors: Pierre Bardoux    Thibault Roy    Yannick Glemarec   

Published By: UNEP Inquiry   

Date: Aug 2015

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The Role of Policy-Driven Institutions

A variety of interventions can be used to develop national financial systems and provide local access to affordable, long-term finance. This paper considers four key categories of actions: voluntary action; priority sector lending; regulatory or financial incentives as well as direct lending by policy-driven financial institutions.

It particularly focuses on the role of policy-driven institutions such as national development banks (NDBs) and national green funds (NGFs) in providing grants, credit-enhancement instruments or lend directly to project proponents in specific green sectors. As part of ongoing efforts to better understand their comparative effectiveness to deepen national financial systems, the paper discusses the how these measures can be used to catalyse broader institutional innovations and facilitate access to long-term affordable finance for green, low carbon and climate resilient investment at scale. It argues that the key added value of NGFs might rest in their capacity to foster institutional innovations and partner with other financial and regulatory institutions to increase the diversity and depth of local financial markets in order to enhance the domestic supply of green finance.

[This paper was presented at the UNEP Inquiry/Centre for International Governance Innovation Academic Symposium on the Design of a Sustainable Financial System, held in Waterloo (Canada) in December 2014]

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