Pradeep Kurukulasuriya argues public money could be used more effectively to catalyse private sector investment in the least developed countries – and the UN capital development fund is the one to do it.
Pradeep Kurukulasuriya is not frustrated. “I’m impatient,” he says, correcting my earlier assumption as we connect over Zoom. The 54-year-old Sri Lankan economist is standing in his office in New York, a framed photograph and a wooden model of a sailing ship on the ledge behind him. Though two screens and 6,000 kilometres divide us, his energy is palpable, almost compelling me – but not quite – to stand up from behind my computer too.
Kurukulasuriya runs the United Nations Capital Development Fund (UNCDF), a little-known entity of the UN machinery that, in his view, has been waiting 60 years too long for its moment in the spotlight. Sweeping cuts in overseas development assistance (ODA) has left major donors espousing a “do more with less” strategy – and here, in his view, is the perfect underutilised opportunity for them to get way more bang for their buck.
The quasi-autonomous agency, which operates under the UN Development Programme (UNDP), provides grants and loans to small to medium-sized businesses in developing nations, with a focus on the least developed countries (LDCs). Where projects are deemed too risky even for the development banks with top-notch credit ratings to protect, or too small fry for other major lenders, UNCDF steps in first, providing small amounts of capital at zero, or very low, interest rates. In 2025, the fund delivered $90m in loans and grants across 50 countries.
Kurukulasuriya gives, as an example, $1m in support provided to the Tanzanian government in 2024 in launching its first subnational water bond in the northern district of Tanga to finance city infrastructure projects. The municipal bank raised the equivalent of around $21m in local currency, of which around 65 per cent came from domestic investors. The bond was ultimately listed on the Tanzania stock exchange and cross-listed in Luxembourg, with other municipalities now looking to create similar bonds. Tapping the markets offered a “smarter” alternative to trying to raise grant money for projects upfront.
In another example the same year, UNCDF provided a $1m guarantee facility in Afghanistan, paving the way for other investors and resulting in $32m in local-currency lending for small-to-medium sized businesses across the country. “It’s a powerful story that I think all donor countries are asking for these days, which is: ‘Can you use my one dollar in ODA and demonstrate that you are crowding in additional finance on top of that?’,” he says.
The magic bullet
What Kurukulasuriya describes is blended finance – widely seen as the magic bullet for boosting private finance and bridging the annual $4 trillion gap needed to achieve the sustainable development goals, amid teetering debt levels and tightening public purse strings. So far, progress has been uneven, with global blended finance transitions generating only a small fraction of that figure – $18.3bn – across climate themes between 2019 and 2024, according to the latest figures by Canadian think-tank Convergence.
However, last year’s UN Financing for Development conference in Seville gave renewed impetus to gear up blended finance after countries, under mounting pressure to reduce poverty and fight climate change, backed an action plan that included greater focus on spurring private sector investment. UNCDF also won its long-awaited moment in the spotlight. The fund was officially recognised in the outcome document and called to do more in supporting LDCs by providing “first-loss capital”.
For Kurukulasuriya, where this money is most needed – and where foreign aid flowing through risk-averse multilateral development banks has failed to make significant inroads – is in supporting microenterprises and small to medium-size businesses in LDCs. “It’s the Holy Grail of trying to address development where it actually matters,” he says. A small business owner without collateral or regular cash flow will have limited options available to them. Only 17 per cent of MSMEs in least developed countries have a loan or line of credit, compared to the global average of 30.6 per cent, according to World Bank 2023 data. That’s where UNCDF steps in. “We have a very unique mandate in the UN system to de-risk and crowd-in private capital in overlooked markets for development objectives,” he says.
Under the radar
Kukulasuriya, who worked for the UN Development Program for 18 years before taking the reins at UNCDF in 2024, makes a convincing case. Why, then, has the fund remained under the radar of donors? In 2025, UNCDF received around $118m in contributions – an increase on the previous year’s $112m. However, core unearmarked funding needed to manage its investment portfolio, has fallen consistently short of its annual $25m target, totalling only $10.6m in 2024. The figure has not yet been released for 2025 but is estimated to be roughly the same level.
The Sri Lankan puts this down to the fund not playing to its own tune. Rather than extolling its own unique capabilities, “it started to act very much like UNDP”, the economist adds – something he has set out to fix over the last two years. Its new three-plan unveiled last month outlines lofty ambitions to raise $969m in total new funding between 2026 and 2029 – a 79.2 per cent increase over the previous three year period. It is seeking to woo new private sector players and philanthropic foundations, as well as reinforce relationships with existing public donors.
In today’s shrinking market, where aid budgets are being slashed in favour of defence, and where organisations are all competing for increased private sector investment, this is no easy feat. However, he’s encouraged by conversations with new prospective donors, such as the Qatar Fund for Development and Norway. Meanwhile some existing donors like Belgium and the Netherlands have already stepped up their contributions. The latter pledged $10m in December towards a new guarantee facility in Gaza that will allow MDBs to step in and revive lending to local businesses.
Even the US has stayed put for now, retaining support to the fund that was pledged before president Donald Trump took office in January last year and began slashing its aid budget and pulling out of UN agencies. UNCDF’s largest contributor remains the European Union, followed by Sweden, and the US in third place. It has partnered on a five-year project through to 2028 supporting “climate-resilient solutions” for food systems in Africa.
Weathering UN80 reforms
Over the past year, UN agencies have had to grapple with sweeping UN80 reforms alongside drastic budget cuts to stave off an “imminent financial collapse” warned by secretary general António Guterres. UNDP has already relocated around 400 of New York staff to other countries to save costs. When asked about the fate of his own team, Kukulasuriya believes it is well positioned after undergoing a slimming-down operation of its own over the last year and a half.
“We’ve reduced our directors from eight to now three. We’ve also made sure that 90 per cent of our staff are at the field level and not sitting in New York, Brussels or any developed country,” he says. Its core staff comprises 70 people, including 27 in New York and a small team in Geneva, and it has an additional 250 project-based staff in the field.
The fund’s operational costs amount to around $30m, “one of the smallest in the UN system”, Kukulasuriya claims. Where UN agencies are now being asked to root out any duplication of function, the fund already leans on UNDP’s infrastructure. “We are the model of what UN80 is asking for,” he says. “Essentially, we’ve been able to keep our costs down by not replicating the architecture of any other UN entity.”
Custodians not competitors
With the fund keen to set its own course, how does it collaborate and not compete with UN agencies? Kukulasuriya does not see itself in competition. “Our business is very much about how we can help overcome those financial constraints and support the rest of the UN system who are the custodians of development.”
A recent success story was a $2.5m loan, in partnership with the UN children fund, provided to a Nigerian company producing nutrition bars for malnourished children. Despite the country being the third largest producer of peanuts in the world, the company had been importing supplies from abroad because it lacked the machinery to treat them on site. The investment allowed Unicef to expand production and lower costs, boosting local farmers’ incomes. “Everyone is benefiting here.”
The future of the UN is in partnerships like his fund’s, he argues, that epitomize “doing more with less.” “That is what we’re trying to get across to donors to say, ‘look, help us to help you have a bigger impact with the UN system by deploying this capability in a way that hasn’t been done before.”