SAARC Development Fund

April 12, 2025

With cuts to the U.S. Agency for International Development’s funding, local initiatives are gaining prominence. The SAARC Development Fund (SDF) stands out as important financial mechanism aimed at encouraging cooperation among South Asian nations. Established in 2005, the SDF has a capital base of $672 million and $1.5 billion in authorised funds, focusing on member countries including Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan, and Sri Lanka.

Background

The SDF evolved from the South Asian Development Fund (SADF) to enhance the effectiveness of regional projects. It was reconstituted during the Thirteenth SAARC Summit in 2005. The aim was to streamline funding mechanisms and avoid sector-specific financing proliferation. Officially inaugurated in 2010, the SDF serves as an umbrella for various SAARC initiatives.

Objectives of the SDF

The primary mission of the SDF is to improve the welfare of people in the SAARC region. It focuses on enhancing quality of life, accelerating economic growth, and alleviating poverty. The SDF aims to identify and finance projects while mobilising resources for both financial and technical assistance.

Funding Windows of the SDF

The SDF operates through three key funding windows – the Social Window, Economic Window, and Infrastructure Window.
Social Window: This window funds projects aimed at poverty alleviation, education, and health. It supports vulnerable communities and rural infrastructure development.
Economic Window: Focused on non-infrastructural projects, this window supports trade, industrial development, and agriculture. It has recently approved a Micro, Small and Medium Enterprises (MSME) funding scheme to boost regional entrepreneurship.
Infrastructure Window: This window finances projects in energy, transportation, and telecommunications, enhancing regional connectivity.

Current Challenges and Opportunities

Despite its potential, the SDF faces challenges due to geopolitical tensions, particularly between India and Pakistan. The absence of a SAARC summit since 2014 has hindered collaborative efforts. However, experts suggest that the SDF can still play a vital role in regional integration by broadening its focus to include infrastructure projects. This could enhance connectivity and economic integration across South Asia.

Governance Structure

The SDF is governed by a Governing Council comprising the Finance Ministers of SAARC member states. The Board of Directors includes senior officials from finance ministries and the Secretary General of the SAARC Secretariat. This structure ensures that the fund aligns with the regional development goals.

Future Prospects

The SDF has the potential to adapt to changing funding landscapes in South Asia. By intensifying its focus on economic integration and infrastructure, it can contribute to the region’s development goals. The SDF’s robust capital base positions it as a key player in shaping the future of South Asian cooperation.

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