Recommended citation: Sheehama, A., Naidoo, C.P., Dufief, E., and Treyer, S. (2025). “Reframing Needs-Based Finance through Mutual Commitment and Dialogue”. Working Paper 1 of the Principles of Inclusive Finance Series. Rabia Transitions Initiative, IDDRI, Ukama collaboration. Johannesburg.
The paper is part of a working paper series focusing on the Principles of Inclusive Finance, aimed at examining finance through the lenses of needs, dignity, and risk-sharing, to challenge conventional financial models and propose pathways toward a more just, accessible, and empowering financial architecture. This first paper aims to explore the concept of “Needs-based” as a “principle” in financing development and climate by deconstructing it further from a funder and recipient perspective, aimed at enhancing understanding to ensure there are practical actions towards the flow of funds and meeting of needs. However, it remains unclear whether “Needs-Based” finance is fully understood at national or international levels. The concept has evolved beyond simply identifying needs to focusing on the effectiveness and impact of climate finance rather than the amounts provided or mobilised. Key findings reveal:
- “Needs-based” finance is not new, but it is gaining renewed importance as countries call for fairer financing terms within a changing global financial architecture. Achieving this approach requires honest dialogue between funders and recipients to rethink how needs are defined, how finance is provided, and how investment planning reflects the complex realities of climate and development challenges.
- Funders and recipients often view needs differently, and recognising these perspectives enables more flexible, context-sensitive financing that respects national priorities while supporting transition goals.
- The UNFCCC’s Needs-Based Finance initiative highlights persistent barriers for developing countries, including limited capacity, restrictive conditions, heavy reliance on debt, and misalignment between national priorities and funding systems. It calls for shifting from project-level finance toward multi-asset, nationally driven approaches that support systemic resilience.
- In practice, parties must jointly define what a needs-based approach means in a systemic, rather than project-specific, context.
- Recipient countries need to articulate needs that reflect transition trade-offs and development ambitions. Funders must strengthen credibility by offering predictable, accessible finance and honouring commitments.
- Trust-building dialogue remains essential for truly needs-based climate and development finance.
