Development Funds - Brief Description


Development & social funds have become increasingly popular instruments for many donor organisations to deliver safety nets. Funds originated as a response to the shocks that accompanied structural adjustment programmes and economic crisis in the 1990’s.

Since then, the instrument has grown and evolved rapidly. Over time, emphasis has shifted from emergency relief to more general development-oriented programmes and projects, and objectives have shifted from short term to longer term, focusing on facilitating “community driven development”. At present, social funds exist in over 50 countries world wide: in Latin America and the Caribbean, in at least 24 countries in Sub-Saharan Africa and about a dozen in Eastern Europe and Central Asia.

Social Funds are extremely diverse. There is a large variation in the kinds of activities that they can undertake or facilitate. The World Bank look at funds as “quasi-financial intermediaries that channel resources according to pre-determined eligibility criteria, to small projects for poor and vulnerable groups, and implemented by public or private agencies...” (Portfolio review by the World Bank Quality Assurance Group, 1998).

Though a variety of institutional models can be used, usually social funds are established as separate from traditional government line ministries. Intended to take quick, effective and targeted action, social funds typically use procedures that are not standard to government and other regulations. Originated as an instrument for poverty alleviation, social funds are based on a conception of direct funding of poverty-reducing activities by local actors (local governments, community groups, local entrepreneurs). They are meant to support the poorest and the most vulnerable while promoting objectives such as participation and decentralisation.

The success of social funds is often dependent upon:   

  • Sensitivity of the funding design to politics based on an understanding that they are part of national and local level politics. Development of parallel structures can be temporarily important, but these structures must serve in the long term to have effects on governance outside local funds (strengthening local governance, influencing pro-poor politics, etc.).
  • Participation is optimised and balanced throughout all stages of planning, implementation and monitoring. It should be seen as an end itself, not just as a means to efficiency in project implementation.
  • Incorporation of a long term view of organisational and financial capacities: what is the local level capable of contributing?