Are There Risks in Giving Money Directly to Communities?

funding donors financial management beneficiaries
Tuesday, 13 May, 2008 - 21:35

The ways in which funding is channelled to communities can be an effective way to address poverty and inequality and empower communities to take forward their own development.

The ways in which funding is channelled to communities can be an effective way to address poverty and inequality and empower communities to take forward their own development. This is one of the key findings of a recent study conducted by Khanya-aicdd and its partners Concern Malawi and Practical Action Zimbabwe. The results of the review have been captured in a policy briefing published by Khanya-aicdd.

The study reviewed different approaches to funding communities, and found that there were significant improvements in the communities’ capacity to plan, manage and account for themselves when they were involved in disbursing funds. Communities were also better equipped to accumulate assets. Similarly, the knowledge and skills acquired through these processes, based on local experience and rooted in local contexts, often allowed communities to continue to take forward local development more effectively - without the direct support of a funding scheme.

For example, the Mangaung Community-based Planning Project based in the Free State, South Africa used community-based planning (CBP) as an approach to determine how funding should be spent. CBP involves individual wards drawing up developmental plans by allowing the ward committees and local constituents to identify their own developmental priorities. Funding is then allocated for each ward to spend on their identified projects. In this case-study, the amount that was allocated to support the process was not substantive (approximately US$ 6 250). However it allowed the communities to come together and take action for the future of their respective wards.

What is a funding mechanism?

The research defined a ‘funding mechanism’ as a process by which funds are transferred  from  funding institutions to recipient communities, the mechanisms they use to spend those funds and to account for them. The review of 14 case studies of funding mechanisms, shed light on a number of different approaches to funding, namely Community Investment Funds (CIF), Community Foundations, Community Trusts, Community-based Natural Resource Management (CBNRM), Community Banks and Social Transfers. It is important to note the with the exception of social transfers which were primarily directed towards individuals within the community, the majority of projects reviewed in this study used local structures in the implementation, planning and decision-making processes. 

In what ways do these approaches benefit communities?

The research findings suggest that the different approaches were able to impart benefits to communities by enabling them to accumulate assets, whether physical (personal and public infrastructure), natural (eg access to land, water), financial, and social and/or human (eg skills and health) capital. For instance Concern Worldwide’s Livelihood Security Programme in Malawi involved approximately 10 000 participants spread across 300 villages, engaged them in training on group dynamics, planning and conflict resolution and was seen to have improved community infrastructure.  In Zimbabwe, the Campfire Movement, based on Community-based Natural Resource Management, led to an increased awareness of entitlements and rights, and increasing demand for these at local level. The Wildlife Committees within this movement learned basic organisational and record-keeping skills and were able to maintain their own bank accounts, and hold regular minuted meetings. Women also participated actively in decision-making. Further evidence of benefits to the community is seen where village banks made banking facilities available to more communities which could lead to increased savings in the community.

What is the risk of corruption and misappropriation of funds?

Other indications from the research suggest that where some of these mechanisms have been applied at very large scale, there has not been any systematic evidence to show that there is a greater fiduciary risk than funding disbursed through central or local governments, particularly in terms of corruption or misappropriation of funds. For example in Zambia, the World Bank funded the Zambia Social Investment Fund (ZamSIF) for US$ 40 million over five years on 555 community projects, and in Benin, the National Community-Driven Development Project supports local development through both local government and village associations, and has reached 700 sub-projects. It is worth noting that for these initiatives, the financial management and procurement related aspects were closely supervised through annual independent external audits and procurement reviews. In the Benin example, a 2006 evaluation found that the community level performed as well or better than other levels of government in respect of eligible expenditures and supporting documentation. 

Critical factors in selecting funding mechanisms

If these funding mechanisms are to be more responsive, then their selection should be as closely as possible related to the needs of the local community, as well as its environmental potential. In most of the case studies the needs of the community were clearly understood before a specific funding approach was adopted. Relating to this, a number of factors emerged as being critical to influencing the impact of a selected funding mechanism.

For instance, the need for local capital was vital for developing physical infrastructure or developing a household’s ability to produce. In this regard, it was found that while Community Investment Funds, Foundations and Trusts were effective at providing public goods eg roads, hospitals, schools; social cash transfers were more effective at providing capital to individual households.

In order for the funding process to be fully transparent for both the funder and the participating community, it was important to achieve upward, downward and horizontal accountability. Ultimately, projects became sustainable when there were multiple and transparent accountabilities, which made it difficult to hijack and for corruption to occur.

It is important that individuals and community structures are held accountable in order to ensure that the money is spent in accordance with community priorities. The study generally found that effective accountability was experienced in larger scale funding mechanisms such as Community Investment Funds, Social Cash Transfers and Foundations possibly due to the more established controls that had been institutionalised within these programmes.

Leadership also plays an important role and the drive and passion of individuals may make the difference between success and failure. For example, despite community foundations appearing to have the potential to be a relatively sustainable form of funding communities, only two of the original 10 foundations established in South Africa remain. The Greater Rustenberg Community Foundation’s continued success can be attributed largely to the commitment and capacity of their staff members.

In conclusion, the study found that the key critical success factor is the relationship between communities, civil society, government and donors which must be collaborative and managed appropriately. For such approaches to be implemented at scale remains a significant challenge, despite evidence of success in several countries in Africa, Latin America and Asia. In many countries in the region, governments are wary of the capacity of communities, and want to control the way resources are allocated.  It is important that we move beyond the distrust of communities, we move beyond a paternalistic approach, and one that creates dependency on the state, towards a process of liberating the energy of our people, and put in the catalyst which releases local energy to change people’s lives. The models highlighted covered show some mechanisms that can be applied widely across Africa. The challenge is now to see how these can be applied and institutionalized.

HIGHLIGHT: Submitting a clause to South Africa’s Local Government Amendment Bill

As a result of this research, Khanya-aicdd made a presentation to South Africa’s Parliamentary Portfolio Committee on Provincial and Local Government which resulted in an amendment to a clause in the Local Government Amendment Bill which would require municipalities to spend 2% of their budget on funds provided to wards, ie promoting direct funding of communities. The submission read as follows:

“In order to promote active involvement of communities in development, municipalities should make allocations of at least 2% of the municipal budget to ward committees or any project committee appointed by the ward committee as discretionary ward funds for community economic and social development, subject to a ward plan being developed which has broad public ownership, and which is linked to the IDP. These funds should be implemented by the ward or any of its project sub-committees and are the responsibility of the ward committee. The ward committee will be accountable for implementation and funds spent to the population of the ward and the municipality, and the municipal manager would be accountable to ward committees.”

there have been very large scale projects like this in many countries of the world, both richer and poorer than South Africa, eg Brazil, Mexico, Indonesia, Zambia, Malawi, Burkina Faso. This could have a major impact on empowerment and development of communities. Click here for further details on this submission.

About this article:

This article draws from emerging findings of a study about Funding Communities undertaken by Khanya-aicdd together with its partners Practical Action Zimbabwe and Concern Malawi, and funded by the Southern African Trust . The full report entitled ‘An investigation into the funding of communities: lessons and best practice’. Click here to read the full report.

A policy briefing entitled ‘Experiences of approaches to funding communities’ that highlights emerging policy issues is also available. Click here to read it on.

For more information about this research please contact Rahel Otieno at Khanya-aicdd  on email:

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