Are social funds an effective mechanism for supporting community-based poverty reduction activities in developing countries? This article, published in the Journal of International Development, illustrates that social funds can be a useful instrument for targeting poor and vulnerable groups, however, they are not a panacea for national social protection systems. Social funds inevitably create parallel structures, rather than work to reform existing government institutions. Consequently, social funds should be designed to minimise the negative impact on mainstream services and encourage positive reforms on the broader policy agenda.
Social funds seek to implement quick, effective and targeted action for poor and vulnerable groups through direct funding for small-scale activities by public or private actors such as local governments and community groups. Social funds originally emerged to alleviate the negative social impact of structural adjustment programmes in the 1980s and are increasingly supported by the World Bank and other donors. In recent years, social funds have focused on long-term approaches for dealing with risk mitigation and risk reduction. These strategies emphasise the role of popular participation and are viewed as a key instrument for promoting decentralisation.
Social funds aim to be ‘demand-led’ and stimulate participatory development initiatives. However, there has been significant criticism of the ability of social funds to respond to the demands of poor communities, particularly in relation to service delivery. These criticisms highlight:
- Variations in the impact and quality of projects depending on the type of intermediary used to implement projects. Beneficiary-executed projects tend to be more responsive to community needs than private organisations and NGOs due to beneficiary participation in project definition.
- The absence of participatory approaches and practices in projects that are implemented through national ministries. These projects also tend to have insufficient resources for supervising interventions or working closely with beneficiaries.
- Uncertainty regarding the involvement of women and other disadvantaged groups in social funds projects. Women are under-represented with respect to formal participation, particularly in management and decision-making.
- Potential conflicts that may result from partnerships between local government, private firms and communities. This may lead to tension between the efficiency goals of private firms and the need for time-consuming and costly processes to promote community ownership and decision-making.
- Concerns regarding the role of NGOs in service delivery. NGOs have varied capacities and may require capacity-building and training to ensure that they are capable of reaching poor groups and mobilising local resources.
- Inadequate capacity-building strategies. Social funds projects increasingly invest in building the capacity of local groups, however, this tends to be technical rather than organisational.
Social funds have only enjoyed mixed success in creating decentralised units that support community-based activities for poverty alleviation. A key dilemma is the tendency of social funds to create parallel structures, rather than work to reform government institutions. This may have a negative impact, for example, as social funds may deflect attention from tackling tough issues regarding transparency and accountability within government structures. Similarly, social funds staff receive high rates of pay and this can harm morale and efficiency in the public sector. In light of the challenges posed by parallel institutions, donors and policy-makers should:
- Recognise that social funds are part of national and local politics and therefore, should be explicitly designed to enhance the accountability and transparency of these processes.
- Guarantee that social funds are designed to minimise the negative effects on mainstream institutions and encourage broader policy reform by promoting pro-poor government budgeting and the mainstreaming of participatory policy-making.
- Create links between social funds and decentralised or local governance structures. There should be more emphasis on the phasing out or integration of social funds into existing governance structures during the planning stages of projects.
- Incorporate decisions relating to social funds into a budgetary process that is accountable to parliament and civil society, rather than depending exclusively on donor decision-making.
- Integrate social funds projects into broader development frameworks such as Poverty Reduction Strategy Papers (PRSPs) and the Comprehensive Development Framework (CDF).
- Consider alternatives to social funds, such as opportunities to reform line ministries as a means of implementing effective community-based initiatives.
