Social funds are government-based agencies that provide finance for small-scale projects proposed by local government or community organisations. Can social funds contribute to social protection strategies (that aim to reduce poverty and vulnerability)? This paper by the Asian Development Bank explores this question through a review of social funds inSoutheast Asia,South Asia, the Asian transition economies and the Pacific. Social funds can provide effective responses to poverty, but there are concerns about their institutional and financial sustainability.
Social funds share three basic characteristics. First, they finance small-scale schemes, usually social or economic infrastructure. Second, the schemes are proposed and implemented by local government or local organisations. Finally, they are managed by specially created institutions outside the government’s administrative structure. Within the overarching goal of poverty reduction, different social funds adopt different objectives. These objectives include: creating short-term employment, improving infrastructure, developing non-infrastructure income generating activities, promoting private sector contracting, strengthening civil society and supporting decentralisation programmes. A central issue for social funds is the unavoidable trade-offs between these objectives. For instance, providing short-term employment limits the ability of a scheme to strengthen civil society.
Social funds have been effective in reducing poverty, improving community participation, upgrading public infrastructure and strengthening civil society. However, there are concerns about their institutional and financial sustainability. Another issue is the extent to which social funds divert resources from the task of reforming mainstream government agencies, particularly local government, and making them more efficient and pro-poor. The experience of social funds also suggests that:
- They are heavily dependent on donor financing.
- They can provide effective interventions in situations such as economic crisis and in addressing chronic poverty. Furthermore, they can target resources geographically to reach the poorest areas.
- Projects chosen by local communities have been more successful in creating public infrastructure which has a positive and sustained impact on livelihoods and poverty alleviation than traditional government programmes.
- Well-managed public works are better than social fund projects at achieving large-scale job creation.
There are several implications for the role of social funds in the context of social protection:
- The relative autonomy of the social fund management units (from government structures) has been a critical factor in their success in providing benefits to the poor.
- Locating social funds within local government and using participatory methods of planning and implementation supports decentralisation and strengthens local governance institutions.
- Social funds need to ensure that poorer and less vocal communities are included in project selection and implementation through active promotion and outreach activities.
- The impact of financing non-infrastructure projects (such as credit schemes and non-farm enterprise development) depends on the availability of experienced and effective credit, training, extension and other business-support intermediaries.
- It is difficult to quantify the impact of strengthening civil society on social protection. Moreover, the ability of social funds to strengthen civil society depends on the intensity and quality of methods of participation adopted in social fund projects.
- Community participation in social fund projects, rather than domination by local elites or bureaucratic selection by local government, is essential for the success of the projects.
