The choice of aid instrument in FCAS is often based on assessment of: country need and capacity; the perceived urgency of the activity; evaluation of existing delivery channels; the level of consensus on policy priorities (between the donor and the host government); and donor preference and capacity. The choice of aid modality both affects, and is affected by, sequencing and prioritisation decisions. For example, if the delivery of basic health services is considered a priority and the donor generally prefers to use budget support, it may decide to invest in reforming the government’s heath department rather than in the direct delivery of health services. Or the donor may decide to set up its own parallel delivery of the health services, if it believes they are urgently needed and the government is unable to deliver.
Common aid instruments used in FCAS include: programme aid, budget support, project aid, global funds, technical cooperation, multi-donor trust funds, social funds, community driven development, humanitarian aid, and joint programmes. One example is expanded on below.
Multi-Donor Trust Fund (MDTFs)
Multi-Donor Trust Funds (also known as ‘pooled funds’) are funding mechanisms which pool and disburse aid through one administrative structure (Barakat, Rzeszut & Martin, 2012). To increase income revenues, funds can also be reinvested. They aim to provide a predictable and stable funding source, and to manage risk (Commins, Davies, Gordon, Hodson, Hughes & Lister, 2013). There are many types of MDTFs. They have commonly been used for: post-conflict reconstruction, humanitarian action, and security sector reform. They are often administrated by a multilateral body (e.g. the World Bank, or a UN agency) and are overseen by a council of donors. They have been used in Afghanistan, South Sudan, Iraq, Indonesia, West Bank and Gaza, and Haiti (Commins et al., 2013).
Strengths and weaknesses
Table 2: Pros and cons of using different aid instruments in FCAS (PDF, 2pp.)
For further analysis of strengths and weaknesses, see the 2012 OECD publication Getting the mix of aid instruments right.
More pros and cons of MDTFs can be found in Commins et al., 2013, p.6.
There is much debate about the conditions under which the conventional aid instruments of general budget support and Poverty Reduction Strategy Papers can work in FCAS. A critical concern for donors is how to manage fiduciary risks whilst wherever possible channelling funds through government. According to aid effectiveness principles, donors should aim to increase funds spent through government systems, but this can be difficult in situations where government capacity is very low. FCAS are often rapidly changing environments, therefore aid modalities need to be flexible, and trade-offs between speed and quality will emerge (See Box 10) (World Bank, 2011b).
Recently there has been some success with multi-donor trust funds, national programmes, social funds community driven development, and the formation of national compacts. These are all viewed as ways to align donor funds behind national and community priorities. An OECD (2010c) report on transition financing suggests that the increase in types of funding instruments, lack of harmonisation among donors, and low effectiveness of pooled funding instruments are bottlenecks to effective aid.
DFID (2010a) highlights three key issues in adapting delivery mechanisms in FCAS:
- Ensuring that choices about aid instruments are politically informed
- Ensuring a rigorous risk management system
- Developing a results framework based on statebuilding and peacebuilding objectives.
Box 14: Case studies of aid modality decisions
A lack of joined-up governance in Haiti’s pooled fund
Based on case study analysis of 16 pooled funds in FCAS, Commins at al. (2013) note that interviewees often identify as one of the key strengths of pooled funds the forum it provides to bring all parties together for discussion and the forming of a joint strategy. However, this depends on the governance structure in place.
The governance structure in Haiti did not enable this. The Interim Haiti Reconstruction Commission (IHRF) decided the priorities, and this was done with a very political focus. Because the IHRF and the Steering Committee of the pooled fund were completely separate, serious discussions or strategy planning failed to happen.
Source: Commins, S., Davies, F., Gordon, A., Hodson, E., Hughes, J., & Lister, S. (2013).
DFID’s early decision to provide budget support in Sierra Leone
In an evaluation, LSE and PwC (2009) found that DFID’s early decision to provide budget support to post-conflict Sierra Leone was ‘bold and effective in providing resources to a weak government in a post-conflict situation’, and perhaps without this the government would not have been able to pay returning civil servants (p.13, 23). It also reports that DFID’s use of pooled funding, in seven of 30 projects, to strengthen harmonisation, led to positive influencing of the government and increased aid effectiveness (p.15).
Source: LSE and PWC (2009)
- See GSDRC Topic Guide on Fragile States.
- For further analysis of risk management in FCAS see DFID’s 2010 briefing paper.
- Barakat, S., Rzeszut, K., & Martin, N. (2012). What is the track record of multi donor trust funds in improving aid effectiveness? An assessment of the available evidence (Systematic Review). London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.
See document online - Commins, S., Davies, F., Gordon, A., Hodson, E., Hughes, J., & Lister, S. (2013). Pooled Funding to Support Service Delivery Lessons of Experience from Fragile and Conflict-Affected States. London: DFID.
See document online - DFID. (2010a). Building Peaceful States and Societies: A DFID Practice Paper. London: DFID
See document online - London School of Economics (LSE) and PricewaterhouseCoopers LLP (PWC). (2009). Statebuilding in fragile situations – How can donors ‘do no harm’ and maximise their positive impact? Country case study – Sierra Leone (Joint study prepared for the OECD DAC). Paris: OECD.
See document online - OECD. (2010c). Transition Financing. Building a Better Response. Paris: OECD.
See document online - World Bank. (2011b). World Development Report 2011. Washington, DC: World Bank.
See document online