Funding Local Governance: Small Grants for Democracy and Development

Despite their good intentions, governments, donors and development agencies have often failed to make significant improvements in the lives of poor people and enhance their capacity to help themselves. Local funds are a mechanism for aid delivery that has gained increasing currency in recent years, as a response to perceived problems of aid ineffectiveness. These represent an administrative vehicle for selecting, funding and implementing community or locally identified and managed small-scale and pro-poor projects. Invariably, they are externally funded, usually through grants, and are used to channel small amounts of money to a large number of local and micro-level projects.

This book takes a critical look at the assumptions behind local funds being used as an aid instrument, particularly those “…that promote democracy and governance [understood as state society relations] alongside issues of development [understood as improvements in people’s well-being]”(page 4). This book is about an alternative approach. Starting from a critical engagement with theories of decentralization and a review of social funds, it explores the value of funding local initiatives that are designed not only to support development activities but also to promote local democracy. Reviewing experiences from Africa, Asia, Europe and Latin America, the book demonstrates how, at their most innovative, local funds can deliver development within the context of a rights-based approach and as a critical component of democratic decentralization.

The book is divided into three sections. The first section, on local funds and the policy environment, seeks to situate the local funds phenomenon within a broader discussion of development policy and practice as it has evolved over recent decades. The second section looks at the experience of local funds in practice, through a series of case studies. The final part of the book focuses on issues of implementation and the day-to-day challenges of designing, managing and assessing the impact of local funds. The book concludes with a look at the future of local funds, and draws some critical lessons from their design and management; it also considers the implications of these funds for a policy environment that seeks to promote both social well-being and democracy.
The author concludes by identifying the following characteristics of local funds:
· They are a means through which small resources are targeted directly towards disadvantaged groups or local communities very quickly. However, disbursement can be slowed down where procedures are bureaucratic and laborious.
· Funds are disbursed closer to where they are needed, which is believed to allow better targeting. This is not uncontroversial, given that spatial communities are often heterogeneous and identities often fluid.
· They are supposed to be driven by local demand. This can be problematic in practice, as demand often comes from intermediary groups and the most disadvantaged groups are often ill-equipped to get their voices heard.
· They are supposed to stimulate partnerships for development, increase participation and leverage resources locally. Some partnerships evolve more easily than others, with private sector involvement being particularly difficult.
· Although local funds offer grant funding as opposed to loans, they require co-financing. However, match funding is not always easy to find, and this requirement has the potential to exclude the very poorest.
· They are deemed to be swift and flexible. However, bureaucratic processes and the application of rigid constraints more appropriate to other forms of aid can hinder speed and efficiency.
· The management of local funds is devolved from donor agencies to other organizations that are responsible for oversight and day-to-day management. In many ways, this helps donors shed high transaction costs, although lack of prestige from small and localized projects can be off-putting.