Overview

What are Social Funds?

Social funds are multi-sectoral programs that provide financing (usually grants) for small-scale public investments targeted at meeting the needs of the poor and vulnerable communities, and at contributing to social capital and development at the local level.  They serve as innovators and demonstrators of new methods of decentralized participatory decision-making, management, and accountability that may be adopted for broader application by public sector organizations. 

The institutional framework of a funding agency (this can be a central government, an agency, a social fund, NGO, CBO, the local government, etc.), targeting, selection criteria, rules for processing projects and contracting vary greatly.  Some are fairly centralized, others work in collaboration with or through local governments; some give funds to community groups for implementation, other to local governments, and others contract third parties on behalf of the communities.

What are the objectives of Social Funds?

The first generation social funds, launched in the mid to late 1980s, were created to serve as short-term safety nets to soften the impact of structural adjustment policies on the poor (this was mainly achieved by providing temporary employment).  They have been used in more than 60 countries for purposes ranging from post-emergency reconstruction to empowerment of local communities.

Second generation social funds have adopted more explicit institutional strategies aimed at empowerment, capacity building, and sustainability goals with a focus on longer-term objectives.  They have played an important role in funding community projects, empowering communities, building linkages between communities and their local governments and have recently tried developing closer linkages to decentralization approaches.

What are some of the existing misconceptions and challenges faced by Social Funds?

The shift in focus has been a reaction to questions regarding the role of social funds and whether they help build institutional capacity for designing, implementing, and delivering economic and social services or whether they displace or weaken existing institutions such as sectoral ministries and departments.  Some of the common criticisms and challenges about social funds include:

• Relationship with sectoral agencies – most often, social funds are accused of undermining sectoral coordination and weakening line ministries;
• Autonomy – concerns that independent agencies should not make decisions about the allocation of scarce public resources (even if they have little policy autonomy);
• Staffing and salaries – salaries in social funds are significantly higher that in the public sector and distortions may occur;
• Procurement and disbursement – they are often criticized for lacking rules beyond those imposed by donors;
• Budgetary and accountability issues – although social funds are being increasingly integrated into national budgets, the donor funding needs to be more integrated;
• Exit strategy – the decision to extend social funds needs to be made after a rigorous cost-benefic analysis that explicitly acknowledges the need for a long-term system of service delivery.

What are some of the advantages of Social Funds?

• They aim to improve allocative efficiency by delivering public goods and services in a way that fits local preferences better than centrally-controlled and implemented programs and reduce corruption.
• By allowing communities to handle the procurement and financing of their subproject, there is more effective supervision, accountability, local capacity building, and production efficiency.
• Through the use of participatory techniques, (i.e., calling community meetings, requiring women representation, etc.), a larger percentage of beneficiaries can have their demands for their priority goods and services met.
• By demonstrating the benefits and results of social fund mechanisms, local governments may be encouraged to be more responsive to their constituencies.
• Evidence shows that social funds promote much more transparent, simple procurement practices than line ministries.