In the late 1980s and early 1990s, the first social funds considered ‘demand-driven’ to mean that the social fund did not determine investments – others came to the fund with proposals. Most were based on the principle of first come, first served. What happened inside a community to determine what would be requested or who would be involved was beyond the survey of the fund. The fund would engage in promotion activities, via the general media or orientation sessions with NGO, networks or local officials. This first “version” of the demand-driven approach relied on communities voicing demands without external facilitation.
The community itself was considered a black box – provided with an incentive and adequate information, they would self-organize (or relying on existing intermediaries like associations and local governments) to access program resources. Proposals were screened, appraised and approved by the social fund.
Most social funds have moved from first come; first served to facilitated selection of community priorities using some form of participatory mechanisms. Although initially understood as 'proposals come from the community’, “demand-driven” is now often conceptualized as project proposals identified in an open, participatory and egalitarian way by a fully informed citizenry which reflect the top priority of the majority of community members. This requires more intensive participation mechanisms, including community facilitation by external agents who draw from PRA and other participatory tools to assist communities in the decision-making process. This facilitation process, where the community expresses their demands with external facilitation, can be circumscribed to the village level or can be an integral part of a participatory municipal development plan.
In recent years, decentralization processes in many developing countries have put local governments in a position to coordinate local planning processes. This has let social funds work together with local governments to implement changes in planning and budgeting procedures to guarantee that they are developed with substantial citizen input and participation. In this case, community demands feed into a Participatory Municipal Development Plan. These processes usually entail the organization of sub-municipal (community or multi-community) citizen assemblies, each of which identifies and prioritizes needs and solutions for its respective neighborhood(s) or village(s); and local government-level discussion, prioritization and integration of these demands into approved municipal investment plans and associated budgets. Social funds, then, finance those investments of the municipal plan that meet their objectives. (See Participatory Municipal Planning)