social funds, sustainability and institutional development impacts: findings from an oed review

Journal of International Development

J. Int. Dev. 14, 611–625 (2002)

Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/jid.903

SOCIAL FUNDS, SUSTAINABILITY ANDINSTITUTIONAL DEVELOPMENT IMPACTS:

FINDINGS FROM AN OED REVIEW

SONIYA CARVALHO, GILLIAN PERKINS and HOWARD WHITE*

Operations Evaluation Department, World Bank, Washington DC, USA

Abstract: This paper, based on a recent OED review of World Bank social fund projects,

presents findings relating to two aspects of social fund performance that have been relatively

under-researched in the social funds literature—the sustainability of benefits and the

institutional development impacts. On sustainability, the review found that social fund

facilities generally had staffing and equipment levels better or equal to those in comparator

facilities although both types of facilities suffered from shortages. While there has been a

learning curve, deficiencies were found in the requirements for ongoing operations and

maintenance over the operational life of the investments. On institutional development

impact, the review found that social fund agencies have developed capacity as effective

and innovative organizations. Wider impacts on existing institutions, both positive and

negative, need greater attention. Copyright # 2002 John Wiley & Sons, Ltd.

1 INTRODUCTION

Social funds are ‘agencies that finance small projects in several sectors targeted to benefit a

country’s poor and vulnerable groups based on a participatory manner of demand

generated by local groups and screened against a set of eligibility criteria.’1 A distinguish-

ing characteristic of social fund projects is that they allow local stakeholders to influence

decisions on investment priorities through submitting subproject proposals. ‘Local

stakeholders can include local governments, NGOs, central ministries, or private

organizations.2

The OED Review examined the outcome (comprising relevance, effectiveness in

achieving objectives and extent of development impact, poverty targeting, and efficiency),

sustainability, and institutional development impact of social fund projects (World Bank,

Copyright # 2002 John Wiley & Sons, Ltd.

*Correspondence to: Howard White, Institute of Development Studies, University of Sussex, Falmer, BrightonBN1 9RE, UK. E-mail: [email protected] Bank Social Funds Website, Social Protection Unit, November 2000.2Out of 60 projects with available information, NGOs are eligible to apply in 36, local governments in 37, centralgovernment agencies in 18, and private entities in 5 projects.

2002a). This paper reports the Review’s findings on only two issues examined, namely the

sustainability of benefits and the institutional development impact. The review adopted a

theory-based methodology (Weiss, 1998; 2001) which relies on an examination of the

assumptions underlying a programme intervention and the mechanisms and processes on

which it is based, which is particularly useful where it is premature to observe outcomes.

Both quantitative and qualitative data were collected using a range of instruments.3

2 SUSTAINABILITY OF SUBPROJECT BENEFITS

Sustainability of subproject benefits can be assessed in two ways: (i) directly measuring

facility use and maintenance; and (ii) measuring the extent to which the mechanisms or

conditions for a sustainable flow of benefits are in place (i.e. theory-based approach).

Direct measures give a picture of the state of the infrastructure and service flows at the

time when they are measured. Since social fund subprojects tend to be relatively recent,

this approach may not accurately assess the probability of sustaining benefits over the

intended life of the subproject. Hence, the need to use more than just simply the direct

measures.

2.1 Directly Measuring Sustainability

Three elements of subproject sustainability can be directly observed: (i) technical quality;

(ii) current staffing and equipment levels; and (iii) current levels of maintenance.

2.1.1 Technical quality

The OED portfolio assessment found technical quality of social fund infrastructure to be

variable across countries and between sectors. Findings on construction quality based on

facility surveys by engineers and focus group discussions conducted by the Social Funds

2000 Impact Evaluation background reports were mixed, though the general result was

that social fund facilities performed were at least as good as other facilities.4 While

beneficiaries were generally satisfied with the quality of subprojects, some problems were

identified in a number of cases. For example, in social fund schools in Honduras, because

contractors were not required to make mains connections for electricity and water closets,

28 per cent of the installations built in schools by the social fund remained unconnected

compared with 4 per cent of those built by other agencies, and the dissatisfaction with

3The main instruments were: (i) literature review; (ii) a portfolio review of the 66 social fund projects based onproject documents, OED, and Quality Assurance Group (QAG) reviews, and task manager interviews; (iii)country cases, including household surveys, focus groups, and key informant interviews as well as institutionalanalysis at the social fund agency, national, local, and community levels in four countries—Jamaica, Malawi,Nicaragua, Zambia—and field research without household surveys in Argentina, Bolivia, and Eritrea; (iv) asurvey administered to the participants of the Second International Conference on Social Funds held inWashington, DC, in June 2000; (v) a survey of Bank Country Directors and Resident Representatives in countrieswith social fund projects; and (vi) a survey of Bank Sector Directors. The OED household surveys covered 3056respondents in 845 randomly-selected households in 17 randomly selected social fund–assisted communities, and842 randomly selected households in 17 matched communities in four countries.4Three caveats need to be placed on the findings. First, social fund facilities and the comparator facilities are notof the same age. Second, the social fund facilities surveyed were 1 to 3 years old, while sustainability problemstypically show up in later years. Third, the coverage is mostly of schools, health, and water and sanitation, not ofother social fund activities such as roads.

612 S. Carvalho et al.

Copyright # 2002 John Wiley & Sons, Ltd. J. Int. Dev. 14, 611–625 (2002)

operational problems within the control group was much lower compared with the social

fund group. Results on construction quality varied across sectors with the water sector

facing particular problems. For example, in Honduras more than one in five households in

the area of influence of water projects reported problems with the quality of the water

system, mainly due to design faults and the use of poor-quality materials.

2.1.2 Staffing and equipment

The Social Funds 2000 Impact Evaluation report indicates that nearly all social fund

facilities surveyed in the six countries were in operation and were staffed and equipped one

to three years after their completion. Staffing and equipment levels were better or equal to

those in comparator facilities (not controlling for age of facilities), but both types of faci-

lities suffered shortages. Thus, inadequacy of inputs rather than their complete absence was

the issue. Evidence for one of two countries for which there is evidence suggests that better

staffing of social fund facilities may have been at the expense of declines in other facilities,

raising the question of the balance between capital and recurrent expenditures.

The respondents of the OED household survey in the four countries who had heard

about the social fund project were asked about their perception of adequacy of staffing,

their view on facility supplies, improvements in staff attendance (since the base year5), and

improvements in the availability of supplies (since the base year). For all four countries, a

larger proportion of the respondents from the social fund–assisted community compared

to the matched community had a favourable view of each of these issues, although the

absolute percentage of respondents perceiving adequate staffing in social fund–assisted

facilities was low, except in Nicaragua. In addition, a large percentage thought the facility

needed improvement; Nicaragua was again an exception. The OED stakeholder survey

found that about two-thirds of the respondents thought that the social fund–financed

infrastructure had maintenance and service flows at least as good as similar facilities

financed by the government.

2.1.3 Maintenance

Maintenance problems in social fund sub-projects have been more pronounced than

problems with operations. According to Walker et al. (1999) engineering site surveys rated

maintenance of works as ‘good’ for 53 per cent, 91 per cent and 80 per cent of social fund

water, sewerage, and latrine projects respectively; for schools and health clinics, data are

available for cleanliness which was rated ‘good’ for 53 per cent of social fund schools and

36 per cent of social fund health centres. According to the qualitative evidence in the same

report, none of the cases studied showed fully satisfactory results with respect to the

maintenance of works. While the vast majority of respondents of the OED household surveys

in four countries felt that the facility was clean and well maintained, the survey also showed

that only 35 per cent of the respondents in Jamaica, 39 per cent in Malawi, 29 per cent in

Nicaragua and 10 per cent in Zambia perceived that required repairs were done quickly.

2.2 Examining the Conditions for Sustainability

The second means of examining sustainability is to determine the extent to which the

conditions for sustainability are met. Five conditions for sustainability were identified,

each of which is discussed in turn.

5The analysis compared the perceptions of respondents at the time of the survey with those before approval of thesocial fund project (base year). The base year was the year before the start of the subproject.

Findings from an OED Review 613


2.2.1 Arrangements for ensuring technical quality

Social funds have adopted several procedures to ensure that constructed facilities are of

good quality, for example the use of standard facility designs, and supervision during

construction. Standard facility designs, often those of the ministry, were used by more than

half of social funds. However, ministry standards and designs have been inappropriate for

some kinds of social fund infrastructure. A few social funds have developed their own

designs and standards where these were non-existent or inappropriate and helped

ministries improve theirs. In order to ensure supervision of subproject construction, social

funds have used external supervisors, social fund staff, or community volunteers.

However, as shown both in project documents and by OED field research, these

arrangements have faced problems, for example in the Honduras and Nicaragua social

funds there were common complaints within communities about inadequate supervision

that sometimes allowed contractors to cut corners or use substandard materials. Giving

responsibility to communities for subproject implementation, without adequate support,

has also been associated with problems in technical quality. A World Bank paper noted

that ‘community-based organizations have the most difficulty conforming to project

standards because they lack the technical skills among them or cannot afford to hire

skilled labor’ (Khadiagala, 1995).

2.2.2 Clarity and awareness of roles and responsibilities

‘The social fund [agency] and project beneficiaries need to have accurate information on

the recurrent cost implications of every project if the feasibility and sustainability of the

project is to be assessed and commitments to sustain the project after completion are to be

honoured. This has been one of the weakest elements of some social fund operations’

(Weissman, 2000). OED’s portfolio assessment found several instances where the

operations and maintenance responsibilities and obligations of the different parties were

not adequately specified or handover and ownership issues not explicitly addressed up

front. For example, in Argentina, there was confusion between the existing and the new

community organization over the legal ownership of the social fund infrastructure

(Serrano, 2002).

Lack of clarity of responsibilities was a more common problem with respect to

maintenance than operations; operations responsibilities were usually outlined in frame-

work agreements or case-by-case agreements between the social fund and the relevant

agencies. Maintenance responsibilities were left to be agreed at a later stage, typically at

subproject completion. Most Operational Manuals, consequently, addressed maintenance

issues only cursorily. The recent use of Maintenance Manuals in some social funds can be

expected to improve the situation. At the community level, a Bank review of social fund

Beneficiary Assessments found ‘a significant and fairly universal problem with the lack of

information and/or misunderstanding on the part of beneficiaries about the role and rules

of the game of the social funds’ (Owen & Van Domelen, 1998, p. 27). In Peru about one-

third of the beneficiaries interviewed were not aware of the community’s commitment to

maintain the works, and information gaps were closely associated with negative outcomes

in terms of participation and sustainability. This is a particular concern for services that

depend significantly on community management, such as water supply. Social funds have

taken measures to clarify and improve awareness about roles and responsibilities, e.g. the

distribution of project manuals to beneficiaries and mandatory project launch workshops

(Owen & Van Domelen, 1998, p. 28).



OED’s household surveys found that in Nicaragua and Malawi only a small proportion

of households were unaware of responsibilities for facility repairs (9 and 18 per cent,

respectively). Forty-two per cent of the respondents in Jamaica and 40 per cent in Zambia

were unaware of who was responsible for facility repairs. In Jamaica 60 per cent of the

respondents had no idea who was responsible for paying for repairs, in Malawi 43 per cent,

in Zambia 42 per cent, and in Nicaragua only 14 per cent. In Malawi, an additional 9

per cent of the respondents indicated that ‘no-one’ was responsible for paying for repairs.

This is a particular concern for services that depend significantly on community manage-

ment, such as water supply. The efforts needed to improve community-level clarity and

awareness of roles and responsibilities will depend on the intended nature and extent of the

community’s and other agents’ role in operations and maintenance.

2.2.3 Willingness to undertake operations and maintenance obligations

Willingness appeared to be less of a problem than ability as far as continued operations

and maintenance of social fund investments was concerned. Government entities have

generally been willing to meet their obligations, as demonstrated through framework and

subproject-specific agreements. But, when the relevant agencies have not been party to

social fund decisions about specific investments, willingness has been an issue. In

Jamaica, parish councils were not involved in the identification and implementation of

road projects and were unwilling to maintain them.

At the community level, the OED household surveys broadly supported the view that

the vast majority of beneficiaries were satisfied with the chosen investment. Consequently,

it may be concluded that communities were overall willing to keep the investment running.

The OED household surveys found that, of the respondents who said that the facility

needed physical improvements, 88 per cent were willing to pay for these improvements in

Jamaica, 85 per cent in Malawi, 71 per cent in Nicaragua, and 90 per cent in Zambia. The

community-level qualitative data also confirmed the idea that communities felt respon-

sible for social fund facilities, for example, ‘we also use the borehole carefully to avoid

damage since we had contributed a lot’ (Malawi). This was also confirmed by OED’s

institutional analysis based on field research in Jamaica, where communities were

enthusiastic about maintaining social fund investments.

2.2.4 Ability to undertake operations and maintenance obligations

Ensuring subproject sustainability requires three types of capabilities on the part of the

entities responsible for operations and maintenance: financial ability, technical ability, and

institutional ability.

At the government level, financial ability is linked to two issues: (i) the overall policy

environment for sectoral investments; and (ii) the balance between capital and recurrent

budgets. Lack of government budgets for operations and maintenance often reflect the

financial constraints in general for government. In Nicaragua, the health ministry commits

itself to meeting recurrent costs, while at the same time admitting there will be no

money for them (Dijkstra, 2002). Social funds have tried to improve coordination with

ministries or local governments. However, for investments that depend heavily on

government for recurrent cost financing, sustainability will remain closely tied to the

availability of government budgets and may call for systemic fiscal and sectoral reform. If

recurrent finance is a binding constraint social funds should not further expand the stock of

capital.



At the community level, OED’s portfolio assessment showed that communities have

often fallen short on the financial, institutional, or technical wherewithal to ensure that

facilities are operated and maintained. It has been noted that ‘in many cases, [main-

tenance] problems remained unresolved and often escalated, reflecting the community’s

practical inability to resolve them either directly or through appeal to the competent

authority’ (Walker et al., 1999).

The extent to which financial systems already exist for collecting of fees varies greatly

between countries and sectors. The Social Funds 2000 study noted that the long-term

sustainability of water and sanitation subprojects may be adversely affected by inadequate

cost recovery. In none of the countries where data were collected did all households report

paying for services, the general perception was that the amount collected was insufficient

to cover operations and maintenance.

Community capacity for operations and maintenance can be supported by the require-

ment to form maintenance committees, provision of maintenance manuals and training.

Where these mechanisms are lacking, subproject sustainability suffers. For example, for

the Peru social fund, it was noted that more emphasis was needed on training beneficiaries

in operations and maintenance, especially in water supply and sanitation. Recent social

fund projects are giving more attention to community training for operations and

maintenance and other community-level arrangements are also being put in place to

ensure sustainability, indicating a learning curve.

2.2.5 Arrangements for ensuring that sector specificity is adequately addressed

OED’s portfolio assessment found differences in sustainability between sectors. Recurrent

expenses were most likely to be met for the education and health sectors, although staffing

problems were more common for health facilities. Water and sanitation projects experi-

enced the most problems in operation from the outset, due to poor or inappropriate

technical design or lack of local organization or technical capacity. Poor maintenance of

roads and bridges was due not only to lack of funds, but also unclear ownership and

responsibility. Maintenance problems have been severe for water and roads facilities since

there is not always an obvious institution to take responsibility or clear mechanisms for

levying tariffs. Arrangements for sustainable service delivery must reflect the nature of

goods and services being delivered. For example, for services with mainly private impacts,

individuals or households can choose what they want to consume and pay accordingly, so

demand and supply can be determined through the market; for services with mainly

neighbourhood-level impacts, a local community group (or its agents) should plan and

finance through local benefit taxes or user charges; for services with inter-community or

city-wide impacts, local (or district) government or its agencies should plan investments,

ensure technical/systems coordination, and organize financing (Kessides, 2000).

3 INSTITUTIONAL DEVELOPMENT IMPACT

Generalizations about the institutional impact of social fund projects are difficult because

the projects vary widely in their country conditions, objectives and design, and nature and

scale of activities, and because of changes in these factors over time. Furthermore, social

fund projects have not systematically monitored institutional development impacts and, as

a result, empirical data are limited. Of the 66 projects in the portfolio, 47 per cent had

explicit institutional development objectives, to build the capacity of central or local



governments, the private sector, NGOs, and/or community organizations. The most

significant changes over time have been a decline in attention to building capacity at

the central level and an increasing focus on local governments and communities.

All social fund projects have financed investment in building the capacity of the social

fund agency, through staff training, technical assistance, study tours, etc. with some

impressive results. Through building teams of results-oriented professionals, many social

funds have distinguished themselves as learning organizations, adapting to changing

country conditions, responding quickly and effectively to new emergencies, establishing

transparent operating procedures, putting sophisticated management information systems

in place, and developing innovative approaches to community contracting. Bank project

documents attribute much of this effectiveness to the autonomy of the social fund agency.

Superior performance of the social fund does not in and of itself imply a significant

institutional development impact. The latter depends on the extent to which the social fund

promotes wider adoption (of values, behaviour, methods, processes and skills) in national

and local institutions, through its interaction with other agents. Social funds can affect the

wider institutional environment, both positively and negatively, through the following

channels:

* Direct effects: through an explicit institutional development component, providing

training or technical assistance to other organizations.

* Demonstration effects: methods demonstrated by the social fund are adopted by other

agencies.

* Learning-by-doing effects: where other agencies gain experience in using new methods

through engagement in subproject planning or implementation.

* Competitive effects: other agencies improve their own efficiency in order to compete for

resources and power, or, negatively, they withdraw from tasks and responsibilities

assumed by the social fund.

* Demand effects: social fund activities generate additional demand at the community

level for the services of government agencies, NGOs, or private contractors thereby

stimulate capacity to meet that demand.

* Resource mobilization and allocation effects: the social fund mobilizes previously

unutilized community/local capacity, or contributes to a rationalization of resource use

by government; and/or negatively, the social fund agency attracts competent staff and

other resources away from government agencies, thus weakening the latter.

* Systemic planning, budgeting and accountability effects: the social fund contributes to

transparent and efficient public sector processes; or negatively, social funds bypass

budgetary and sectoral planning processes, undermine accountability of public

agencies, and inhibit fiscal and budgetary reform.

3.1 Effects on Central Government

Institutional development impacts on central government have taken five forms: direct

training or technical assistance for central government staff; direct engagement of central

agencies in social fund processes as eligible subproject sponsoring agencies; demonstra-

tion of new approaches; secondment of central government staff to the social fund; and

co-operation between the social fund agency and central government on technical

standards, investment planning, targeting, and other functions.



Some of the early social fund projects (6 of the first 18) had explicit objectives to build

capacity at the central government level, and many without explicit objectives included

components to finance training and technical assistance. Of the 24 projects for which data

were available, more than 60 per cent included some training for central government

officials, while 37 per cent provided technical assistance. Overall, progress in building

capacity at the central level through direct training and technical assistance has not met

expectations and recent projects have been less ambitious in this respect. Weaknesses in

the design and delivery of training are partly to blame, but demand factors—such as

frequent staff transfers, lack of motivation, and lack of incentives among government staff

to receive training—have also been important. The scope for learning-by-doing effects,

through direct engagement as subproject sponsors or intermediary agencies in social fund

processes, has been small at the central level and has declined substantially. In only a few

countries have central government agencies been eligible to apply for social fund

resources.6 Of the 24 projects, the share with more than 10 per cent of their resources

going to central government declined from 60 per cent before 1994 to only 11 per cent

from 1994 to 1999.

Demonstration effects have been more significant, but still limited. Ten out of the 24

projects reported carrying out regular dissemination of information to government staff on

new development approaches. Secondment of central government staff to the social fund

has become more prevalent (reported for one in five projects since 1994). Reported

impacts have included changes in procurement and contracting procedures, adoption by

government agencies of competitive bidding procedures and revision of public sector

procurement regulations. Use has also been made of poverty maps and management

information systems developed for the social fund. In Guatemala, a pilot programme to

train community members in teacher selection and supervision was adopted by the

Ministry of Education. However, such examples are not widespread. OED field research,

portfolio assessment, and stakeholder interviews indicate that line ministry staff tend to

resent the independence and perceived privileges of the social fund. When the fund is

reputed to be achieving better results and efficiency, ministry staff are inclined to attribute

this to the greater resources of the social fund rather than differences in working methods.

There is evidence of both positive and negative impacts from competition with the

social fund. For example, in Nicaragua, competition between the social fund (FISE) and

INIFOM (the institute charged with the development of municipalities) appeared to have

had some effect in prompting greater efforts to improve effectiveness. On the other hand,

FISE’s entry into water system delivery brought it into competition with ENACAL (the

existing agency responsible for delivery of water systems) leading to co-ordination

problems as FISE had difficulty in matching all the technical standards of ENACAL.

No evidence was found, however, of social funds displacing skilled manpower on any

significant scale from government agencies—the numbers involved were not significant

and social fund staff were often drawn from the private sector.

Interaction at the central level has mainly been through mechanisms to co-ordinate

social fund activities with sectoral budgets and technical standards. This co-ordination

takes various forms: (i) line ministry representation on social fund steering boards; (ii)

framework agreements between the social fund and line ministries defining co-operative

arrangements; and (iii) the requirement for prior approval of subprojects by the relevant

6When central government agencies have filled this role, their methods were found to be less participatory thanother agencies (Owen & Van Domelen, 1998).



line ministry. Of the 24 projects for which task managers provided detailed information,

16 have required a formal coordination agreement specifying respective roles, and 3 have

included procedures for regular review of the agreement. Sixteen of the projects had a

working-level liaison person in the relevant sector ministries, increasing from 20 per cent

before 1994 to 79 per cent since then. Twelve required screening, clearance, or approval of

subproject proposals by central government, but this share declined from 80 per cent in

1987–93 to 42 per cent in 1994–99. Fifteen required clearance of social fund infrastructure

norms and technical standards. These mechanisms appear to have been sufficient at least to

secure central government acknowledgement, where relevant, of recurrent cost obligations

for the facilities financed by the social fund (although budget constraints have often

prevented them from fulfilling these obligations).7 They have usually not been sufficient,

however, to ensure that social fund investments are integrated into sectoral policies and

public investment strategies.

Nevertheless, social funds have increased general awareness of the feasibility of new

approaches in the public sector: approaches to investment decisions and service delivery

that are more client-responsive; poverty targeting of investments; and the potential for

public agencies to work with NGOs and the private sector. For example, in Nicaragua, the

social fund seems to have made the central level more aware of the contributions local

levels can make in decision-making especially in the education sector (Dijkstra, 2002). In

Bolivia, the emergency social fund improved the relationship between the central

government and NGOs. In Thailand, the social fund is facilitating central government

collaboration with civil society organizations. In Egypt, the social fund has been

successful in promoting partnerships between central government, NGOs, and the private

sector, despite strong initial resistance.

Negative institutional impacts relate to sectoral planning, efficiency of resource

allocation, or budgetary transparency, especially when the social fund accounts for a

substantial share of public expenditure. Concern has been raised in a variety of contexts

that a social fund inhibits sectoral planning and may displace or undermine sectoral reform

efforts. A Bank evaluation document for the first emergency social fund project for

Bolivia, for example, flagged the danger that if a social fund programme was not limited to

a fixed period it was liable to dilute or slow reform efforts. Similar points were made in

evaluations of social fund projects in Guyana and Egypt.

In some contexts, a ‘successful’ social fund may attract increasing donor assistance at

the expense of line ministries, distort the balance of expenditure between sectors or

between capital and recurrent expenditure, and delay quality improvements in the services

themselves. When social funds are responsible for allocating a significant share of

investment resources in the education or health sectors, the ability of the relevant

ministries to allocate capital resources according to sectoral criteria (such as enrollment

and attendance rates, projections of pupil numbers, data on school performance, epide-

miological conditions) is diminished. In addition, since social funds typically finance only

investment costs, success of a social fund in attracting donor resources is liable to

exacerbate any existing bias toward capital over current expenditure in the social sectors.

This tendency is in opposition to the World Bank’s strategies for assistance to the social

7Nicaragua FISE, for example, finances health posts only if the ministry of health approves and also asks forapproval at departmental and municipal levels. Nevertheless, health posts have closed due to the non-availabilityof personnel. FISE confirmed that 6 FISE health posts were without personnel in 1999 (Dijkstra, 2002).



sectors, which point to the need for more attention to the quality of service and outcomes

relative to investment in buildings.

Particular difficulties arise when major restructuring is under way, as in Europe and

Central Asia, where strategies for the education and health sectors require rationalization

of excess infrastructure. Unless the social fund’s targeting criteria are closely co-ordinated

with rationalization plans, its activities risk inhibiting these difficult reforms. Social funds

are now giving more attention to these issues in different ways: in Romania, for example,

the social fund is not financing health or education facilities, leaving this to sectoral

projects; in Moldova, the social fund has contributed to innovations in school heating and

space rationalization, and it invests in village health posts only after ascertaining that they

are not planned for restructuring; in Armenia, where major reforms of school finance and

governance are being implemented, the social fund is aiming to align its activities with

these reforms by working through the newly elected school councils.

3.2 Effects on Local Government

Social fund engagement with local government has taken three forms: direct training or

technical assistance; local government participation as an eligible subproject sponsor; and

participation by local government staff in social fund subproject cycle functions such as

identification, appraisal and supervision. Fourteen of the 66 Bank-financed social fund

projects have had specific objectives for building the capacity of local governments, while

nine of the 24 projects for which data are available included provision of substantial training

to local government staff. Results have been more positive than at the central level.

‘Learning-by-doing’ has depended on the extent to which responsibilities have been

delegated to local governments. Of 60 social fund projects, 60 per cent included local

governments among the entities eligible to apply for social fund resources, but only

8 per cent worked exclusively through local governments, while 23 per cent worked only

with communities. Eleven of 23 projects for which the information was available reported

no social fund resources at all going to local governments.

Whether local governments or community organizations act as the subproject sponsor,

the recent trend among social fund projects has been to involve local governments and

local line ministry representatives in identifying, appraising and supervising subprojects.

Twelve out of 24 projects have required screening of subproject proposals by local

government, while 7 have included direct local government participation in all phases of

the subproject cycle. Social funds in sub-Saharan Africa have typically worked directly

with communities, but this approach is increasingly being adjusted to support the growing

national commitment to decentralization or deconcentration of government functions. In

Eritrea, Malawi and Zambia, teams of local administration staff carry out desk and field

appraisals of subprojects, while the social fund officer provides support. Some districts are

now using these teams to manage other activities, i.e. there has been a learning effect. In

Zambia, the social fund provided resources at the local level, without which the planning

process had been ‘empty’, using existing district development co-ordinating committees

(comprising representatives of the sector ministries at the district level) to supervise the

use of those resources. The Nicaragua social fund is piloting a micro-planning process as

the basis for subproject selection, giving responsibility to municipalities to organize

community workshops and prioritize proposals in a Municipal Investment Plan, for

financing by the social fund and other domestic and international agencies. The few



projects that have given significant decision-making power to local governments have

reported positive impacts in building local government capacity, including increased

interaction between the population and local government; strengthened technical, admin-

istrative, and financial management capacity; and strengthening the position of local staff

relative to the central ministries.

Negative effects on decentralization mirror those at the government level on planning,

budgeting, and accountability. When significant functions have been devolved to elected

local governments, social funds that work directly with communities diminish a local

government’s accountability to the population and inhibit its budgeting function (as in

Peru & Jamaica; Parker & Serrano, 2000; Dijkstra & Green, 2002).

3.3 Effects on Communities

Social funds aim to have an institutional development impact at the community level

through project training and experience through learning-by-doing. It is also thought that

the capacity of the community for collective action may be improved through the

experience of working together on a subproject; i.e. social funds build social capital.

Thirty-two per cent (21 of 66) of social fund projects in the portfolio included community

capacity building among their objectives. Community empowerment was mentioned

among social fund objectives in 12 per cent of projects. Five per cent of projects (all

relatively recent) mentioned increasing social capital and social cohesion among their

objectives.

Half of the 24 projects for which the data are available provided training for

communities and 10 provided technical assistance. Project supervision and completion

reports indicate that the planned community training has often not been fully implemen-

ted, while beneficiary assessments report requests for more training at the community

level. OED’s community studies in two countries8 found an insignificant impact of social

funds (compared with matched communities) in developing capacity and skills at the

community level. However, key informant interviews with subproject committee members

mentioned some new skills among committee members. This apparent discrepancy is

explained by the fact that skills development was concentrated among the small number

most closely involved in the subproject and, therefore, not picked-up by a random sample.

With respect to social capital effects, comparing social capital changes in social fund

communities with those in non-social fund communities, the OED findings were mixed. A

statistically significant positive impact was found for both bonding and bridging social

capital in Jamaica, while in Nicaragua no significant impact was found for bonding social

capital and a significant negative impact was found for bridging social capital.9 In Zambia,

there were mixed bonding social capital effects (positive on one variable, negative on the

other) and there was no significant bridging social capital effect. In Malawi, no significant

bonding or bridging social capital effects were found.

The OED household surveys and institutional analysis showed that to prepare success-

ful proposals, mobilize community contributions, and manage subproject execution, the

subproject process has depended on ‘prime movers’ in the community, whose interests are

8Malawi and Zambia. Data relating to capacity building and skill development were not available for Jamaica andNicaragua.9This is despite the fact that all sampled projects in Nicaragua were 1998 or post 1998-approved projects by whenFISE had given explicit attention to community participation.



influenced by their position—for example, in the education or health sectors. At the same

time, the relatively brief engagement of the social fund with a community has meant that

the process depends largely on existing organization in the community. Overall, social

funds have operated as users rather than producers of social capital, relying on existing

social capital. Building on existing institutions to develop collective capacity in functions

that are new (for example, when users’ committees are needed to manage water supply or

roads maintenance) to the community takes more time and different skills than have

typically been provided through a social fund. The absence of local champions for projects

such as roads means they are less likely to be selected, and more likely to run into

problems of implementation or maintenance if they are chosen.

3.4 Effects on Private Sector

Social fund engagement with the private sector has taken three forms: direct support

through microcredit or training; creating demand for services of private business; and

changing the environment for small business by establishing the use of competitive

procurement procedures. The institutional development impact has been substantial in

countries where these sectors were weak, and where the use of force account has been

replaced by competitive contracting.

About one in four social fund projects have supported microcredit components with

uneven results. Many of the schemes experienced problems traditionally associated with

such programmes, including lack of financial sustainability, not fitting into the country’s

financial system, and weak administrative capacity. However, at least two schemes in very

different country conditions have been successful. In Albania, strong ownership at the

village level made it possible to sustain high repayment rates even through the growth and

collapse of the pyramid schemes and ensuing civil crisis. Success of the programme in

Honduras was attributed to the capacity and experience of administering NGOs.

Creation of business opportunities has occurred primarily through the increase in

demand for the work of construction contractors, financial intermediaries, and consulting

firms financed through social funds. In Africa, working capital constraints to starting small

construction businesses have been overcome through contracting at the community level

with materials purchased by the social fund. The picture is different in parts of Latin

America where the private construction sector is already well established; in fact, a

concern there has been that the incentives of enterprising contractors can dominate the

participatory process and bias community demand. However the OED household surveys

did not find evidence of contractors leading the subproject identification process, although

political leaders such as mayors were found to be important. Improvements in the

environment for small and medium-size business have been greatest where the existing

environment was weak. Social funds in some transition countries, such as Armenia and

Albania (and to some extent in Nicaragua) have had a particular impact in introducing

transparent competitive procurement practices, developing the capacity of local organiza-

tions to apply these practices, facilitating the creation of new private contracting enterprises,

and through eligibility requirements, encouraging legal registration of companies.

3.5 Effects on NGOs

Social fund engagement with NGOs has taken three forms: training and technical

assistance; NGO participation as eligible subproject sponsors or intermediaries; and



subcontracting of specific activities, such as outreach or service delivery to NGOs. Eight

of the 66 projects included specific objectives related to building capacity of NGOs, such

as training, often through a specific capacity-building component of the project (as in

Yemen, for example). The most significant impacts, however, have been through

participation as intermediaries or subcontractors. Of the 60 social fund projects for which

information is available, 36 projects (60 per cent) have included NGOs as eligible sponsors

for subprojects. Typically, in Latin American and Middle East and North African

countries, NGOs have been eligible to apply for subprojects. African funds, on the other

hand, have rarely afforded an intermediary role for NGOs, preferring to work directly with

communities, thereby creating competition between NGOs and the fund and prompting

criticism by NGOs. The few examples of social funds working with NGOs in Africa are

those in Madagascar, Benin and Malawi.

The degree of success has varied depending largely on the nature and strength of the

NGO sector, but also on the preparedness of the social fund to ensure clear mechanisms for

NGO participation, and be adaptable in responding to capacity-building needs. In Malawi,

despite the assessment that local NGOs were not well-suited to play a significant role,

MASAF has now developed an innovative and participatory approach to co-operate with

NGOs through one component, giving NGOs a role in sponsoring subprojects for AIDS

victims, street children, orphans, and other vulnerable groups. In some other countries,

those NGOs with the best record in participatory development projects have been

unwilling to work with what was perceived as a government structure or to accept the

time and disbursement pressures of social funds. In Bolivia, however, the autonomous

status and transparent procedures of the social fund made it possible to establish credibility

and working relationships with organizations that were ideologically opposed to adjust-

ment policies and distrustful of government programmes.

4 LOOKING AHEAD

It is important to clarify what can and should be expected of social funds with respect to

the sustainability of subprojects. The social fund can supervise and support technical

quality, ensure that subprojects conform with the policies and operating budgets of line

ministries and/or local governments, ensure that all parties are aware of, and committed to,

carrying out their responsibilities, and support the ability of communities to play their part

in operations and maintenance. For subprojects whose operation and maintenance are

within the remit of the community itself, the social fund can support community capacity

building. Many types of subprojects, however, depend on government for operations and

maintenance and are subject to prevailing fiscal and sectoral constraints in the country. In

these cases it may be unrealistic to expect that operations and maintenance of social fund

facilities would differ substantially from the norm. Significant improvements would

depend on systemic reforms beyond the scope of the social fund or the community. The

scope and scale of activities undertaken by a social fund should be guided from the outset

by assessment of operations and maintenance capacity and constraints in each of the

sectors of social fund intervention in the country concerned, including the existing

composition and balance of public expenditure, and projected fiscal capacity.

Although most social funds were conceived as temporary organizations with short-term

objectives, their mandates have been extended. They have continued to attract donor

finance, refine operating processes, and expand their activities. Of the 66 projects in the



Bank portfolio, 24 have been follow-on projects with existing social fund agencies. There

has been little movement to reduce their heavy dependence on external funding or to

integrate them as mainstream government agencies. The lack of clarity in the fund’s role

relative to other agencies becomes a serious issue as the scale and scope of social fund

operations expand.

Unless the social fund is confined to niche activities, its ultimate institutional devel-

opment success will be demonstrated by: (i) making itself redundant by building the

capacity of permanent institutions to take over its functions; or (ii) integrating itself with

mainstream institutions and without special status. Early social funds were expected in

time to transfer their functions to central government institutions but did not achieve this.

The majority of subsequent projects have had no clear strategy to overcome the anomaly

of social fund status as their scale of activities is increased in a de facto long-term role.

Some strategies are emerging to limit the autonomy of the social fund from the outset, or to

allow at least theoretically for eventual phasing out or integration of the social fund. For

example, in Zambia, the long-term plan under the ZAMSIF project is to build the capacity

of local governments to the point where the social fund is not needed, with the eventual

aim that funds will be passed in a block grant from the centre to districts to manage. In

Bolivia, the social fund is due to be integrated with similar funds in a new national

municipal fund providing matching grants to local governments for poverty-oriented

expenditures.

The viability of these strategies has not yet been proven. Efforts are being made to move

the primary focus of some of the older social funds from infrastructure delivery to

enhancing development impact, capacity building, and subproject sustainability, but this

transition is proving difficult in some cases. The shift requires a change in performance

incentives, staffing and skills mix. It may involve a trade-off in terms of speed and

predictability of disbursements and tangible asset creation. The appropriate institutional

arrangements and exit strategies for social funds can only be assessed case by case

depending on the project objectives, the nature of goods and services to be delivered, and

the institutional constraints and opportunities in the country.

ACKNOWLEDGEMENTS

This paper is based on the OED report ‘Social Funds: Assessing Effectiveness (World

Bank, 2002a). Contributions were made by Caroline Bahnson, Anju Gupta Kapoor, and

Svenja Weber-Venghaus. In addition, the review drew on background work by a number of

people and benefitted from comments and other inputs from many others. Financial

support was provided by the Swiss Agency for Development Co-operation and the

governments of Belgium, Denmark, Germany, the Netherlands, and Norway. The usual

disclaimer applies.

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