From Social Funds to Local Governance and Social Inclusion Programs A Prospective Review from the Rodrigo Serrano-Berthet ECA Region May 2007 T H E W O R L D B A N K Overview T H E W O R L D B A N K T H E W O R L D B A N K Europe and Central Asia Region Human Development Sector Unit Introduction a questionnaire of social funds; short field trips to several countries (Georgia, Bosnia and Herzegovina, Romania, Turkey, The role and relevance of Social Funds/Community- Ukraine); and interviews with Task Team Leaders (TTLs). Driven Development (SF/CDD) have been highly debated in the international development community. Some conceive these programs only as parallel A Typology of Social Funds and temporary arrangements that can ensure short-term delivery of development benefits in contexts of dysfunctional A social fund is defined as (i) any central (or state) public sectors. Others emphasize the flexibility of the government financing facility that has discretion to program SF/CDD instrument in adopting different institutional forms and transfer small grants to local actors (ii) for multisectoral depending on the country context, and their contributions investments in local public goods and services that benefit to long-term development challenges. the poor, (iii) in a way that builds the capacity of community groups and/or local governments to engage in community This debate is particularly relevant in the Europe and driven development. While many SF are semi-autonomous Central Asia (ECA) region. Since the first social fund was agencies, the specific organizational structure of a fund is not created in 1993 in Albania, governments and donors have a defining feature of the instrument. SF can be Ministerial actively supported Social Funds in the Region as instruments units/programs using government systems. From a public to deal with a range of issues, from inadequate access to sector perspective, the key feature of a SF is the existence of services, to local infrastructure provision, to social exclusion. a separate, flexible, grant-making facility for local projects. The World Bank is currently supporting SF operations in 14 ECA countries and preparing new operations in five more. The basic question that policy makers must answer to justify the relevance of an SF instrument is: The circumstances under which most Social Funds What in the country context or policy objective makes a were created have changed significantly. For example, discretionary fund for multi-sectoral, demand-driven, pro- there is less conflict; institutions shaken up during transitions poor investments in local infrastructure and services a more have become more stable and capacity has grown; and there appropriate choice than using regular government systems is an overall trend towards expanding and deepening the programs? Here are three possible rationales: process of decentralizing government. Many of these changes n Stop-gap: Government structures and systems are have taken place in the context of either incorporation into dysfunctional and the Fund provides a temporary the European Union, or the expectation of future accession means of channeling resources to the local level. to the European Community. n Compensatory: There are exceptional problems that the regular transfer systems or sectoral programming The main objective of this report is to provide guidance to are not well designed to address, such as natural ECA management and client governments on two questions: disasters, discrimination of minorities, or deep pockets n Is the social fund instrument still relevant in the ECA of poverty. region? Under what conditions? n Innovation and reform: SFs can promote innovation in n What are the future implications in terms of service delivery and in systems development. continuation, transformation, and exit options under different country scenarios? Assessing the relevance of a social fund requires some sort of typology that classifies the policy objectives to which they The study gathered information from a universe of 16 SFs. correspond. Based on the experiences of SFs in ECA, it is Main data sources included bank documents; literature review; possible to distinguish two overarching policy orientations:  From Social Funds to Local Governance and Social Inclusion Programs n Improving local service provision for the poor through Combining these approaches and orientations yields four increased access to infrastructure. SF intervention is types of SFs: justified in response to shortcomings in the regular n Infrastructure Management Funds, whose distinctive system for local capital investment programming. function is to act as contract managers of small-scale This type of SF intervention should be discussed infrastructure projects. in the context of a diagnosis of the country’s n Local Governance Funds, which seek to develop the capacity decentralization framework and policy. of local institutions (Community-Based Organizations and n Protecting poor and vulnerable groups from shocks and Local Governments) to manage local service provision in promoting their social inclusion. SF intervention is a participatory, accountable, and effective way. justified in response to exceptional circumstances of n Emergency Funds as a coping mechanism to post-conflict deprivation. The SF intervention should be discussed environments, natural disasters, and economic shocks. in the context of a country’s strategy for social n Social Inclusion Funds, which deal with social exclusion protection, which identifies vulnerabilities and social and marginalization caused either by discrimination risk management strategies to address them. of ethnic minorities, or by membership in a vulnerable group. A second distinction within each policy orientation relates to its approach to local institutional development—i.e., The figure below maps 15 ECA SFs across the four the importance assigned to developing and strengthening categories of identified SFs, as well as the movements inclusive, accountable, and/or cohesive local institutions, within countries from one category to another.These are which can range from limited to substantial. stylized types.While a specific fund may have elements of more than one type, it should be possible to identify a dominant theme that will situate the SF in any of these four types. Mapping Types of SFs and Their Trajectories in ECA Main Policy Objective Improve local public infrastructure Protect poor and vulnerable groups and service provision from shocks and social exclusion (access, quality, governance)* Local governance funds Social inclusion funds Significant Kyrgyz Republic 1, 2 Slovakia Local Institutional Development Bulgaria Macedonia Serbia Romania 1, 2 Romania 3 Moderate Bosnia 2 Turkey Albania 2, 3 Ukraine, Moldova (social serv comp) Moldova 2 Albania SSDP Infrastructure Emergency funds management funds Limited Moldova 1 Bosnia 1 Ukraine Albania 1 Armenia 2, 3 Armenia 1 Tajikistan 2 Tajikistan 1 Georgia 1, 2 Kosovo 1,2 Shortcomings in regular service provision Response to exceptional circumstances Nature of Intervention A Prospective Review from the ECA Region  Local Governance and Infrastructure communities to manage resources and procure goods and Funds services, and a few have granted procurement powers to local governments, none has transferred resources directly Despite the movements across categories, SFs to be managed by local governments. Although these tend to show a strong path dependency. The design practices have increased local expenditure responsiveness, of most social funds gives primacy to infrastructure. a more strategic design would have a more lasting These are social funds that started under the “stop- impact. Even more, it would allow tapping into the many gap” rationale and gradually included elements of local unexploited opportunities that exist to advance local institutional development into their design. As they did, governments and local service delivery units’ “downward the “local governance reform” rationale crept in; however, accountability” to citizens and communities. the fund still maintained its original logic of being an implementing agency that actively manages projects. Most Although Local Infrastructure SFs have played a positive role funds retained the semi-autonomous agency form, with in the transition period, most of them need to reform a project implementation rather than policy-oriented their institutional setting to be mainstreamed into a mandate. While they have gradually devolved greater country’s decentralization strategy, or exit. However, responsibilities to the local level, these agencies have there is a risk that in the movement towards mainstreaming, still retained substantial control over basic decision- the value-add of citizen voice and control of local making processes at the central level. governments, which is the comparative advantage of SF/CDD, gets lost. This is what seems to have happened in Georgia, All infrastructure and local governance SFs in ECA have where the Georgian Social Investment Fund (GSIF) was contributed to more responsive investment allocation subsumed under the Municipal Development Fund (MDF). processes by providing relatively “untied” investment Management should learn from this and other examples of resources. Social funds have introduced new local institutions social fund transitions in other regions. for LG-CBO interfaces, but have been limited because of their project nature. While some social funds have allowed Mapping Local Infrastructure SFs According to Local Institutional Development Focus Main Institution Being Strengthened Community-based CBO-LG interface with CBO-LG interface with organizations emphasis on CBO emphasis on LG Romania Local Institutional Development Significant Moldova II (Rural Kyrgyz Republic None Communities Component) Degree of Emphasis on Bosnia & Herzegovina Moderate Georgia Albania Macedonia Moldova II (Small Towns Component) Kosovo Armenia Limited Tajikistan  From Social Funds to Local Governance and Social Inclusion Programs Vulnerability and Social Exclusion The main policy objective of SFs involved in social care has been to support the development of a A growing number of ECA social funds have as their core community-based system of social care services. mission protecting poor and vulnerable groups from shocks, SFs have shown the flexibility to act as niche players marginalization, and social exclusion. ECA SFs that targeting groups and regions that mainstream primarily address vulnerability and social inclusion social care services find difficult to reach. SFs have have developed for a variety of reasons, including promoted local government/community partnerships n weak institutional capacity; and service user involvement. n exceptional problems like social exclusion of n In contrast to the former centrally planned, universal particular groups such as people with disabilities or service perspective characteristic of the Communist minorities; de-institutionalization; deep pockets of system, SFs have introduced innovative strategies poverty; and problems that cut across institutional to address the needs of marginalized populations. boundaries, such as homelessness or drug abuse; and SF operations directed towards other marginalized n the need to promote innovation in the models, groups such as older people and people with range, and organization of social care service delivery, disabilities have so far tended to follow the more particularly in countries emerging from the former traditional approach of increasing access to social Soviet Union (FSU) experience. These can be divided assistance services. between Emergency SFs created in fragile, often n Although job creation is frequently cited as one of post-conflict environments (originally Bosnia and the benefits that accrue from the SF, it is generally a Herzegovina, Albania, Armenia, Tajikistan, and Kosovo) secondary benefit of improving local infrastructure. and Social Inclusion SFs created in order to provide Beyond temporary employment, several ECA SFs innovative solutions to social protection issues have as one of their core objectives to improve (Slovakia, Bulgaria, Romania, Serbia, and Turkey). employment opportunities via training, information, and placement services, or via their access to income SFs that played a critical role in addressing generation activities. emergency post-conflict and transition needs were often part of the initial Bank entry into FSU countries and were able to effectively work in weak and chaotic Organizational Structure of ECA institutional environments. In addition, there have been Social Funds situations where the rapid response capability of SFs was used to respond to natural disasters, as in the case Looking at institutional arrangements among the of the Armenia Social Investment Fund (SIF) earthquake ECA SFs reveals that the stereotype of SFs as enjoying reconstruction efforts. In general, emergency response is no full autonomy is not accurate. In general, there is more longer the relevant institutional goal of ECA SFs. Most, if not autonomy in operational and managerial procedures than all, SFs have evolved away from crisis. in budgetary and accountability issues, but this may be a result of being donor-financed, as many of the same Social inclusion SFs, have three main areas of emphasis: (i) arrangements are found in Project Implementation Units social care services, (ii) social inclusion of marginal groups, (PIUs). There is more structural autonomy than policy and (iii) employment and training: autonomy because most SFs are either under a ministry n Social care has been by far the most significant area or governed by ministry representatives through the of SF involvement in the social protection agenda. Board of Directors. A Prospective Review from the ECA Region  There is not one blueprint or public management Options for Future Engagement with model for SFs in ECA, with some closer to fully Social Funds autonomous agencies and others more integrated into line ministries. For every issue analyzed, there is variation For the future, there are really only two overarching and across countries. While the semi-autonomous organizational distinct policy objectives that social funds in ECA may pursue: structure of an SF has tended to be one of its comparative n improving local governance and infrastructure advantages, it is possible to have a fully integrated SF. provision, and Comparing across SFs, Social Inclusion Funds have tended n addressing vulnerability and social inclusion. be more integrated at the policy level and less autonomous at the structural and operational level than Local A social fund can be a relevant instrument within any of Infrastructure Funds. these two policy domains as long as its design fits within one of the following two rationales, and the rationales fit the To align SFs autonomy arrangements with their specific country context, namely: typology calls for greater integration for the local n introducing reforms and innovations for local service governance and social inclusion funds (see figure below). provision, and n providing incentives to compensate for shortcomings in the regular system of public provision, including equity objectives. SF Autonomy Arrangements Under Different Policy Objectives Main Policy Objective Improve local public infrastructure Protect poor and vulnerable groups and service provision from shocks and social exclusion (access, quality, governance) Local governance funds Social inclusion funds n Policy autonomy to be integrated n Policy autonomy to be integrated with decentralization with social protection strategy n Structural autonomy—ideally under n Structural autonomy—ideally under Local Institutional Development decentralization-related ministry social welfare-related ministry n Operational and managerial n Operational and managerial Significant autonomy—increasingly to follow autonomy—increasingly to follow national procedures to degree PIU national procedures to degree PIU approach is being phased out approach is being phased out n Budget accountability—fully budgetized n Budget accountability—fully budgetized n Financial sustainability—increasing n Financial sustainability—increasing share of funding from domestic share of funding from domestic resources including fiscal transfers resources including fiscal transfers Infrastructure management funds Emergency funds Limited Autonomous agency approach may be Autonomous agency approach may be appropriate to respond to short-term appropriate as emergency response needs in weak institutional environment Shortcomings in regular service provision Response to exceptional circumstances Nature of intervention  From Social Funds to Local Governance and Social Inclusion Programs The strategic objective for social funds trying to social care, SFs may have an important role to play in improve local governance is to generate incremental developing innovative approaches, so long as they are changes that support the shift towards responsive envisioned as core programs and not microprojects. and accountable local governments, community-based Innovations in social care must extend beyond organizations that provide opportunities for citizens to social assistance to include access to labor markets, identify and address community concerns, and an enabling healthcare, training, and public services. The flexibility environment that facilitates relations of co-production and and multi-sectoral experience of the ECA SFs can mutual accountability between LG-CBOs. It is possible to help create integrated responses to social care needs identify a few entry points that would be appropriate of a different nature than the multi-sectoral project depending on country context, including: typologies of the previous generation of SFs. n piloting performance-based grants to complement the fiscal transfer system, SFs should be advertised more strongly as n compensating for unfunded mandates, instruments that can facilitate the objectives of the n linking local governments and community groups, EU accession process. ECA countries that are joining n channeling co-financing to link municipalities and/ or or hope to join the European Union must bring their national sectoral objectives, policy frameworks into alignment with EU goals. The EU n exiting to a municipal development fund, and/or accession process represents an important opportunity to n mainstreaming into line ministry support to local mainstream social funds expertise into national systems governments. for local governance and social inclusion, and for the EU process to benefit from SF experience. The approach and The same rationale of supporting innovations and reforms, methods used by social funds in ECA are highly compatible or compensating for inadequate provision of services, can be with the ones favored by the EU, for example, local applied to social inclusion policies. Potential key roles for partnerships, participatory development, a competitive SFs in this context: process for allocating investments, and coordinating and n Increasing specialization as niche players, focusing channeling external assistance. While the operational route on groups that are not well served by mainstream will be different depending on whether the objective is local provision, or as mechanisms for targeting localities/ infrastructure or social inclusion, there exists some common regions that are lagging behind. advice for taking advantage of the SF instrument: n In employment and training, using the comparative n For pre-accession countries that have an SF, it is critical advantage of the SF’s capacity to incorporate that SFs start participating as early as possible as a employment and training initiatives targeted at pre-accession instrument (previous engagement with disadvantaged and marginalized groups within broader the EU is a key determinant of the role that agencies programs of support. play during post-accession). n Addressing social exclusion and the needs of n SFs should try to align their menu of investments with marginalized households and communities with the menu of activities eligible under EU regulations mechanisms designed to support a cross-cutting (low absorption of EU funding in the early years of approach. SFs are particularly well placed to fulfill post-accession is mainly due to the lack of systems this role, especially in environments with limited capable of financing EU-eligible activities). experience of multi-agency cooperation and limited n In post accession countries, if SFs become part of the EU NGO capacity. formal architecture, they must choose between their n Serving as appropriate vehicles for experimenting with role as a grant-making body with project approval broader innovations, like conditional cash transfers. In power or their role as facilitator of local capacity A Prospective Review from the ECA Region  building for presenting projects (EU rules state that As summarized in the table below, there are multiple playing both roles represents a conflict of interest). possible future paths. Transitions will need to be carefully This problem can be avoided if SFs become country- thought-out and a consensus formed for each country. There owned instruments (not part of the EU formal is a great risk of losing the accumulation of experience and architecture) through which governments implement innovations of SFs if a clear institutional transition path is specific measures within an operational program. For not spelled out, especially in the cases where exit is the instance, in Bulgaria the SF will likely be the recipient preferred option. The transitions must be made with a clear of a Global Grant to implement specific measures of understanding of the overriding policy objectives and in light the Human Resources Operational Program. of the current country context and opportunities. Possible Future Paths for SF in ECA SF rationale Exit options Policy objectives Compensatory Reform and innovation Improved local n Cofinancing for inter- n Piloting performance n Mainstreaming CDD/ infrastructure municipal cooperation based grant models local governance provision and to address fiscal n Building participatory approach in agency governance imbalances and equity mechanisms responsible for capacity n Financing window to n Awarding community building/local absorb EU funds partnership grants for governance agenda civic engagement n Providing Municipal Development Funds or Regional Development Agencies Social inclusion n Financing window for n Innovations for social n Mainstreaming in pockets of poverty, inclusion line ministry vulnerable groups n Community-based n Supporting local social services governments to take on n Integration of multiple social inclusion and agencies (sectoral, social care objectives local government, NGO) This note is based on a report prepared by Rodrigo Serrano-Berthet for the Social Funds Team, Human Development Sector Unit, ECA region. The author would like to acknowledge the inputs provided by a team of consultants (Jan Barrett, Mariana Felicio, Gagik Khachatryan, Ivana Rossi, Sandra Schnellert, Julie Van Domelen) as well as the guidance and feedback provided by Arup Banerji, Anush Bezhanyan, Louis Helling, John Innes, Rob Laking, Caroline Mascarell, Keith McLean, Maniza Naqvi, Peter Pojarski, Ana Maria Sandi, Sandor Sipos, Radhika Srinivasan, Hermann Von Gersdorff, and Mark Woodward.  From Social Funds to Local Governance and Social Inclusion Programs