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Design & Implementation: Direct Financing and Contracting

June 6, 2013


Increasingly, communities are responsible for service planning, providing financing and other contributions, and ultimately, service management. There is growing interest in approaches that delegate financial management and procurement responsibilities to the communities themselves, giving the communities full control over investment resources and project implementation.

Direct financing to communities

Direct financing to communities is a process by which a funding agency, such as a social fund, agency, or local government, provides funds directly to communities responsible for managing the implementation of subprojects. A community includes groups of individuals living in close proximity to each other able to identify a need and come together to access project funds. The community is usually represented by some form of community-based organization or local project committee that enters into a contract with the funding agency.

There is a range of institutional options to provide funding to community-based organizations. Community-driven development (CDD) interventions focus on the partnership between the funding agency and the community. In this model, communities receive funds directly form the funding agency (central government, elected local government, or NGO), procure materials, hire contractors and consultants/technical experts, employ skilled and unskilled labor, and ultimately manage the overall implementation of the subproject.

The role of the funding agency changes significantly when the communities are responsible for implementing subprojects themselves; it becomes a facilitator providing not just funds but also technical support to the community throughout the project cycle.

Community contracting

Community contracting has been defined as procurement by or on behalf of a community. While there are many different models of community contracting, they all share certain key characteristics and goals. Community members are involved in identifying needs and selecting a subproject; participation is encouraged throughout the subproject cycle; and communities provide contributions in the form of labor, cash and/or materials to promote ownership and sustainability.

The Bank's procurement procedures were originally designed for large investment projects rather than for projects financing many community-level subprojects. They have since evolved to include rules for small-scale projects that meet Bank audit requirements while retaining the flexibility required for demand-driven interventions (Small Works and Community Participation in Procurement; Procurement Guideline 3.15 Community Participation in Procurement).

Financial Management

CDD projects usually require specific procedures for financial management and disbursement that maximize accountability and transparency, and training on accounting and financial management procedures when necessary.