II. INTRODUCTION TO THE LOCAL
DEVELOPMENT FUND CONCEPT
Local Development Funds administered by UNCDF are grant funds for local governments to provide capital infrastructure of several types, mainly of a sort known as public goods, for which provision through individual efforts and/or commercial bank credit is not feasible. Local development funds were originally targeted strictly at the provision of the capital infrastructure. The need for infrastructure to be appropriately "owned" and managed by the communities benefiting from it, together with the movement toward political decentralization in many developing countries, transformed the funds to a vehicle for providing services while assisting with institutional development of local governments.
Increasingly, the adequacy of the institutional infrastructure has become a key variable in determining not only the sucessful completion of capital investments, but their sustainability. Accordingly, Local Development Funds now include a substantial capacity building function dealing with development of planning, budgeting, financial management and resource mobilization skills.
Finally, the great variation in political context, experience, local tradition, resource availability and culture that confronts countries as they embark on building local governance institutions pushed the Local Development Fund concept in the direction of a pilot, experimental program -- one from which lessons could be derived from a small, well-controlled experiment and applied regionally or nationally.
This is the character of Local Development Funds presently. The Funds complement other UNCDF funding mechanisms -- eco-funds, for example, which target environmental protection needs. They also complement other donor funding mechanisms, such as the Bank's social adjustment funds; several donors' municipal development funds; small project funding for rural capital infrastucture provided by the EU and other donors, notably DANIDA; and micro-enterprise funding for income generating activities, provided by UNICEF, UNDP, and many others. UNCDF's main challenge is to ensure that its local development funds program is meeting a need that is not duplicating other efforts, conflicting with them, or providing a facility which might be more cost-effective if directed at some other objective, or through another funding agency.
In addition to the focus on infrastructure provision, and on the development of governance institutions to ensure commitment and sustainability, the local development fund concept sresses heavily that poverty alleviation is a key objective -- indeed, poverty eradication is the stronger articulation of this found in several UNCDF summary documents.
While appreciating the rationale for this emphasis, the team found it somewhat unconvincing, from the point of view of both the ability of small project funding to address such a topic (the macro-economic environment and policy sphere is the more relevant arena for addressing poverty alleviation), the degree to which attention was actually paid to it in terms of the criteria for project selection (highly questionable), and indeed the broader issue of the methodological infeasibility of demonstrating direct links between rural capital infrastructure and poverty alleviation. These are issues that UNCDF might want to deal with to sharpen its definition of purpose and measurable impact.