Designing Rules for Demand-Driven Rural Investment Funds: The Latin American Experience
The demand-driven rural investment fund (DRIFs) is a new mechanism for decentralizing decision-making authority and financial resources to local governments and communities to use for investments of their choice. They offer great promise for improving the design, implementation, and sustainability of rural development programs.
However, to counteract weak capacity of local governments to choose and implement projects well, central governments have often constrained the choices of communities by limiting the types of projects eligible for financing and requiring specific procedures for procurement and disbursement. They also monitor compliance and often retain veto power over community choices of subprojects.
This study explores the extent to which well-designed DRIF rules and incentive structures can substitute for central control. It looks at the different--and often conflicting--motivations of donors, central governments, and communities; and explores how rules can be devised to allow all actors to achieve their objectives. It identifies the many objectives that DRIFs are meant to satisfy, and shows which are being met and which are not. And it offers practical guidance about how to design DRIFs so that they effectively and sustainably promote rural development.
[Author's abstract]
