Notes on the magic hat trick of community development funds

When CODI’s predecessor, UCDO, was established in 1992, it was set up primarily to be a revolving national community development loan fund – a new financial support mechanism designed specifically to reach urban poor communities directly.  The institution itself was not intended to be an implementing agency, like the National Housing Authority or the Welfare Department.  The idea was that with this new fund, poor people could organize themselves, start savings groups, build their own systems of management, initiate their own development projects in housing, settlement improvement and income generation, and then access financial support for these projects from the UCDO fund, in the form of collective loans and some grants.  In the early 1990s, this was highly unusual stuff for a government project.  These kinds of institutional arrangements – in which poor communities did the deciding and the doing, and the UCDO fund supported them with flexible finance – were new to everyone.  It was a big breakthrough for Thailand and represented a first stab at decentralizing a small portion of government development resources to a people-driven process.  The experiment worked, and the CODI fund today continues to channel larger and larger government funds to Thailand’s increasingly sophisticated and large-scale community-driven development processes.

 Fund magic:  The UCDO’s original revolving fund started out in 1992 with a capital of 1,250 million baht (US$ 39 million), and worked with poor communities in only Bangkok and Chiang Mai.  Another 22.7 billion baht (US$ 708 million) from the Thai government‘s yearly budget has been added to the fund’s capital in the 27 years since then.  During that time, 2,000 community savings groups have been set up in towns and cities in all 77 of Thailand’s provinces, with savings which now surpass 3.2 billion baht (US$ 102 million), and hundreds of area-based and issue-based community networks have been set up. 10.7 billion baht (US$ 333 million) has been given in various kinds of loans, more than half of which has been repaid.  And these loans – from both the fund and from the savings groups – have created assets and additional income worth billions of baht – all in the hands of Thailand’s poorest citizens.  And every baht of the CODI Fund is still there, still available, still revolving and helping more people, generating more assets, solving more problems.

In this way, the CODI fund transforms government development budgets into a flexible, accessible finance mechanism that allows communities to link together, examine the problems they face, and use the funds to develop their own strategies to tackle these problems.  In the process, communities become the owners of the process – not the government, not CODI.

Of the 22.7 billion baht (US$ 708 million) of government funds that have gone been added to the original fund’s capital, about 5.70 billion baht (US$ 178 million) has been loaned to communities and 16.97 billion baht (US$ 530 million) has been channeled to communities in the form of grants, to address various problems or respond to opportunities.  48% of these grants (about 8.09 billion baht) were subsidies to communities developing housing projects under the Baan Mankong Program (more details about these subsidies in the Baan Mankong section of the website).  The remaining 8.88 billion baht (US$ 143 million) of grant funding was used to support various projects to strengthen capacities of community people, bolster their economic well-being and address specific issues.  For example, CODI allocated 2.38 billion baht (US$ 74 million) for community capacity-building between 2001 and 2009.  Since 2005, the government has channeled 2.75 billion baht (US$ 86 million) to CODI to support the establishment and strengthening of community welfare funds across the country.  Grants from the CODI fund have also been used to support community-driven projects that address eviction, to rebuild houses in communities affected by disasters (150 million baht) and to strengthen communities in five strife-torn provinces in southern Thailand (2.37 billion baht).

 Flexible finance is the key:  Big change doesn’t necessarily require a lot of funding, but it does need the right approach to finance – an approach which unlocks people’s energy to make change, along with other development partners in their respective cities.  The need for a flexible finance system is crucial.  Unfortunately, the prevailing finance systems are rigid, top-down, market-driven and profit-oriented, and they don’t serve the needs of the poor – indeed most urban poor cannot access formal finance of any sort.  But if the financial system can be redesigned at the city and national levels to be more flexible, allowing different social initiatives to be developed by different groups of people, then new and innovative action can be taken.  If finance is designed with social goals in mind, it can provide city governments and residents with the freedom and power to develop more creative urban solutions on a citywide scale.  That was the idea of the UCDO fund, and continues to inform the implementation of the CODI fund.


Explanation of Diagram 1 (above):  Verticals and horizontals:  To understand how a more flexible, more urban-poor friendly finance mechanism works, it might be helpful to compare the CODI fund with with other finance systems intended to reach the poor, in the diagram below:

  • Conventional government systems: The first system is the conventional government system (in blue), in which decisions and budgets all flow from the top down, and budgets pass through various ministries, departments, desks and approvals along the way, so it takes time for the money to work its way down.  This top-down bureaucratic system is the norm for government finance in most Asian countries.  And that’s why the real needs of poor people are not so easily addressed by such cumbersome vertical systems.
  • NGO systems: The second system is the NGO system (in green), which is more project-oriented, in most cases.  The individual projects that funding supports may be good, but they are usually too small and too scattered to create enough momentum to make significant change or set a new development direction.
  • Banking systems: The third system is the private sector banking system (in yellow), where market forces determine who can and cannot access the finance.  But the problem is that the market responds to buying power not need, and cannot address all the issues, especially in the informal sector.  So the poor, with their informal, irregular lives and livelihoods, are shut out from that system.

Community development fund systems:  The new system CODI has tried to build (in purple) is a way of turning those verticals into horizontals.  In this system, national government funds are channeled through a flexible community development fund (like the CODI Fund) directly to poor communities, in the form of loans and grants for various purposes.  Poor communities already have strong horizontal systems of connection and support, and this form of finance is designed to build on that horizontal strength in poor communities and community networks.