Banking trust funds

In the field of development, funders’ distribution and supervision of financial support is often affected by provisions (regulations and criteria) that either try to protect their own interests or to counteract three common problems so that they can deal with their own accountability pressures:

•  politicization in pursuing development objectives,

•  corruption

•  lack of management capacity.

Local stakeholders often complain that such provisions results in a top-down working approach that hinders their attempts to keep stewardship of the projects aimed at their own development in their hands.

Trust funds are designed to address these concerns. Trust funds:

•  Give transparency to an Inititaive’s management, and certainty to the initiative’s stakeholders and the donors, as money is managed by the bank.

•  all stakeholders’ interests are represented and their responsibilities negotiated, defined by contract, and supervised by an external actor.

A Trust Fund is composed of 3 parts:

1) The Trustee -the Bank- generates trust. It monitors how money is spent and ensures that it is used as agreed, by contract, between the beneficiaries and the donors.

2)The Donors/Foundations that put money in the trust for a specific purpose.

3)The Beneficiaries (the organization and/or local people).

The trustee, donors, and beneficiaries elect an Executive board (also called Technical Committee) that supervises the Trust Fund, under the general supervision of the trustee. It is formed by representatives from donors and beneficiaries.

All rules applicable to the operation of the Trust are convened through a contract among the trustee, the donors/foundations and the beneficiaries.

All decisions (the designation of the Executing Board, the use of the money donated, etc.) are settled in that contract. All parts would like to advocate for their own interests but the ideal is to find a balance between them – respecting the beneficiary’s project objectives and the donor’s aims.

The donors participate in the model because they accept it, which means that once they sign the contract they cannot make changes to it. That has to be clear in the original contract.

The content of the contract has to establish that what is being settled is a Trust Fund, that is, a contract based on trust because there is someone (the bank) that looks after the contract’s compliance (e.g. “We agree to ensure that the obtained money will be dedicated to “x” and the bank will supervise that it is done that x way” ).

When money has to be spent, the Executive Board decides how to use the money and the bank ensures that the conditions are in line with the contract and with the conditions to which the granting of the funds were subjected.

As such, trust funds are often used as a structure for local participation and negotiation. This aids internal communication, and ensures equitable ownership of the initiative by guaranteeing:

•  transparency

•  that funders concerns will be addressed

•  that local stakeholders’ concerns about keeping the stewardship of the initiative in their hands will be addressed.

Related strategies:

♣ Banking trust funds 

See also:

Structures and techniques for local participation, organization and negotiation 

Favoring internal communication with concrete means

Motivating and capitalizing on local ownership

Keeping Local Stewardship