Abstract
This paper discusses the institutional constraints that aid agencies and development banks face in being able to address urban poverty. These include their limited capacity to support local institutions that respond to the needs and priorities of low-income groups and that are accountable to them. It describes the distance between the decision-making processes of most international agencies and the “urban poor” and the very limited possibilities for the urban poor to influence what gets funded and by whom. It also discusses the political constraints that have inhibited more effective donor agencies and suggests how support for locally based funds for community initiatives could help overcome some of these. It ends by describing the low priority given by donor agencies to urban poverty reduction and suggests some changes that would help development assistance to meet its targets for reducing urban poverty.