Abstract
This paper describes the growing number of local funds or local institutions through which international agencies or national governments channel resources to support community initiatives. It discusses the advantages that these can have over more conventional projects in reducing urban poverty (including their flexibility, fast response time, demand-driven nature and local accountability). It discusses how they differ from social funds, and points to their strategic value in changing official perceptions of “the poor”, in strengthening the capacity of urban poor organizations and in enhancing partnerships between community organizations and municipal governments. The paper ends with a discussion of the challenges that these local funds pose, both for the local institutions who manage them and for donors who fund them.