In fragile contexts, governments often struggle to mobilise domestic revenue to finance public goods, while shrinking aid budgets have increased interest in innovative development financing mechanisms. Community co-financing mechanisms – combining resources raised by communities with funds contributed by donors and/or the state – have emerged as one such approach, drawing on informal taxation, community contributions, and diaspora financing to expand the provision of public goods. Yet there has been limited systematic analysis of how different co-financing arrangements are governed, the conditions under which they are likely to succeed, and the trade-offs they create for development and governance outcomes.
This paper addresses that gap by examining how different institutional configurations of community co-financing shape public goods delivery, participation, equity, social cohesion, and state building in fragile contexts. It develops a typology of community co-financing mechanisms based on the respective roles of communities, donors, and the state, and combines this conceptual framework with a comparative analysis of co-financing programmes in Mexico and Somalia, which reflect contrasting trajectories over time. The analysis draws on academic and policy literature, programme evaluations, operational planning documents, digital platform data, and the authors’ direct experience evaluating co-financing initiatives in Somalia.
Building on these cases and the wider literature, the paper synthesises evidence on the governance outcomes of community co-financing and identifies the principal trade-offs that policymakers and development partners must navigate when designing such mechanisms in fragile contexts. The evidence shows that community co-financing can be an effective mechanism for mobilising resources, delivering public goods, strengthening community participation and ownership, and, under certain conditions, fostering social cohesion and reinforcing perceptions of state legitimacy. At the same time, it can reproduce inequalities within and across communities, exclude marginalised groups, create opportunities for elite capture and political manipulation, and, in some contexts, exacerbate conflict dynamics and weaken state institutions.
These outcomes are shaped both by how authority, financing responsibilities, and accountability are shared among communities, donors, and the state, and by the political, social, and security contexts within which co-financing operates. Rather than presenting community co-financing as a universal solution, the paper argues that its effectiveness depends on careful, context- and conflict-sensitive programme design that explicitly recognises and manages the trade-offs between effectiveness and equity, institutionalisation and community ownership, and accountability and sustainability.
