The pros and cons of community development trusts
Community development trusts in South Africa are often set up as the black economic empowerment arms of companies, owning a percentage of companies.
These trusts are generally registered as NPOs, and thus the types of activities they fund are prescribed by the law. This also means that activities are not constrained to certain sectors, but include the full spectrum of social intervention including health, education, social development and environment.
There are various types of communities trust; this article will focus on community development trusts established by corporate clients, and which receive a dedicated cash flow.
Community trusts are, as the name suggests, community-based. This has pros and cons. While employing those from the local communities means that they have an understanding of the area in which they operate, it also means that they are often less skilled or less qualified.
The community trust is in a unique position to offer the community contextualised interventions. It opens up a space for local rather than generalised methods of thinking and doing – that respond to the specific needs the community. The community trust has the immense potential to be a viable vehicle through which new and creative ideas can penetrate.
- A community trust is localised and thus a better focus for the community it serves
- The establishment of a community trust can demonstrate long-term commitment for the community from an investor
- The community trust provides a localised stakeholder engagement forum
- The community trust is better positioned to identify corporate social development initiatives, as it understands the needs of the community.
- The community trust can encourage local hiring of staff, creating jobs for the community
Can a community trust be trusted?
In recent years the community trust has not functioned as optimally as assumed, and therefore does not achieve its community objectives. There have been a number of reasons for this and among them is gross misappropriation of funds, which results in no value for either the investor or the beneficiaries.
- Flow of funds not directly to the beneficiaries, which may result in unnecessary overhead expenses and higher costs, yet poorer quality of financial management/administration
- There can be difficulty in obtaining information if one does not have a direct relationship with beneficiaries
- While community members should have a better local understanding, they may not have necessary skills to implement projects successfully
- This can also result in undue political pressure, as people are “too close” to the beneficiaries
- Trusts take away independence in making decisions regarding project approval
- There is a tendency to try be “all things to all people”, as opposed to focusing on the community activities they are best at
In order for the community trust to operate optimally (and overcome some of the “cons” discussed above), Tshikululu recommends that a central trust (the main trust) be in control of not only selecting and administrating projects, but also of the flow of funds.
This ensures that the process is streamlined and that the maximum amount of funds finds its way to the most important people in the process: the beneficiaries.
Functions such as finance, administration and human resources should thus be placed at the main community trust. This does not mean that the local community trusts are not vital to the success of community development. These local trusts play a vital role as the foot soldiers of community development.
These trusts should use their local community knowledge to recommend not only the types of projects they feel are most required, but also recommend specific project partners. Local trusts also play a vital role in monitoring projects, once they have been approved for funding.
The flow chart below shows the recommended funding flow.
Tshikululu can assist you in setting up your community development trust.