funds were disbursed directly<sup>fromthestatelevelto the bank accountsof individual communities,fulfilling</sup> the _money-in-the-hands-of-the-community_<sup>condition.In1993 PAC had conclusively provedthe</sup> effectiveness of community<sup>participation,and sowas ripefor scaling upwhen theentire NorthEast Rural</sup> Development Program financed<sup>by the World Bank was restructuredto this approach.At the sametime a</sup> new, more decentralized approach<sup>wasintroducedon a pilot scale:Under the FUMACmodel(Fundo</sup> Municipal de Apoio Communitario),<sup>a</sup><sup>_Municipal Development Council_(whichincluded community and</sup> civil society groups, as well<sup>asmembers of the municipal government) chose abundle of subprojects,and</sup> submitted it to the state technical<sup>units approval their proposalsand funding.This approvalwas mainly for</sup> validation: the state levels did<sup>not giveproject-by-projectapproval,but checked the conformityof</sup> proposals with eligibility criteria,<sup>procedures,and otherdesign parameters.FUMAC progressivelyreplaced</sup> PAC, and over then next few<sup>yearsenabled the latent capacities of nearly1,000 municipaldevelopment</sup> councils to be mobilized<sup>to undertakefunctionsearlier monopolized by10 state technicalunits andtheir</sup> deconcentrated offices. This<sup>_multiplied decision-making capacities a hundred-fold,_and made possiblethe</sup> massive subsequent expansion<sup>of the program.Toavoidpossible irregularitiesat the locallevel, funds were</sup> disbursed directly to the communities,<sup>rather than the municipaldevelopmentcouncils, ensuring that the</sup> money continued to be in<sup>the handsof the community.The municipaldevelopmentcouncildid not control</sup> or disburse money, and instead<sup>coordinatedall the otherprocesses and supervised project execution.</sup> Municipalities were given some<sup>guidanceas tohow manyprojectsthey couldreasonablyexpect to</sup> approve, moving the program<sup>closer towards a singlefungible developmentbudget.</sup> In addition the redesign of<sup>the NortheastRural Development Program eliminated the FederalGovernment,</sup> the Northeast Regional<sup>Development Authority, andNGOs as financialor technical intermediaries,</sup> _massively reducing overhead_<sup>_costs_and instead introduced a facilityfor</sup><sup>_communities to finance technical_</sup> _assistance out of their community_<sup>_grants,_enabling them to use up toeight percent of their community</sup> grant for technical assistance<sup>from a providerof their choice.</sup> FUMAC has now given way<sup>to FUMAC-P,whichbrings the program evencloser to the optimum</sup> conditions for social choice,<sup>providingmore responsibilityto thelocal development council. FUMAC-P</sup> transfers an untied development<sup>budget directlyto the municipaldevelopmentcouncils. Moneyis now</sup> managed at the level of the<sup>municipality,but continuesto be disbursedfrom thereinto community projects.</sup> This has further improved<sup>localownershipand participation, further reduced costs per beneficiary and</sup> encouraged larger co-finance<sup>from themunicipallevel.</sup> Earlier anti-poverty programs<sup>in Northeast Brazilfailed. But the community-basedapproach has</sup> successfully delivered over<sup>44,000 community-managedsubprojectsto 2.5million of the poorestfamilies</sup> in 30,000 communities. An<sup>assessment of FUMAC by Van Zylandothers34 showed that:</sup>

- Benefit cost ratios were high, 3.0<sup>or more.</sup>

- About 95 percent of the funds<sup>reached targetedbeneficiaries, mostlythe</sup> landless, an extraordinary<sup>pass-throughrate.</sup>

- The cost of subprojects executed<sup>by communitieswas 20-30percent lessthan</sup> similar ones executed by<sup>the earlier, more centralizedsystem.</sup>

- The program financed a lot of<sup>investment in ruralwater supplyand</sup> electrification, but also included<sup>a wide rangeof other socialand productive</sup> projects. Producer groups assisted<sup>undertheprogram arenow federatingand</sup> linking to export markets,<sup>andthis is seenas criticalto sustainprojectimpact.</sup>

34 Van Zyl, Johan, et al, 1995,<sup>DecentralizedRuralDevelopment and Enhanced Community Participation:a Case</sup> Study From Northeast Brazil,<sup>PolicyResearch working Paper1498,The WorldBank,Washington, D.C.</sup> Van Zyl, Johann; Sonn, Loretta;<sup>and Costa,Alberto."DecentralizedRural Development,Enhanced Community</sup> Participation, and Local Govemment<sup>Performance: Evidencefrom NortheastBrazil".Draft Paper.July2000.</sup> _25_