Decentralization and urban poverty reduction in Nicaragua: The Experience of the Local Development Programme (prodel)

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Decentralization and urban poverty reduction in Nicaragua: The Experience of the Local Development Programme (PRODEL)
Alfredo Stein
Swedish International Development Cooperation Agency (Sida)

External Consultant to PRODEL.

Address: Altos de Santo Domingo No. 23


This is one of a number of books, reports and background papers on poverty and on poverty reduction in urban areas prepared by IIED with support from the Swedish International Development Cooperation Agency (Sida). These also serve as background documents for the series of workshops on Poverty Reduction in Urban Areas organized by IIED in collaboration with the Thai Fund for Community Development, IIED-América Latina and the People's Dialogue with support from the Urban Poverty Alleviation Programme, Ministry of Foreign Affairs, the Netherlands. For more details write to Human Settlements Programme, IIED, 3 Endsleigh Street, London WC1H ODD, UK, e-mail: humansiied@gn,

BCP Banco de Crédito Popular (Popular Credit Bank)

CERAP Comisión del Estado para la Reforma de la Administración Pública (State Commission for the Reform of the Public Administration)

C$ Cordobas (Nicaraguan Cordobas)

FISE Fondo de Inversión Social de Emergencia (Social and Emergency Investment Fund)

FUPROVI Fundación Promotora de Vivienda (Housing Promotion Foundation)

INATEC Instituto Nacional Técnológico (National Technological Institute)

INIFOM Instituto Nicaragüense de Fomento Municipal (Nicaraguan Municipal Institute for Municipal Promotion)

PAMIC Programa de Apoyo a la Microempresa (Support Programme to the Microenterprise)

PRODEL Programa de Desarrollo Local (Local Development Programme)

Sida Swedish International Development Cooperation Agency

UNDP United Nations Development Programme

US$ United States Dollars

WB The World Bank

The purpose of this paper is to describe and analyze the experience of the Local Development Programme (PRODEL) in Nicaragua. The paper tries to summarize the main lessons learned from PRODEL for urban poverty reduction, community participation, decentralization, financial and institutional sustainability and its implications for development assistance.
The paper starts giving a short view of the situation of urban poverty and the decentralization process in Nicaragua. Afterwards, it describes the background, goals and components of PRODEL. Later on, it assesses its main achievements and limitations. At the end of the paper, a set of conclusions and recommendations regarding PRODEL’s experience are indicated.
Given the difficult environment in which PRODEL was established and has operated, the experience suggests that it is possible to set on sound development assistance programmes that can have real impact on urban poverty reduction in a relative short period of time. A mixture and implementation of different components in creative ways has been able to address critical income generation and habitat problems of the urban poor.
The programme shows that if encouraged to participate in decision making processes, the poor can engage in genuine efforts and high levels of cost recovery and define more transparent relations with their local authorities. Financially speaking, it illustrates that a programme can be built with clear defined subsidy and revolving fund schemes and with low levels of administration costs.
PRODEL’s experience also illustrates that some risks have to be taken by funding development agencies even if national or local conditions are not at all suitable when a programme starts operations. Close external technical assistance can be provided and a gradual step-by-step approach can be taken to test different options and alternatives. It also illustrates that local governments can play an important enabling role when resources are made available to them and when cost-sharing under clear and transparent rules of the games are established. Amid harsh economic conditions, financial sustainability can be attained. This demands finding and operating through non-conventional financial mechanisms that can promote and implement sound methods of cost recovery. A clear division of functions between specialized agencies (conventional and non-conventional) is also needed.
Moreover, decentralization and urban poverty alleviation programmes have to be articulated together to have a positive effect and to determine long term working relations between authorities and recipient beneficiaries.
Finally, close follow-up by the development agency, including auditing and evaluation is needed. This helps to tune up the capacity of the national institutions to read and to adapt to the changing political environment.

Nicaragua, in spite of being the biggest country and having the lowest level of population density in Central America is the second poorest nation in Latin America. Population grew from 2.1 million inhabitants in 1971 to 3.3 million in 1985 and more than 4.1 million in 1995 (Stein & Morales, 1995; FISE, 1996). During the 1990-1995 period, average population’s rate growth per annum was 2.9%, beyond the Latin American average (1.8%). Natural growth and rural to urban migration due to armed conflicts and harsh economic difficulties has provoked high levels of urbanization in the last 20 years.
In 1970, 47% of Nicaragua’s population was urban and by 1980 the level of urbanization was about 54% (Morales & Stein, 1995). Today, Nicaragua is a predominant urban country in which more than 58% of its population lives in cities, the highest in the Central American region.
Poverty is an extended phenomenon in Nicaragua. About 75% of the households in the country have one or two unsatisfied basic needs. According to recent studies (World Bank, 1995), 25% of the households at the national level are non-poor; 31% are poor and about 44% live in extreme poverty1.
Although poverty is a predominant rural phenomenon, poverty and extreme poverty in urban areas is significant too. About 40% of all the urban population is considered to be poor or living in extreme poverty. This situation gets worst in some regions of the country such as the Segovias region where more than 21% of the urban population live in extreme poverty (see Table No. 1).
This situation has put pressure on basic services as well as an immediate proliferation of squatter areas that make additional demands for expansion of services. About 24% of the urban poor do not have access to potable water, 72% do not have any sewage systems and more than 13% have a bad garbage collection system (see Characteristic_of_households_according_to_poverty_group_and_geographic_area_in_1993__(percentage_of_households_and_individuals)'>Table No. 2).

Table No. 1: Nicaragua - Contribution of poverty per region and geographic area (1993) (% of individuals)


Contribution to national poverty

Index per geographic area

% ­­Nat Populat.

% of total poor

% Extreme Poverty




Extreme Poverty


Extreme Poverty


Extreme Poverty


















Source: World Bank, 1995

Region Departments

Segovias Estelí, Madriz and Nueva Segovia

Occidente León and Chinandega

Managua Managua

Sur Granada, Masaya, Carazo and Rivas

Central Boaco and Chontales

Norte Jinotega and Matagalpa

Atlántico Región Autónoma del Atlántico Sur (RAAS), Región Autónoma del Atlántico Norte (RA­AN) and Rio San Juan

Table No. 2

Characteristic of households according to poverty group and geographic area in 1993

(percentage of households and individuals)









Male Illiteracy






Source: Morales and Stein (1995) based on World Bank (1995).

Decentralization and poverty alleviation in Nicaragua
At the beginning of the 1990s Nicaragua faced enormous political, social and economical problems. Among them a collapsed economy, hyperinflation, political polarization and a highly vulnerable population affected by displacement, demobilization, repatriation and also natural disasters2. The change of government in 1990 brought a new change in the conception of the role of the State to solve many of these problems.
The government initiated a profound programme of political and economical transformations. The measures included a drastic structural adjustment programme to cope with inflation and a high over-staffed governmental apparatus3. Although inflation was controlled, the effects of the economic policies deteriorated the levels of income and employment of the population.4 In spite of the negative effects of these measures the government defined as a priority the principles of ‘pacification, reconciliation, democracy and poverty alleviation’.
A Social Agenda was conceived as an option to make social policies and actions more participatory and viable. Some of the constitutive elements of this Agenda were the following:
* attending the unemployed and vulnerable population, specially disabled and displaced persons and children;
* increasing the efficiency and effectiveness of basic social services such as health, education and social infrastructure;
* support to those productive sectors that were marginalized form formal mechanisms of the market (such as loans, technical assistance, etc.);
To implement this agenda, the following elements were conceptualized:

* the State was seen as a facilitator of process where civil society and the private sector could play a more active role;

* the State would optimize the use of its resources by privatizing some of the basic services (i.e., electricity, telephone water and sewage systems);
* strengthening municipal management, autonomy and transfer of responsibilities and resources to implement social programmes;
* investment would be focalized trying to establish priorities within the target population;
* poor communities would have a greater role in the identification and solution of their problems5.
One of the programmes created under this agenda was FISE, (the Social Investment Fund). FISE’s main goal was to rehabilitate and rebuilt physical health and education infrastructure mainly in extreme poverty rural areas with the help of the private building companies that were supposed to generate temporary employment. The government also created the Ministry of Social Action which by the end of 1993, managed 15 different social programmes aimed mainly also to extreme poverty rural areas of the country. The government also created PAMIC, a national programme of support to NGOs working with microenterprises of the informal sector (Morales & Stein, 1995).
In spite of their achievements, the abovementioned programmes have lacked a participatory approach in which local authorities and communities can have a bigger share in the decision making, building and maintenance processes.
In this context, municipal authorities were called to play a more active role in promoting local development. The idea was to create conditions and transfer of resources that would enable a better understanding and coordination of actions between central government, local governments and rural and urban communities. However, there were few previous experiences in the country that could shed light on the way the process could be implemented, and the ones existing did not had the scale to make them significant.
Several local development initiatives aimed to address these issues were initiated and promoted by INIFOM (the Nicaraguan Institute for Municipal Promotion). Some of them had important external financial and technical support from bilateral agencies such as the Local Development Programme (PRODEL) funded by the Swedish International Development Agency (Sida)6.

The Local Development Programme (PRODEL)7
In June 1993, the Governments of Nicaragua and Sweden signed the agreement for the execution of PRODEL. The programme aroused for two reasons, on the one hand, the interest of both governments to create a programme which could mitigate the negative effects of structural adjustment policies on the poor and vulnerable groups, and on the other hand, the need to develop a programme which would support the decentralization, reconciliation and democratisation efforts of the National Government at the local level.
The main aim of PRODEL since its inception was to improve the living conditions and social development of low-income families specially female-headed households living in marginal neighbourhoods of urban areas.
PRODEL operates in five departmental capital cities: Estelí (72,000 inhabitants), Somoto (14,200) and Ocotal (25,000) in the Segovias Region, and Leon (124,200) and Chinandega (97,400) in the Occidental Region. Las Segovias Region lies in the North West of Nicaragua and is conformed by the Estelí, Madríz and Nueva Segovia’s departments. It has 7,379 square kilometres and a total population of about 390,000. The Occidental Region is constituted by the Chinandega and Leon Departments. It has an area of about 10,032 square kilometres and about 690,000 inhabitants (data for 1995).
The urban population of these five cities represents about 8% of the total population of Nicaragua. These cities were not only directly affected by the civil war, but afterwards, have faced enormous difficulties associated with rapid population growth due to the influx of displaced, repatriated families and demobilized military forces (both from the army and the so-called ‘contras’).
According to recent studies (World Bank, 1995) it is estimated that 59% of Estelí, Somoto and Ocotal’s urban population is poor and about 22% live in extreme poverty. In Chinandega and León, 30% of its urban population is considered poor and about 8% live in extreme poverty. It is also estimated that about 68% of the urban poor and about 85% of the extreme poor live in crowed shelter. Of the total dwellings, about 40% had inadequate walls, 44% poor quality roofs, 58% were overcrowded, 39% did not had electricity and about 43% did not had any sewage and drainage systems (INIFOM, 1994). Unemployment reaches more than 60% of the active working force population in all five of the municipalities.
PRODEL’s programme combines four main components: a) urban upgrading in marginal neighbourhoods is carried out through the implementation of small urban infrastructure and community services projects; b) individual housing improvement through access to small loans granted to low-income families, with the capacity to pay; c) support to microenterprises through short-term loans as well as the creation of new microenterprises, particularly headed by women; d) institutional development and technical assistance to the organisations responsible of implementing the other components.
PRODEL’s strategic goals are to a certain extent paradoxical. On the one hand, PRODEL aims to support the process of decentralization, strengthening of local authorities and local democracy through increased civic participation, mainly of those vulnerable and extreme poor sectors of society. On the other hand, it aims to establish loan systems that can be financially feasible and sustainable in time. To minimize the tensions in achieving these goals, the programme tries to integrate activities of its components focusing on so-called ‘integral’ squatter upgrading initiatives which endows to each component its specific aim.
The consultations for the design of the programme took about two years. The reasons for such a long period are related to the rapid changes in the Nicaraguan political, social and economical context that took place during the first two years of the government of Ms Violeta Barrios de Chamorro and the lack of consensus between the funding agency and the national counterparts on who should be the institution and organisations responsible for the implementation of the different components of programme.
At the end of this consultation process, a interesting implementing scheme was defined. Unlike many development programmes, PRODEL does not directly execute the activities itself but rather provides technical assistance, and financial and human resources to strengthen existing actors to carry on the activities. Thus, the programme is also innovative in terms of promoting local development by bringing together a number of different actors:
a) INIFOM8: The government’s entity legally responsible for the execution, administration and supervision of the Programme. INIFOM created a small Central Technical Unit for the Project Execution. The Unit is composed of four professionals: a National Coordinator, two area coordinators (one for infrastructure and technical assistance in housing, and the other for the coordination of the loan components) and an accountant supported by a secretary and a driver, based in Managua. In each of the municipalities there is a local coordinator of PRODEL which works giving support and technical assistance to the rest of actors responsible for the execution of the programme’s components. All staff was recruited through a public tender process. The Unit has also been responsible for developing the different handbooks that guide the operation of the loans and infrastructure components as well as the administrative and technical assistance components.
Sweden channels the funds for project activities through PRODEL’s Central Technical Unit. Funds are deposited in a special bank account. INIFOM asks for a new disbursement, once it proofs that it has used 75% of the funds of the previous installment. Interests gained in the process are used to fund new activities of the different components.
b) The Popular Credit Bank: a governmental commercial bank provides the loans for housing improvements and for new and established microenterprises in the five cities where the programme operates. The bank also recovers the loans. INIFOM and the Bank signed a Trust Fund agreement for the administration of the revolving funds created with the recoveries of the loans. The agreement is reviewed every year. The Bank also provides PRODEL with financial services to handle the infrastructure, administration and technical assistance components;
c) The municipal authorities: which carry out the infrastructure works component and give technical assistance to the families with a housing improvement loan. Town Councils are responsible for the administration of funds through a municipal commission conformed by different institutions and presided by the Mayor. A special agreement is signed between INIFOM and each municipality for the implementation of the programme. It is important to mentioned that the mayors of the five municipalities came from different political parties. The five mayors, together with INIFOM’s Executive Director and a representative of Sida form the ‘Consejo Consultivo’ a consultative body in charge of defining in general terms, the policies of the programme and superives and comment on its execution.
d) Low-income communities or ‘barrios’: which participate in the definition of projects, design and execution of infrastructure works and also are recipients of the loans. The beneficiaries participate in needs identification. In addition, a Community Commission is formed for organisational aspects: they organize community labour and oversee the use of the funds of the infrastructure projects.
e) INATEC: the National Technological Institute, which gives technical assistance to women headed households for setting new microenterprises.
Besides the above mentioned institutions and organisations, PRODEL has hired the temporary services of consultancy firms to provide technical assistance or to assist in punctual areas required by the process of institutional development.
In the agreement between Sweden and Nicaragua, it is stipulated that a total of SEK 48 Million (approximately US$ 5.4 million according to the exchange rate prevailing when the project document was elaborated) will be provided by Sweden during three and a half years to finance investments of the different components (infrastructure, housing improvements and microentrepreneurs), technical assistance and the administrative costs of the Programme. Of this total, SEK 3.5 Million is managed directly by Sida to monitor, provide external technical assistance, auditing and evaluations the programme. Another SEK 1 Million was given to start the pilot phase of the programme. The remaining SE 43.5 Million are for programme implementation.
It is expected that the counterparts from the National and Local Governments as well as the communities add to about SEK 10.6 Million (about US$ 1.3 Million) during the same three and a half years.

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