Capital grants are attractive, but should only be given as a reward for good performance. In the first years of the project the DILG offered capital grants for eligible subprojects. These were discontinued in 2005 after the cancellation of the DILG's grant source. After that, many LGUs stopped subproject preparation work because of the (perceived high) costs of ADB loans. The commitment and buy-in of LGUs was weak at times. Many LGUs were more oriented toward grants than the lending facility. It raises the question of whether the mixed grant-loan scheme was a good concept to start with, considering that it tried to compete with operations of the Municipal Development Fund Office (MDFO) of the Department of Finance (DOF). The concept of capital grants, also part of the national government-local government cost sharing policy, might require some reformulation. Ex-post performance-based grants might have been more appropriate than upfront capital grants, which often distorted LGU perceptions of the project as a lending facility.
Mindanao Basic Urban Services Sector Project