Exclusive: How USAID will define 'local' in its funding targets

Samantha Power, the administrator of the U.S. Agency for International Development, has outlined an ambitious plan to shift more U.S. foreign aid funding and decision-making power to local organizations in the countries where USAID operates. But before the agency can move forward with that plan, it has to decide what exactly “local” means. USAID is close to finalizing two definitions that will apply to two different parts of its locally led development agenda, according to an agency official who outlined for Devex the current language and guidance USAID plans to use. The official spoke on condition of anonymity as the definitions have not yet been made public. Advocates for locally led development say these definitions are key in determining how significant Power’s reform agenda is likely to be. In a speech at Georgetown University in November, Power announced that USAID will direct 25% of its funding to local partners by the end of the 2025 fiscal year. Only about 6% of the agency’s funding went to these organizations, she said at the time. In another major promise, Power announced that local communities will take the lead in designing, implementing, or evaluating at least half of USAID’s programming by the end of 2030. In the months since, Power’s team has consulted widely with implementing partners, agency officials, lawmakers, and civil society groups to define the terms of those commitments so that USAID’s country missions can translate them into concrete plans and funding decisions. Among the most important — and closely watched — questions about how USAID will define and measure its progress toward locally led development are: how does the agency define “local,” how much of the agency’s overall budget will be subject to the local funding target, and what does it mean to put communities in charge of programming? In the case of Power’s 25% funding target, a loose definition of “local” partner could allow USAID’s current international implementers to meet the criteria by establishing local affiliates. A narrow interpretation of the amount of funding included in these targets would shrink the amount of foreign aid that the 25% target represents. Advocates say that defining “local” too broadly, or applying the target to smaller portions of USAID's funding, would likely only amount to smaller changes at the margin of the agency's business model. On the other hand, a strict definition of “local” partner that excludes affiliates of international NGOs and targets that apply to a significant share of USAID’s funding portfolio, could suggest a more fundamental shift in how the agency operates. A key question, said Meghan Armistead, senior research and policy advisor at Catholic Relief Services, is “how can we be sure that at the end of this five-year period that we won't declare localization victory while essentially still funding the same international actors that make up the status quo?” “How can we make sure that we're setting up a system where we're really tracking meaningful progress?” she asked. Finding a middle ground For now, the agency appears to have staked out a middle ground, with a definition of “local” partner that is more encompassing than what some have called for, but paired with messaging to the agency’s country missions about the importance of increasing the amount of direct funding to genuinely local organizations. In its effort to direct 25% of funding to local partners, USAID plans to define these as “entities that are registered and headquartered in the place of performance,” the USAID official said. Significantly, that means some locally established partners or local affiliates of international NGOs may be included under that definition, while others may not, the official said. The official told Devex that USAID will also be communicating that its localization goals are “focused primarily on organizations that are based and responsive to local communities, and less so those that are subsidiaries that are subordinate or accountable to associated non-local entities.” The official noted they are continuing to explore ways to refine the definitions without creating significant new reporting burdens for USAID missions and procurement staff. USAID has faced pressure from multiple directions in determining how to translate a complex policy agenda into terms that meet certain criteria that make it achievable, the official said. “No single indicator, definition, or methodology will perfectly capture an inherently complex contextual concept like that of ‘local partner,’ ‘locally based’ or ‘local empowerment.’ So our goal was to arrive at as good a proxy as possible while maximizing a number of important criteria for USAID,” the official said. One of those criteria is not adding too much to the internal reporting burden USAID officials already face. That was a key lesson from a previous effort to shift more funding to local partners, which was known as “local solutions” and undertaken during former U.S. President Barack Obama’s administration. In defining “local” for the 25% funding target, USAID opted for criteria that it already tracks in its automated procurement data systems, the official said. “What that means is that you are somewhat beholden to the system that you have and the information that you can pull from it,” the official added. Changing how USAID does business Another priority was setting a definition that would allow USAID to apply the 25% local funding target to as much agency funding as possible. USAID’s annual budget is roughly $30 billion, but that includes contributions to United Nations agencies, direct support to other governments, and the agency’s own operating expenses, among other obligations. The denominator in the 25% local funding equation will include direct funding awards that “presumably could go to local partners,” while excluding these other categories, the official said. Under USAID’s current budget, this adds up to about $13 billion that will be subject to the 25% local funding target, the official noted. Justin Fugle, head of policy at Plan International USA, told Devex that while that might seem like an underwhelming fraction of the foreign aid budget, it represents the “core” of the agency’s development and humanitarian programming. “When you talk about trying to change the way USAID does business, that's what they spend most of their time and effort on. And that's what the implementing community spends our time and effort on. And so I think that's the part that's at the core of the agency — fundamentally, what you can change,” he said. Importantly, USAID’s 25% local funding target is a global commitment, meaning that individual countries will vary in how much of their assistance goes to local partners. The official said that the funding captured by this target will include both development and any humanitarian assistance that is not currently channeled through U.N. agencies or other excluded categories. Putting local communities in the lead Power’s second major commitment on locally led development directed that 50% of USAID’s programming should put local communities in the lead. In tracking progress toward this goal, the agency plans to follow a stricter definition of “local entity” that appears in its operational policy, known as the Automated Directives System, the official told Devex. That definition specifies that a “local entity” is legally organized under the laws of the country receiving assistance, has their principal place of business in that country, is majority owned by people from that country, and is managed by a governing board whose majority is also from that country. The USAID official told Devex that this definition will apply to the second target on local leadership but not the first target on direct local funding because this kind of information about organizations is not collected in USAID’s automated procurement systems. Even though the agency has settled on a definition of “local” to correspond with the 50% target, it has yet to finalize an actual indicator to describe what it means for USAID programming to be “locally led,” the official said. The official told Devex that the team working on this is undertaking consultations — particularly with groups from the Global South — to help refine its understanding and ability to measure local leadership of development in a meaningful way.