The annual budget of the average non-governmental organization in Eastern Europe (the European Union members) countries is equivalent to 560-670 thousand UAH, with about half of these funds being state funding. The annual budget of a Ukrainian non-governmental organization is an average 50-60 thousand UAH (and only 2.3% of that amount is provided by the government). The lack of a clear state policy of financial incentives to non-governmental organizations’ development hinders the further development of civil society in Ukraine. The analysis of the current Ukrainian legislation concerning the funding of civil society institutions has shown that the Ukrainian current legislative norms mainly correspond to the criteria that are used while providing financial assistance to non-governmental organizations in the European Union. However, there is a significant difference between the theory and the practice of application of the law at the national and local levels. The paper substantiates that further improvements in public funding of non-governmental organizations in Ukraine is impossible without solving systemic problems concerning state and local finances’ functioning (funds’ competitive distribution, improving treasury procedures, etc.). Local authorities save significant part of the social services’ cost to local communities due to non-governmental organizations’ involvement. In average, the state support of non-governmental organizations allows to get a service that costs 4 UAH per every 1 UAH budget money invested. Therefore, the main objective of financial policy incentives for civil society development both at the state and local levels should be the motivation for effective interaction between government, non-governmental organizations and local communities.
The lack of financial resources needed to solve the everyday problems in Ukrainian local communities actualize the issue of working out new financial mechanisms to enhance financial base for local development. The effectiveness of participatory financing as one of such mechanisms is examined in the paper. Investigation of the impact of the mechanism of participatory financing of the European Union and UNDP “Community based approach to local development” on social and economic development of Ukrainian local communities leads to the conclusion that the method of financing acts as an institution which motivates the local community self-organization, initiative activity and productive cooperation with the authorities. The analysis showed a positive impact of participatory financing both on economic indicators of local community development in the short run and on the characteristics of the communities’ social capital which could be a factor for long term economic development. This conclusion is supported by regional experts. Generally they evaluate the scheme of participatory financing as an effective one. The main value of this model of financing is a synergistic effect (all the participants get result that they could not achieve individually).
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