Practical Guidelines for Supporting Locally Led Development

8. Action area: Harmonised due diligence and equitable risk sharing

Abstract

This action area addresses how current due diligence, reporting and compliance procedures are often risk‑averse and overly burdensome, limiting access to core, quality funding for local actors. It highlights approaches to simplify and streamline due diligence and reporting by applying common standards and enabling the passporting of audits across funders. It also outlines pathways for more equitable risk‑sharing between local actors and intermediaries.

What is the issue?

A risk-averse, compliance-heavy culture continues to restrict direct, core funding and leadership opportunities for local actors, thereby reinforcing existing power imbalances. Development partners face a dual accountability to domestic constituencies and to the communities they serve, which creates tensions between demonstrating fiduciary responsibility while enabling locally led responses, especially in a politicised environment where official development assistance systems face heightened scrutiny.

As a result, current development partner procurement, project management, accounting and reporting systems altogether impose complex and duplicative due diligence procedures as well as burdensome reporting requirements throughout the project cycle (Pinnington et al., 2024[1]). These compliance mechanisms often restrict access for local civil society organisations (CSOs) and community-led and grassroots actors, which are smaller and less resourced (Dissanayake, 2024[2]). Addressing these barriers requires solutions that simplify processes while maintaining accountability. High transaction costs to comply with these different standards across development partners discourage smaller organisations from applying for funding and drain their already limited capacity (Humentum, n.d.[3]).

To manage risk, development partners often rely on non-local intermediaries to pool funding and assume formal accountability. While this can reduce oversight burdens for development partners, it may also distance resources from local actors and limit direct engagement. In the humanitarian sector, risk management is frequently approached through commercial-style compliance models that prioritise avoiding or transferring liability. However, transferring responsibility does not remove exposure; it can instead shift the burden onto local actors, who are often least equipped to absorb its financial, legal or reputational consequences.

Capacity strengthening often focuses on enabling local actors to meet development partner compliance and reporting requirements, rather than building on and strengthening existing local systems and institutional resilience. As a result, it is frequently experienced as a one-way transfer of skills, with limited recognition of local actors’ knowledge, expertise and priorities.

Where to start

Promote “risk sharing” instead of transferring risks onto intermediaries or local partners.1 Risk spans fiduciary and legal compliance issues, operational challenges, data and information security, and ethical threats (Centre for Humanitiarian Action, 2023[4]). For locally led development to move beyond aspiration, due diligence and risk management frameworks need to be redesigned so that they enable local leadership. Rather than transferring these risks to local partners, development partners can shift from risk transfer to genuine risk sharing by calibrating requirements to the level of funding and context, ensuring that responsibilities follow decision-making power, and avoiding the concentration of risk on actors least able to absorb it. This includes covering reasonable compliance costs, jointly managing risks with local actors, co-developing risk management frameworks, and ensuring that the personal safety of local partners is explicitly addressed. It also involves supporting local actors through flexible, quality funding, involving them in the design of interventions and risk frameworks, and recognising the need for specific measures to protect frontline humanitarian workers. Practical approaches such as tiered due diligence, passporting and simplified reporting can support this shift, particularly when embedded in broader reforms that facilitate direct access to flexible funding and recognise local organisations as partners with legitimate systems of their own. This helps ensure that local leadership does not come with disproportionate exposure or instability and that responsibility for risk is balanced with decision making power. Risk sharing is a particularly important practice in conflict settings and when tackling rights issues for marginalised groups.

• Members can consider joining the Risk Sharing Platform, co-led by the Netherlands, the International Committee of the Red Cross (ICRC) and InterAction, which aims to improve the ways the signatories of the Grand Bargain share risk (IASC, 2023[5]). The Platform’s Risk Sharing Framework serves as a tool to enable more effective development and humanitarian support and to reduce unilateral risk mitigation efforts (IASC, 2023[5]).

▲Pitfall to avoid:

• Avoid transferring risks and associated responsibilities to local partners. Transferring risks does not remove exposure; it can instead shift the burden onto local actors, who are often the least equipped to absorb its financial, legal or reputational consequences and can even face significant safety risks.

Development partners can widen access for local actors by establishing common standards and adopting harmonised, tiered due diligence practices across providers (IASC, 2022[6]).2 Working together to agree on a core set of due diligence requirements, common formats, evidence and thresholds can significantly reduce duplication, complexity and cost while maintaining assurance (HQAI, n.d.[7]). Members can build on existing benchmarking initiatives and communities of practice to test simplified models and share lessons learned. A practical first step can be to map where harmonisation is most feasible, across ministries, agencies or non-governmental organisations (NGO) partnerships and to prioritise areas that currently create the highest transaction costs for local actors.

• To strengthen operational harmonisation and lower the administrative burden on their local partners, French Development Agency (AFD), the German bank KfW and the European Investment Bank (EIB), created the Mutual Reliance Initiative, establishing shared due‑diligence standards and delegating lead roles so that each institution formally recognises and relies on the others’ procedures when co‑financing projects (EIB, 2023[8]).

• On the humanitarian side, Community of Practice on Due Diligence Reform of the International Council of Voluntary Agencies (ICVA), serves as a virtual learning hub for development partners, international non-governmental organisations (INGOs) and local actors to share tools, pilot harmonised approaches and advocate for due diligence reform (ICVA, n.d.[9]).

Passporting3 can serve as a concrete mechanism for harmonising due diligence. Development partners can recognise and trust existing credible assessments of local organisations, helping to advance the implementation of common standards. Examples of passporting in practice include:

• Denmark, the European Commission and the United Kingdom use the audit passporting tool of the Humanitarian Quality Assurance Initiative (HQAI) as an external quality assurance mechanism. Independent audits against the Core Humanitarian Standard help reduce duplication and support aid actors in meeting accountability and due diligence requirements more efficiently (HQAI, n.d.[7]).

• In 2024, Charter for Change and Humentum piloted a collaborative due diligence passporting tool with seven signatory INGOs (Humentum, n.d.[3]). The group developed a shared tool that integrates due diligence elements from all partners, and findings show how it enabled INGOs to share information and to identify and respond to capacity gaps more easily (ALNAP, 2024[10]).

Prioritising simple and proportionate reporting requirements throughout the programme cycle can make participation more accessible for local partners (see Box 8.1). Development partners can streamline application and reporting processes, reduce overly prescriptive templates and allow flexible formats, such as photos, videos or brief narrative updates, in place of lengthy written reports. Where possible, they can use partners’ own or jointly developed formats, agree on reporting periods that align with partners’ systems and work in mutually agreed languages. Tools such as video reporting and artificial intelligence-supported translation can further reduce administrative burdens. These practical adjustments help ease compliance demands, particularly for smaller organisations with limited staff capacity or familiarity with development partner procedures.

• The RINGO Project is testing how to use artificial intelligence to enable individuals to write in their own local language when communicating with funders and INGOs (RINGO Project, n.d.[11]).

Box 8.1. Integrating locally led development considerations into grants management system reform

In 2023, an Auditor General recommendation to modernise Canada’s information management systems created an opportunity to embed locally led development (LLD) considerations into the redesign of the grants management system. Under the Grants and Contributions Transformation Initiative (GCTI), the Global Affairs Canada is developing a new online platform, Impleo, to enable more integrated, user-centred and adaptable programme management aligned with LLD objectives.

To support this reform, Global Affairs Canada established the Failsmart Lab as a controlled testing environment to trial and refine changes to grants and contributions management processes before applying them to all international assistance projects and integrating them into the new information technology (IT) system. Operating alongside existing governance arrangements, the Lab enables iterative testing in live programmes, with lessons fed back into formal processes, guidance and tools, allowing LLD-relevant features to be tested across the project cycle and embedded without creating parallel systems.

Collaborating with external partners

In 2023, Global Affairs Canada convened a partner-led Risk Appetite Hackathon, bringing together government staff and partner organisations to jointly explore risk management challenges in international assistance. Partners defined the priorities and agenda of the hackathon, led discussions and produced recommendations, which were subsequently tested through the Failsmart Lab.

This approach reflects a shift from traditional consultation towards co-design, ensuring that reforms to risk, due diligence and grants management are informed by partner experience and operational realities. Ongoing engagement is supported through biannual GCTI Partner Forums, which provide structured opportunities to gather feedback and adapt systems and processes as needs evolve.

Investing in people, processes and change management

Over 100 staff across operational, IT, process transformation and change management functions were involved in the reform. A custom, modular, in-house system was chosen to allow reforms to evolve in line with evidence generated through testing. The initiative was treated explicitly as a change management process, not only a technical upgrade. Investment focussed on training, internal communication and peer learning, with particular attention to securing buy-in from business process owners and managing implications for external partners.

Key takeaways

• Leverage core institutional reforms to enable supporting LLD. LLD enabling reforms gain traction when linked to system modernisation, audit recommendations and risk management priorities, rather than when pursued as a stand-alone policy initiative.

• Draw on LLD-enabling reforms to benefit the wider ecosystem. Measures introduced to support LLD, such as simplified reporting, flexible funding and clearer processes, also improved efficiency and usability for domestic partners and international intermediaries.

• Accompany technical reforms with intentional change management. Sustainable reform requires parallel investment in leadership, training and organisational culture, particularly engagement with middle management.

Sources: Global Affairs Canada (n.d.[12]), Grants and Contributions Transformation Initiative, https://www.international.gc.ca/world-monde/funding-financement/grants-contributions-subventions-contributions.aspx?lang=eng; CanWaCH (2024[13]), Global Affairs Canada is delighted to share the Risk Appetite Hackathon Report, https://canwach.ca/article/gac-risk-appetite-hackathon-report/.

Tiered due diligence frameworks can adjust risk assessment and compliance requirements based on the size, capacity and risk profile of partner organisations. This approach helps avoid disproportionately burdening smaller or local actors while maintaining accountability and transparency.

• Since 2019, the Start Network has used a tiered due diligence framework, where NGOs are assigned to one of three tiers based on capacity assessments, which determines their access to funding and support (Start Network, n.d.[14]). The approach enables smaller organisations to enter the network and grow over time, with reassessments allowing them to move up tiers and access greater funding. Of the first 14 local and national organisations that went through the new tiered framework, 85% would not have been able to access the funding using a non-tiered model.

Development partners can also consider rapid disbursement windows (14 days or less for sudden‑onset events) and the pre‑approval of “light” due diligence for small grants, especially in contexts of crises. For humanitarian actors, funding is available to national and subnational actors within two weeks of a crisis for mobilisation and procurement (NEAR, 2019[15]).

• Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) promotes using Transitional Development Assistance (TDA) to strengthen the resilience of local structures in responding to crises (BMZ, 2020[16]). TDA is designed to be fast, flexible and multi-year. It is locally deployed and works through local institutions.

• Under the Humanitarian System Transformation through Local Humanitarian Leadership (HST–LHL) programme (2024–2027), funded by the Netherlands Ministry of Foreign Affairs, Oxfam supports the design and facilitation of funding mechanisms to enable rapid, locally led humanitarian responses. These mechanisms are intended to channel resources directly to local and national actors, including through anticipatory action approaches, with local partners leading response design and implementation.

• In the philanthropic funder space, the Hilton Foundation has partnered with the CALP Network to emphasise the case and cost-effectiveness of direct cash assistance in times of humanitarian emergency response. They spotlight how 75% of their funding for disaster relief is locally led and has a cash component (Hilton Foundation, 2025[17]; CALP Network, 2025[18]).

• Between 2014 and 2020, Oxfam implemented an Emergency Response Fund (ERF) within its multi-year disaster risk reduction programmes in Asia-Pacific and Central America. The ERF disbursed USD 1.9 million to support 24 small-scale responses led by 15 local organisations across nine countries, prioritising underfunded crises and enabling timely, locally led action through flexible and simplified funding mechanisms (Oxfam, 2021[19]).

• Start Fund is designed to disburse funds within 72 hours of a crisis alert and enables national and subnational actors to mobilise quickly. The fund uses a streamlined vetting process for member organisations to have quick access to small grants (The Start Fund, 2017[20]).

▲Pitfalls to avoid:

• Avoid one-size-fits-all due diligence frameworks, when legal and compliance obligations permit. Compliance-heavy models, their templates and standards, designed for large international organisations, can unintentionally exclude smaller, community-based actors when standards do not reflect local realities (Solis, 2023[21]).

• Avoid uncoordinated simplification efforts. Isolated reforms can create confusion and duplication; harmonisation across development partners is essential to reduce administrative burdens and align expectations.

• Avoid risk-averse, overly complex controls. Instead, identify context-specific risks jointly with local actors and agree on proportionate mitigation measures.

• Avoid approaches to due diligence that place disproportionate compliance burdens on local actors. While strengthening local systems is important, development partners should also adapt their own requirements and resource risk mitigation, rather than shifting compliance burdens onto local actors.

Capacity strengthening linked to due diligence and reporting can focus on building durable institutional systems rather than short-term compliance fixes (see Box 8.2). This includes supporting local partners to strengthen financial management, safeguarding, governance and internal controls in ways that are proportionate to the size and risk of funding. Requirements should be simplified and clearly communicated, with accessible guidance and targeted mentoring where needed. Joint assessments can help identify priority areas and avoid duplicative demands. The objective is to enable local organisations to meet compliance standards without diverting excessive resources from programme delivery or undermining institutional sustainability.

Box 8.2. Foundations for systemic, demand-driven capacity strengthening

• Locally defined priorities and shared ownership: capacity strengthening should be co-created with partners, grounded in joint assessments and aligned with locally identified priorities. It is not about delivering predefined technical inputs but about strengthening institutions on their own terms.

• Institutional resilience beyond compliance: Capacity assessments can serve as diagnostic and learning tools, helping to identify strengths and longer-term organisational needs. Narrow compliance-based approaches risk limiting capacity development to short-term administrative requirements.

• Flexible and predictable resourcing: Demand-led approaches require predictable and flexible funding that allows partners to address emerging priorities, rather than tying all resources to short-term project outputs. For example, the Netherlands allocates 5% of programme budgets for capacity strengthening, with full discretion given to partners to use the funds based on their own needs.

• Proportionate and harmonised compliance systems: Simplified and aligned due diligence, safeguarding and reporting requirements can reduce administrative burdens and enable local actors to focus on institutional strengthening rather than navigating fragmented donor systems.

• Support embedded in institutional ecosystems: Capacity strengthening can be reinforced by working through national and subnational systems, using intermediary arrangements that combine on-granting with mentoring, and facilitating peer learning (and unlearning),4 secondments or South-South exchanges that support institutional development over time. It also requires development partners to adapt their own practices, recognising capacity strengthening as a reciprocal process.

Additional resources

• The OECD Shifting Power Toolkit provides guidance for mutual and locally led capacity strengthening specific to CSOs (OECD, 2024[22]).

• The Grand Bargain Guidance Note on Capacity Strengthening for Localisation provides recommendations on capacity strengthening (Grand Bargain Localisation Workstream, 2020[23]).

Sources: OECD (2024[24]), Valuing and Sharing Local Knowledge and Capacity: Practical approaches for enabling locally led development co-operation, https://one.oecd.org/document/DCD%282024%2928/en/pdf; Njihia, Bolden, and Klick (2023[25]), Capacity Strengthening: Engaging Local Actors in Meaningful Ways, https://linclocal.org/wp-content/uploads/2024/01/Localization_No5_20Dec2023.pdf; ICVA (n.d.[26]), Due Diligence Reform, https://www.icvanetwork.org/community-of-practice-on-due-diligence-reform/#initiatives.

Additional resources

• The OECD’s Risk Management and Locally Led Development paper, published as part of the peer review on locally led development (LLD), offers lessons and good practices for due diligence and risk management (OECD, 2023[27]).

• The Dutch Relief Alliance and the Netherlands Ministry of Foreign Affairs piloted the above Risk Sharing Framework and published a report on the pilot’s findings and lessons learned from implementing risk sharing (Dutch Relief Alliance and Ministry of Foreign Affairs of the Netherlands, 2024[28]).

• Charter for Change’s due diligence passporting tool serves to avoid duplicative due diligence assessments and exemplifies ways to use passporting to harmonise due diligence (Charter for Change, 2023[29]).

• ICVA’s Risk Sharing in Pooled Funds paper examines both how humanitarian pooled funds handle and distribute risk and the implications these approaches have on LLD (ICVA, 2025[30]).

• ICVA’s Due Diligence, Compliance, and Risk Sharing Pocket Guide highlights best practices for due diligence and compliance practices, especially for humanitarian actors operating in settings exposed to high and extreme conflict (ICVA, 2025[31]).

References

[10] ALNAP (2024), Charter for Change Due Diligence Passporting Tool, https://alnap.org/help-library/resources/charter-for-change-due-diligence-passporting-tool/.

[16] BMZ (2020), Strategy on Transitional Development Assistance, https://www.bmz.de/resource/blob/30738/strategiepapier505-strategy-transitional-development-assistance.pdf.

[18] CALP Network (2025), The Humanitarian Reset: Less Money – More Cash?, https://www.calpnetwork.org/web-read/the-humanitarian-reset-less-money-more-cash/.

[13] CanWaCH (2024), Global Affairs Canada is delighted to share the Risk Appetite Hackathon Report, https://canwach.ca/article/gac-risk-appetite-hackathon-report/.

[4] Centre for Humanitiarian Action (2023), Localisation in practice, https://www.chaberlin.org/en/publications/localisation-in-practice-ii-implementing-risk-sharing-in-humanitarian-action/.

[29] Charter for Change (2023), Instructions for using the Charter for Change Due Diligence Passporting Tool, https://humentum.org/wp-content/uploads/2023/09/How-to-Use-the-Tool-Instructions-C4C-Humentum-Final-14.pdf.

[2] Dissanayake, R. (2024), Blog Post: The Challenge of Localization, https://www.cgdev.org/blog/challenge-localization (accessed on 13 August 2025).

[28] Dutch Relief Alliance and Ministry of Foreign Affairs of the Netherlands (2024), Lessons Learned from the Risk Sharing Pilot in Humanitarian Programming, https://dutchrelief.org/wp-content/uploads/2024/10/Lessons-Learned-from-the-Risk-Sharing-Pilot-in-Humanitartian-Programming.pdf.

[8] EIB (2023), The EIB and the French and German promotional banks AFD and KfW renew their Mutual Reliance Initiative to increase synergies and impact around the world, https://www.eib.org/en/press/news/the-eib-and-the-french-and-german-promotional-banks-afd-and-kfw-renew-their-mutual-reliance-initiative-to-increase-synergies-and-impact-around-the-world.

[12] Global Affairs Canada (n.d.), Grants and Contributions Transformation Initiative, https://www.international.gc.ca/world-monde/funding-financement/grants-contributions-subventions-contributions.aspx?lang=eng (accessed on 16 January 2026).

[23] Grand Bargain Localisation Workstream (2020), Guidance Note on Capacity Strengthening for Localisation, https://inee.org/sites/default/files/resources/Guidance-note-on-capacity-strengthening-May-2020.pdf.

[17] Hilton Foundation (2025), Making the Case for Locally Led Cash – Again, https://www.hiltonfoundation.org/news/making-the-case-for-locally-led-cash-again/.

[7] HQAI (n.d.), One Audit, Multiple Uses: How HQAI Is Supporting Due Diligence Efficiencies, https://www.hqai.org/en/news/Due-diligence-for-better-aid/ (accessed on 16 January 2026).

[3] Humentum (n.d.), Charter for Change Due Diligence Passporting Tool, https://humentum.org/charter-for-change-due-diligence-passporting-tool/ (accessed on 16 January 2026).

[5] IASC (2023), Risk Sharing Framework, https://interagencystandingcommittee.org/grand-bargain-official-website/risk-sharing-framework.

[6] IASC (2022), Guidance on the Provision of Overheads to Local and National Partners, IASC Results Group 5 on Humanitarian Financing, https://www.icvanetwork.org/resource/iasc-guidance-on-the-provision-of-overheads-to-local-and-national-partners/.

[31] ICVA (2025), Donor Due Diligence, Compliance and Risk Sharing – ‘Grab and Go’ Pocket Guide, https://www.icvanetwork.org/uploads/2025/04/ICVA-HF-Pocket-Guide-Donor-Due-Diligence-Compliance-Risk-Sharing_240410.pdf.

[30] ICVA (2025), Risk Sharing in Pooled Funds: Insights for Donors, Fund Managers and NGOs on advancing risk sharing and localisation, https://www.icvanetwork.org/resource/risk-sharing-in-pooled-funds/.

[9] ICVA (n.d.), Community of Practice on Due Diligence Reform, https://www.icvanetwork.org/community-of-practice-on-due-diligence-reform/ (accessed on 16 January 2026).

[26] ICVA (n.d.), Due Diligence Reform, https://www.icvanetwork.org/community-of-practice-on-due-diligence-reform/#initiatives.

[15] NEAR (2019), Localisation Performance Measurement Framework, https://static1.squarespace.com/static/5fc4fd249698b02c7f3acfe9/t/6011621dba655709b8342a4c/1611751983166/LMPF+Final_2019.pdf.

[25] Njihia, C., M. Bolden and M. Klick (2023), Capacity Strengthening: Engaging Local Actors in Meaningful Ways, https://linclocal.org/wp-content/uploads/2024/01/Localization_No5_20Dec2023.pdf.

[22] OECD (2024), Shifting Power with Partners: Toolkit for Implementing the DAC Recommendation on Enabling Civil Society in Development Co-operation and Humanitarian Assistance, OECD Publishing, Paris, https://doi.org/10.1787/7987e8db-en.

[24] OECD (2024), Valuing and Sharing Local Knowledge and Capacity: Practical approaches for enabling locally led development co-operation, OECD Publishing ONE Members and Partners, https://one.oecd.org/document/DCD(2024)28/en/pdf.

[27] OECD (2023), Risk management and locally led development: Understanding how to better manage risk for sustainable impact, DCD(2023)48, OECD, Paris, https://one.oecd.org/document/DCD%282023%2948/en/pdf.

[19] Oxfam (2021), Funding the frontline: How an Oxfam Emergency Response Fund facilitated local humanitarian action, https://policy-practice.oxfam.org/resources/funding-the-frontline-how-an-oxfam-emergency-response-fund-facilitated-local-hu-621178/.

[1] Pinnington, R. et al. (2024), Why Aren’t We There Yet? Understanding and Addressing Donor Barriers to Localisation in Climate Adaptation, https://odi.org/en/publications/why-arent-we-there-yet-understanding-and-addressing-donor-barriers-to-localisation-in-climate-adaptation/.

[11] RINGO Project (n.d.), RINGO - Language and Lexicon, https://ringoproject.org/language/ (accessed on 16 January 2026).

[21] Solis, M. (2023), Due diligence passporting – A possible solution to a locally-identified challenge, https://humentum.org/blog-media/due-diligence-passporting-a-possible-solution-to-a-locally-identified-challenge/ (accessed on 28 August 2025).

[14] Start Network (n.d.), Due diligence, https://startnetwork.org/about/governance-and-assurance/due-diligence (accessed on 16 January 2026).

[20] The Start Fund (2017), The Start Fund, Start Network, and Localisation, https://startnetwork.org/learn-change/resources/library/start-fund-start-network-and-localisation.

Notes

← 1.  This perspective was also reflected in consultations conducted by the Movement for Community-led Development (MCLD) and Peace Direct with civil society organisations (CSOs) across Africa, Asia and the Pacific, Europe, Latin America, and North America.

← 2.  This recommendation is in line with the DAC Recommendation on Enabling Civil Society, which includes a recommendation for streamlining administrative requirements to lower transaction costs for civil society and providers.

← 3.  Passporting is a mutual recognition mechanism through which a development partner accepts and relies on due diligence assessments (e.g. fiduciary, safeguarding, governance, compliance) already conducted by another trusted entity, thereby avoiding the need for local actors to undergo duplicative verification processes.

← 4.  (Un)Learning Labs – The Movement for Community-led Development: https://mcld.org/unlearning/.