Based on the eligibility criteria, PAF first selects POs working in its operational areas. Community-based Organizations; Non-Governmental Organizations (NGOs), Private Sector Organizations (PSOs), Local bodies such as District Development Committee (DDC), Municipalities and Village Development Committee (VDC) and line agencies are the potential POs for PAF. The PO helps in social mobilization, facilitation, capacity building and technical assistance to CO. The PO facilitates CO to identify, plan, design, execute, operate and maintain the community sub-projects. While it provides necessary technical support for successful completion of the sub-project, it also monitors the performance of the sub-projects.

District selection is done on the basis of district level poverty monitoring indicators developed by the Central Bureau of Statistics of the National Planning Commission. CBS has categorized all 75 districts of Nepal into three groups, each group consisting of 25 districts, based on values of overall composite indices computed considering 28 relevant socio-economic indicators. PAF works in all 25 districts of Group C – categorized as most deprived districts. VDCs prioritization follows the district social assessment and vulnerable community mapping. Prior consultation is done with District Development Committee and different stakeholders at district level for VDC selection.

Agreement is made with PO to implement programmes in the prioritized VDC. PO is assigned to identify the settlements with higher concentration of PAF's targeted communities Participatory social assessment is done at selected settlement. All households of a settlement are categorized into hardcore poor, medium poor poor and non-poor based on participatory well-being ranking.

Community Organization (CO) is formed on the basis of memberships from the defined household during social assessment. A CO is formed from the households selected through Well-being ranking during the process of social assessment.

Only hardcore poor, medium poor and poor are organized into CO to ensure “the poor taking decision” for themselves. At least 80 per cent of the CO members are to be poor women, Dalits and Janjatis. It is also mandatory that 50 per cent members of a CO should be women, and key positions—chairperson, treasurer and secretary—must be fulfilled by a poor woman, Dalit and /or Janjatis. COs may seek necessary help and facilitation from POs while applying for a registration in PAF or they can do it themselves.

CO with active participation of each member enlists problems, interests, needs and aspirations. After seeking necessary and relevant information, CO identifies prioritized community sub-projects based on informed choice through a participatory manner. CO also seeks necessary help and facilitation from PO for technical assistance particularly in survey, design, market study, pre-feasibility and feasibility studies. Economically, socially and environmentally viable community sub-projects, prepared with participatory Community Action Planning (CAP) process, are selected and developed into the community proposals. While formulating community plan, it must incorporate community contribution plan, work plan, procurement plan and revolving-fund management plan in addition to the technical and economic aspects of the plan.

Upon receipt of such community sub-project proposals from registered COs, an assessment is made on the proposals, on the basis of which funding is awarded. However, such community sub-projects must be either already incorporated in the VDC/DDC plan or ensure to be incorporated in the coming fiscal year VDC/DDC plan. An agreement is signed between PAF and CO and fund is disbursed directly to the CO’s non-operational account immediately after the agreement. While the first installment is transferred to operating account immediately, the subsequent installments are made after the CO accomplishes some progress and meets key milestones, which include physical progress report, financial progress report, PO monitoring report, status of community contribution and revolving fund, among others.

CO or beneficiary community is fully responsible for implementation of an agreed community sub-project. PO facilitates CO for smooth implementation by ensuring necessary technical assistance and capacity building. Community is fully responsible for the operation and management of the sub-project and its sustainability.

Participatory monitoring and supervision is adopted to monitor PAF activities in the field and ensure timely and effective implementation of the community sub-projects. PAF monitoring system conducts regular and periodic monitoring at COs, POs and PAF levels. PAF adopts participatory planning, monitoring and evaluation to ensure participation and inclusion of the poor in their development activities. A system of public auditing and public display of community sub-project information is mandatory to ensure transparency.

To ensure transparency of the programme, a notice board with all the relevant information of the project, including information like the objectives of the project, the names of the people responsible for the project, updated status of the project etc. has to be set up at the project site. There will be regular inspection of the project by the official of the Fund and local bodies. To provide technical and managerial assistance to the partner organisation every district has a Portfolio Manager for now, who makes regular inspections of the project. The Portfolio Manager spends at least two third of his/her time in the district. An annual report is made public to inform the general public about the programmes and activities of Poverty Alleviation Fund. A web-site is available to make information about the Fund more accessible to the people.