Four loyalist restorative justice schemes have been given official approval by the government.
An inspection of the schemes run by Northern Ireland Alternatives found there was no evidence that they were a front for paramilitary groups.
The inspectors found volunteers and staff were professional and dedicated in their work with young people.
Chief Inspector of Criminal Justice Kit Chivers said the report paved the way for groups to apply for more funding.
"Most of the work undertaken by the schemes relates to community development," he said.
"For that reason, inspectors would suggest that if ministers did wish to support the schemes, core funding should not necessarily come from the criminal justice system."
The inspection examined the parent organisation Northern Ireland Alternatives and four schemes: East Belfast Alternatives; Greater Shankill Alternatives; North Belfast Alternatives and North Down Impact.
Restorative justice is aimed at bringing victim and offender together to settle minor disputes.
Supporters of such schemes argue that they provide a positive alternative to paramilitary beatings and attacks in loyalist and republican areas.
But critics have expressed concern that they may create a two-tier justice system.
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