4 strategies for diversifying funding in a post-USAID world

The global development funding landscape is shifting fast, and organizations are under pressure to rethink how they sustain their work. The dismantling of the U.S. Agency for International Development, the world’s largest bilateral donor, has sent shockwaves through the sector. Even as traditional funding sources shrink, development organizations are exploring alternative avenues to sustain their operations. A new Devex report explores four proven strategies for funding diversification: securing government support beyond USAID, tapping into multilateral development banks, leveraging philanthropic capital, and engaging with innovative finance. Here’s a breakdown of what development organizations need to know. 1. Government funding: Who’s still investing in global development? With USAID funding off the table, development organizations are looking elsewhere. The U.S. government might remain a key player, with agencies such as the Department of State, the Department of Health and Human Services, or HHS, and the Millennium Challenge Corporation, or MCC, continuing to fund international programs. While the scale won’t match USAID’s, these agencies still represent billions in available funding. Outside the U.S., Europe’s aid budgets are under heavy strain, with several major donors scaling back their commitments. The U.K.’s aid budget is set to drop to just 0.3% of its gross national income by 2027, redirecting billions toward defense spending. Germany, Europe’s largest bilateral donor, has already slashed more than €1 billion from its development budget in 2024, with an additional €2 billion in cuts proposed for 2025 — raising concerns about the future of its main development agency, BMZ. France has also moved to reduce its aid spending, cutting €742 million in 2024 and planning an additional 35% reduction this year. Meanwhile, Belgium has announced a 25% aid cut over five years, merging its development ministry into foreign affairs. Across Europe, funding is increasingly tied to domestic priorities such as migration control, economic security, and geopolitical interests, making it harder for development organizations to access traditional grants. However, not all governments are retreating. Norway remains one of the few donors still allocating over 1% of its GNI to aid, though much of its recent increases have been directed toward Ukraine. Canada’s development spending reached a record $9.4 billion in 2023, but uncertainty looms as economist Mark Carney takes over from former Prime Minister Justin Trudeau. Australia has also increased its aid budget, with a strong focus on the Indo-Pacific region, but political shifts could impact future commitments. While these countries present potential funding opportunities, the long-term stability of their aid programs remains in flux. Emerging donors, including Saudi Arabia, China, and India, are expanding their influence, but their funding models differ from traditional Western aid, often focusing on loans and economic partnerships rather than grants. Thus, engaging with these donors requires quite a tailored approach. 2. Multilateral development banks: A reliable but competitive funding source Multilateral development banks — including the World Bank, the Inter-American Development Bank, the Asian Development Bank, and the African Development Bank — remain major sources of funding, particularly for infrastructure, health, and climate projects. These banks disburse billions annually through grants, concessional loans, and procurement contracts. However, accessing MDB funding requires navigating a complex, competitive process. Successful bidders engage early, monitor project pipelines, and build strong relationships with MDB staff and government partners. Another overlooked opportunity lies in the private sector arms of MDBs, such as the International Finance Corporation, or IFC, and IDB Invest. These institutions channel billions into businesses and financial institutions in emerging markets. While NGOs and development consulting firms may not be the most common investees, they can play a role as sector and location experts, helping with de-risking investments, structuring deals, and ensuring impact. 3. Can philanthropy fill the funding gap? Philanthropy is playing an increasingly important role, and many expect it to step up — but it’s unlikely to fully replace government aid. In 2022, 40 of the largest private foundations contributed $11 billion to global development — a significant amount, but still just 5% of total official development assistance from traditional donors. At the same time, some attention is turning to the vast untapped potential of philanthropic endowments. While foundations are required to distribute just 5% of their assets annually in grants, the remaining 95% typically sits in investment portfolios, often disconnected from mission-driven impact. Some funders, such as the Ford Foundation and the MacArthur Foundation, have begun channeling portions of their endowments into impact investing in the U.S., but these remain exceptions rather than the norm. If more foundations followed suit, even a small shift in endowment investment strategies could unlock billions in new capital for development. For development organizations, if this approach were to expand, they would need to shift their roles — from being passive grantees to active capital mobilizers. Engaging not just with grant officers but also with the financial decision-makers who oversee foundation investments will be key to accessing this growing pool of impact-focused funding. 4. Innovative finance: Beyond grants As traditional aid contracts, innovative finance models are gaining traction. Blended finance, impact investing, and outcome-based funding models are opening new doors for development organizations. Blended finance, for example, uses public or philanthropic capital to de-risk private investments in development projects. Development organizations can engage by offering technical assistance, risk mitigation, and pipeline development — roles that are critical in attracting private capital to underserved regions. Another emerging model is development impact bonds, or DIBs, where investors provide upfront capital and only receive a return if specific development outcomes are met. For local NGOs, DIBs present a direct funding opportunity, reducing reliance on subcontracts from larger INGOs. Meanwhile, some NGOs are directly engaging in impact investing. Organizations such as Mercy Corps Ventures and Heifer Impact Capital are investing in social enterprises aligned with their missions. While not every NGO will become an investor, many can still engage by co-designing investment vehicles or serving as impact advisers. Positioning for success Funding diversification is a valuable tool for survival in today’s volatile development landscape. While traditional donors are cutting budgets, alternative sources from MDBs to philanthropy to innovative finance offer growing opportunities. One key takeaway? Development organizations must be proactive. Early engagement, strategic partnerships, and a willingness to rethink funding models will determine which organizations thrive in this new reality.