Beyond Grants: Financing Development in a Changing World
Development cooperation is facing a difficult equation.
The financing needs required to achieve the Sustainable Development Goals are enormous. The annual financing gap in low- and middle-income countries is estimated at around USD 4 trillion. At the same time, the resources traditionally available to address these challenges are shrinking. Official development assistance (ODA) fell sharply in 2025, continuing a decline that started the previous year.
But there is another side to this equation. Considerable private capital is available globally, and interest in investments that generate measurable social and environmental impact has grown significantly. The global impact investing market alone is estimated at more than USD 1.5 trillion — although this still represents only a small fraction of global assets under management, and only part of it reaches developing and emerging economies.
This creates both a challenge and an opportunity. As traditional development finance, including ODA, comes under increasing pressure, development organizations need to consider not only how to mobilize additional sources of capital, but also how to use increasingly scarce public and philanthropic resources more effectively.
For international nonprofits such as Helvetas, the question is twofold: How can we help more private capital reach markets and sectors where it can generate development impact? And how can we use the limited development funding available to catalyze more impact?
This is increasingly shaping how we think about private sector engagement and development finance: combining our development expertise, local presence and partnerships with financial approaches that can reduce barriers to investment, mobilize additional capital and make more effective use of scarce development resources.
Development needs businesses
Private sector engagement is not new to development cooperation. Across many of the countries where Helvetas works, businesses are essential to creating jobs and incomes, providing goods and services, developing new technologies and building more resilient local economies. For decades, development organizations have worked with companies, entrepreneurs, financial institutions and business associations to strengthen markets and make them more inclusive and sustainable. But one constraint appears again and again: access to finance.
A small agricultural processor may have the potential to buy from hundreds or thousands of smallholder farmers but lack the working capital to expand. A promising social enterprise may have a viable business model but be considered too small or risky by conventional investors. A local financial institution may be interested in lending to small businesses or farmers but hesitate because it lacks experience with the sector or considers the risks too high.
In such situations, training or technical assistance alone may not be enough. Businesses need capital to invest, grow and ultimately deliver impact at scale. This is where the worlds of private sector engagement and impact finance increasingly meet.
A USD 4 trillion challenge cannot be financed through grants alone
Grants remain indispensable to development cooperation. Many of the challenges we address have no viable commercial model — nor should they. Supporting people affected by conflict, strengthening democratic institutions or ensuring that marginalized groups can exercise their rights will continue to require public and philanthropic funding.
But the scale of today's development challenges also means that grants cannot do everything. In 2025, ODA from OECD Development Assistance Committee members and associates fell by more than 23 percent in real terms — the largest annual decline ever recorded.
This is happening while financing needs are moving in the opposite direction. The implication should not be that private investment can simply replace development assistance. It cannot. Instead, we need to ask a different question: Can we use some of the public and philanthropic resources available to mobilize additional funding for development?
That question lies at the heart of impact finance and, in particular, blended finance.
Rethinking how we use grants
Imagine a development organization has USD 1 million available.
In a traditional project, that money might finance activities directly: training entrepreneurs, supporting farmers, purchasing equipment or strengthening local institutions. These activities can create considerable impact.
But there may be another option.
What if part of that funding could instead reduce the risks preventing financial institutions or investors from entering the market? Grants can provide technical assistance to make businesses investment-ready, while philanthropic funding can offer guarantees or absorb higher risks. In this way, development funding becomes catalytic, enabling other investors to participate under conditions that match their risk and return expectations.
The objective is not simply to replace one dollar of grant funding with one dollar of investment. It is to ask whether one development dollar can help mobilize several additional dollars for sustainable development.
That is what we mean when we talk about moving “beyond grants.”
If the capital exists, why doesn't it flow automatically?
The Global Impact Investing Network (GIIN) estimates that more than 3,900 organizations manage around USD 1.57 trillion in impact investing assets worldwide. Despite considerable growth, the sector remains small compared with global capital markets — and the capital is distributed very unevenly.
There are good reasons for this.
Many investments in emerging and frontier markets involve real risks. Businesses may be small and have limited financial records. Transaction sizes may be too low to justify expensive due diligence. Investors may lack knowledge of particular sectors or countries. Currency volatility, regulatory uncertainty or political risks can add further complications. But investors may also perceive risks to be higher than they actually are — because of limited market information, unfamiliarity with a country or sector, small transaction sizes or a lack of established investment track records.
This is an important distinction. The answer is not always to use development funding to make an investment less risky. Sometimes investors simply need better information, stronger evidence and credible local partners — and, at times, a push to look beyond established markets and conventional perceptions of risk.
Where genuine barriers remain, however, development resources can play a catalytic role. Technical assistance, guarantees, first-loss capital or other forms of blended finance can address specific constraints and improve the conditions for investment. At the same time, scarce development resources should not subsidize investments that would have happened commercially anyway.
The opportunity therefore lies in understanding what is preventing capital from flowing: Is the risk real or perceived? Is there an information or capacity gap? Or does the economics of the investment genuinely require some form of risk sharing?
Impact finance can help bridge these gaps — not by systematically taking risk away from private investors, but by addressing the specific barriers that keep viable, impactful investments from happening.
Building the bridge between development and investment
This is also where organizations such as Helvetas can play a key role. We previously wrote about the strengths nonprofits can bring to impact finance: deep knowledge of local contexts, extensive networks and relationships with private sector actors, and decades of experience working toward social and environmental outcomes. These strengths remain highly relevant. But our experience has also shown that INGOs can and must go further to drive changes in financial flows.
Development organizations can help identify businesses and sectors where investment could generate meaningful impact. We can work with companies and financial institutions to strengthen their capacity and investment readiness. We can provide technical assistance before and after an investment. We can help measure whether investments actually improve livelihoods or environmental outcomes. And, together with donors and philanthropic partners, we can help design mechanisms that address specific risks preventing private capital from entering a market.
Unfortunately, the numbers show that private — and even philanthropic — capital is still not flowing at the scale, speed or risk appetite needed to pioneer bolder solutions in many developing markets. Too often, capital follows established models and proven opportunities rather than helping to build the track record that new and potentially transformative approaches need.
Thus, in select cases, Helvetas can go one step further and act as a catalytic investor itself. Where real or perceived risks are still too high for commercial investors — or where waiting for them to enter would simply take too long — a strategic investment can help pioneer a new approach, demonstrate its viability, and build the track record needed to attract others. The goal is not to replace private capital, but to go first where necessary, prove what works and help crowd in larger amounts of capital over time.
This does not mean that Helvetas needs to become an investment bank or asset manager. On the contrary, successful impact finance requires different actors to contribute what they do best. Investors and fund managers bring capital, investment expertise and financial discipline. Businesses bring entrepreneurial capacity and viable commercial models. Governments establish the enabling environment. Donors and foundations can provide catalytic resources and accept risks that commercial actors cannot. Development organizations bring local presence, sector knowledge, technical expertise, impact orientation and trusted relationships with the people and businesses these investments are ultimately intended to serve.
Helvetas’ role in impact finance varies depending on what is needed to make an investment happen. The common objective is to address the barriers that prevent capital from flowing and to enable other actors to invest and scale. Impact finance therefore requires us to build bridges between actors that have traditionally operated in rather different worlds.
From implementing projects to catalyzing investment
For Helvetas, this is already becoming practical. Across our programs, we increasingly look at development challenges not only from the perspective of what a project can directly finance, but also through the question of what prevents markets and financial systems from delivering solutions themselves.
Sometimes the answer will still be a conventional development project. Sometimes it may be a partnership with a company. But in other cases, the missing piece might be technical assistance combined with investment capital, a guarantee, results-based financing or a blended finance structure.
In East Africa, for example, Helvetas is working with the impact investor iGravity to develop an innovative financing structure designed to channel investment into sustainable rice value chains. Rather than funding farmers or businesses solely through grants, the approach combines investment capital with catalytic funding and a dedicated Technical Assistance Facility. The objective is to address some of the risks that currently prevent capital from flowing while simultaneously improving environmental and social outcomes.
Other ideas are emerging from existing Helvetas programs. Our country teams often know where businesses struggle to obtain finance, which financial institutions are interested in entering new markets, and where relatively small interventions could potentially unlock much larger investments. That creates an interesting shift in perspective. In some cases, a development project can help create the conditions for businesses, financial institutions and investors to take over functions initially supported by donors.
We need both experimentation and scale
Impact finance and blended finance are attracting increasing attention, and rightly so. But we should also be realistic about where the market stands. There is growing pressure to consolidate approaches, demonstrate results and scale successful structures. This is important. We do not need hundreds of unnecessarily complicated new financial instruments if proven approaches can be replicated. At the same time, the market remains massively underdeveloped compared with the scale of the financing challenge.
We therefore need both: to scale what works and to continue investing in new solutions.
That requires capital and support across the entire development cycle — from early-stage feasibility work and technical assistance to catalytic capital, guarantees and eventually larger-scale commercial investment.
Not every experiment will succeed. Structures will need to be adjusted. Some will prove too complex or expensive. Others may reveal that a grant remains the most appropriate instrument.
But without experimentation, there will be nothing to consolidate and scale.
Making scarce resources work harder
Moving beyond grants is not an argument against development assistance. Quite the opposite.
As development budgets decline, we need to become more deliberate about where grants are indispensable and where they can be used to unlock additional resources.
For organizations such as Helvetas, this means evolving our role. We will continue implementing development projects and working with donors, communities and governments. But increasingly, we can also help connect development opportunities with businesses, investors, financial institutions and philanthropists.
We see impact finance as part of our private sector engagement. It complements more traditional private sector engagement, where companies support development projects directly through financial or in-kind support, expertise or partnerships. Investment-linked private sector engagement goes a step further by connecting development outcomes with investment opportunities and financial returns, helping channel capital towards businesses and solutions that can generate measurable impact.
For Helvetas, this is about more than advocating for new ways of financing development; we are changing how we work. We are investing in dedicated impact finance capacities, building the skills, partnerships and internal resources needed to develop new approaches and to turn promising ideas into investable solutions.
Grants and traditional development cooperation will remain essential, but they are no longer the only tools available to us. If we want to mobilize new sources of capital and use increasingly scarce development resources more effectively, we also need to be willing to invest in our own capabilities, take calculated risks and commit some of our own resources to pioneering solutions. In other words, we need to walk the talk — and that transition is already underway at Helvetas.
About the Author
