Mohammad Maruf Hasan
In the aftermath of the global aid fatigue and amid the retreat of traditional bilateral donors such as the closure of USAID’s portfolio in Bangladesh, civil society actors across the Global South are confronting a strategic crossroads. The challenge is no longer just about resource mobilisation but about reimagining the architecture of development finance. The current juncture demands a structural shift from episodic, donor-driven grants toward systemic, impact-oriented capital strategies.
The theoretical foundations for this transition are rooted in the evolving corpus of development finance literature. Financial development is now understood as a key enabler of entrepreneurship, productivity, and institutional resilience (Beck & Demirguc-Kunt, 2006). Yet, the architecture of capital access in low-income countries remains deeply exclusionary, particularly for informal firms, civil society actors, and marginalised constituencies. Stylised empirical insights (World Bank Enterprise Surveys; Ayyagari et al., 2008) confirm that SMEs are the Global South’s most prominent job creators and are disproportionately excluded from formal credit systems.
Additionally, political economy theory reminds us that financial systems are embedded within unequal power relations, often rewarding scale, political connectivity, and compliance over community impact. Hence, access to finance is not simply a market function but a question of institutional justice. This article proposes an alternative typology of development financing instruments, with reference to both academic theory and real-world innovations, particularly in Bangladesh and the broader LNOB (Leave No One Behind) context.
While traditional grants remain a cornerstone of humanitarian and development action, they are increasingly critiqued for fostering dependency, bureaucratic inertia, and short-termism. The “Grand Bargain” framework, agreed at the 2016 World Humanitarian Summit, introduced localisation, harmonisation, and risk-sharing principles that challenged the conventional grant architecture.
Strategic Partnership Agreements (SPAs), such as those pioneered by BRAC with DFAT and FCDO, offer a response: flexible, multi-year, core funding models that shift the power dynamics between funders and Southern NGOs. These models align with Ostrom’s (1990) theories of co-production and institutional embeddedness, allowing for more substantial community ownership and systems thinking.
Yet, SPAs remain vulnerable to geopolitical cycles, donor fatigue, and shifting performance logics, necessitating complementary strategies for financial diversification.
Philanthropic actors like Mastercard, Ford, and Skoll Foundation have emerged as critical players in localisation financing. Their modalities go beyond charity, leveraging catalytic capital to unlock system-level change. Rooted in the “patient capital” approach (Bannick & Goldman, 2012), these investments focus on youth livelihoods, digital inclusion, and impact ecosystems.
Foundation-SPAs offer co-creation, autonomy, and long-term alignment with the values of Southern civil society. They also help transition from sustainability (cost recovery) to impact monetisation, assigning measurable and investable value to social outcomes.
Simultaneously generating social and financial returns underpins the theory of blended value (Emerson, 2003). NGOs and social businesses adopt business models that generate revenue while delivering public goods. Aarong by BRAC, UCEP’s vocational institutes, and Grameen Shakti’s renewable energy model illustrate this convergence in Bangladesh.
This modality resonates with the entrepreneurial state thesis (Mazzucato, 2013), emphasising that mission-driven innovation can thrive when patient, risk-tolerant capital is supported. However, challenges include the risk of mission drift, governance capacity, and market distortion.
Microfinance, long celebrated for expanding financial inclusion, has evolved beyond credit provision. It now integrates health insurance, digital wallets, and enterprise services in contexts like Bangladesh. Empirically, microfinance is associated with improved resilience but mixed results on poverty alleviation (Banerjee et al., 2015).
From a theoretical lens, microfinance sits at the intersection of social intermediation and institutional development. It creates quasi-formal pathways for excluded populations to engage with capital markets, though it remains ill-suited to finance public goods, necessitating blended or hybrid finance instruments.
Public-Private Partnerships (PPPs) offer a framework where NGOs act as co-producers of public services. Based on Ansell and Gash’s (2008) collaborative governance model, such partnerships enable scale, sustainability, and systems change. In Bangladesh, organisations like Marie Stopes and RDRS work under government contracts to deliver essential health and education services.
Yet, realising the potential of PPPs requires procurement reforms, neutral tendering, and a trust-based interface between civil society and the state. Regulatory gaps and political economy risks must also be mitigated.
As global finance shifts toward ESG (Environmental, Social and Governance) metrics, corporate actors increasingly engage in development finance. Theories of stakeholder capitalism (Freeman, 1984) suggest that private sector legitimacy now depends on social returns, not just profit margins.
In Bangladesh, partnerships between JAAGO and Robi, or Shakti Foundation and HSBC, show that CSR funding can align with development goals. However, such engagements must be critically assessed to avoid greenwashing or extractive philanthropy.
Perhaps the most radical transformation lies in the digitisation of finance. FinTech and blockchain enable:
- Smart contracts (automated disbursements based on verified outcomes)
- Tokenisation of impact (impact bonds, carbon credits, etc.)
- Real-time monitoring and data analytics
These tools support the monetisation of social outcomes, allowing development actors to access results-based or pay-for-success funding. The theoretical underpinning comes from behavioural finance and new institutional economics, where information asymmetry and transaction costs are mediated through technology.
In Bangladesh, digital ID systems and mobile finance infrastructure lay the groundwork for scalable experimentation in this space.
The evolution of development finance is not just technical, it is political. It demands rethinking the governance, distribution, and legitimisation of capital. For LNOB-focused organisations, this means moving from fiscal survival to financial sovereignty.
To do so, we must invest in:
- Scenario-based financial planning and forecasting
- Social impact measurement and data governance
- Institutional readiness for compliance, innovation, and risk
Ultimately, development actors must reposition themselves not as recipients but as stewards and strategists of catalytic capital. A pluralistic, decentralised, and justice-oriented financial ecosystem—rooted in Southern leadership—is essential not just for effectiveness, but for dignity.
The writer is a Lead, Policy and Partnership, Advocacy for Social Change, BRAC
