By Christian Meyer zu Natrup, Managing Director MzN International & Partner Human Planet
The Humanitarian Finance Forum, London was a “split” experience this year. A ballroom crowded with NGO executives, foundation leaders, development practitioners, investors, and government officials. The agenda was stark: how to finance humanitarian and development action in a world where traditional grant flows are not just shrinking, but eroding.
Last year’s forum, held in the immediate wake of political shifts that reordered the US development posture, was defined by hesitation. The debate focused on preservation—how to protect existing models. While “business as usual” was rarely defended out loud, it was implicitly assumed. There was a sense that the system might bend under pressure, but would not fundamentally break.
This year felt different. The debate had shifted decisively. Innovative finance. Blended finance. Outcome-based instruments. Impact bonds. Private capital. The narrative was no longer about shoring up the old architecture, but about replacing withdrawn grants with new capital structures. In several sessions, innovative finance was presented as a systemic panacea for the global funding gap.
This shift is not merely stylistic; it is driven by a stark mathematical reality. Traditional grant funding is receding and is no longer able to provide a stable funding basis for impact (if it ever did). OECD projections indicate a further 9% to 17% contraction in Official Development Assistance (ODA) in 2025, compounding an alarming global funding drop that exceeds 30%.
Simultaneously, innovative finance is surging. The global impact investing market has now eclipsed $1.57 trillion in assets under management—representing a 21% compound annual growth rate since 2019 (GIIN study) while annual climate blended finance transactions surged by 120% to a record $18 billion (OECD and Convergence study). The non-profit sector has taken note and is increasingly keen to engage with these surging capital pools.
Yet, beneath the glossy rhetoric, a profound misalignment remains visible.
The Capability Gap
First, many non-profit and development leaders have not yet adjusted to the practical implications of this new paradigm. The vocabulary has evolved faster than the operating models. If this gap persists, organizations risk losing more than just funding; they risk losing relevance and, ultimately, their ability to deliver impact at scale.
The Profit Fallacy
Second, while private capital and blended structures were the primary topics of conversation, the conceptual understanding of these mechanisms remains thin. A recurring moral debate centered on whether profit is permissible in humanitarian or development contexts. Framed as a binary choice, this discussion misses the structural reality of how blended finance actually functions.
In a typical blended structure:
- Concessional Capital: The majority of the capital is concessional and generates no profit.
- Catalytic Layers: A layer of catalytic capital absorbs “first loss” or provides the guarantees necessary to de-risk the project.
- Lower-Tranche Returns: A smaller tranche may earn an inflation-linked or below-market return.
- Market Returns: Only in rare, highly specific cases does a senior tranche earn a risk-adjusted return comparable to commercial markets.
Profit, where it exists, is a tool, not an extraction. It is a mechanism to mobilize the additional capital required to scale interventions that grants alone can no longer sustain. It is usually highly structured and subordinated to impact. Treating profit as inherently incompatible with humanitarian goals ignores how markets enable replication, efficiency, and long-term growth.
The Readiness Crisis
The most concerning signal, however, came from the investors. Several shared the same private message: there is a surplus of capital, but a severe shortage of “investable” propositions.
One investor summarized it bluntly: “We came expecting to see pipelines. We expected to hear pitches for projects we could move on in the next few weeks. Not a single concrete opportunity was presented.”
This is the crux of the challenge. The primary constraint is no longer capital; it is readiness. To attract private or blended capital, programs must be:
- Structurally Clear: Built with a defined cash-flow logic.
- Isolated: Legally and operationally ring-fenced.
- Result-Oriented: Equipped with verifiable, measurable outcomes.
- Transparent: Governed with investor-grade oversight.
- Scalable: Designed for growth beyond the pilot phase.
Most humanitarian and development agencies are not yet equipped to design at this level of financial engineering. Their strengths lie in delivery, not capital structure. However, the environment is shifting toward hybrid models where delivery capability must be matched by financial sophistication.
The Path Forward
If leaders fail to bridge this gap, the consequences are predictable. Funding will flow toward actors who can structure, measure, and scale. Traditional NGOs may find themselves relegated to subcontractors or excluded entirely from new capital pools.
The opportunity, however, is equally clear. There is money. There is an appetite. There is a political acknowledgment that grants alone will not close the gap.
What is required now is a rapid build-out of internal capability: financial literacy at the board and executive levels, structured product development, the creation of credible pipelines, and partnerships with investors from the outset rather than as an afterthought.
The humanitarian finance debate has moved from whether change is needed to how that change is executed. The next forum will not reward rhetoric. It will reward those who arrive not with concepts, but with bankable, investable, and scalable programs.
The sector is at an inflection point. The question is no longer if innovative finance will shape the future of development. The question is who will be prepared to operate within it.
