Foreign aid budgets are shrinking at the fastest pace on record, and the question of who will pay for development in emerging markets has become pressing. Philanthropists, impact investors and development banks are testing new models, from decade-long grassroots grants to blended finance structures that use public money to draw in private investors. In a World Finance feature by Selin Bucak, the question is whether these approaches can make a meaningful dent in the gap.
A record retreat in official aid
Preliminary OECD data published in April showed that official development assistance from donor countries fell 23.1% in real terms in 2025, to $174.3bn. It was the steepest single-year decline on record. The United States accounted for around three-quarters of the drop, with its own aid down 56.9%. Several European governments had also announced aid cuts as they redirected budgets towards defence and domestic pressures, adding to the squeeze.
The scale of the need dwarfs those figures. The World Bank estimates the financing gap for reaching the UN Sustainable Development Goals by 2030 at around $4trn. Private money has not abandoned emerging markets. Strategas Securities estimates that US exchange-traded funds focused on emerging-market equities took in almost $31bn over the year. The difficulty is that portfolio flows into listed shares rarely reach the community groups, smallholder farmers and young people that aid programmes were designed to support.
Philanthropy built by emerging-market investors
One attempt to bridge that divide is EMpower, a New York-headquartered foundation set up 25 years ago by emerging-market investment professionals who wanted to send part of their returns back to the regions generating them. Since 2000, it has deployed more than $60m across nearly 400 locally run organisations in 15 countries.
Its new president and chief executive, Dr Nisha Dhawan, works from Delhi, making her the first leader of the foundation based in the Global South. She was never asked to relocate, a detail she sees as reflecting how important it is for leaders to sit close to the communities they serve. Dhawan previously worked at Deutsche Bank and Barclays in London, holds a PhD from IIT Delhi and has spent 14 years at EMpower.
Dhawan believes philanthropy can help close the funding gap and sees growing risk capital coming from individuals and companies reconsidering their responsibilities in the markets where they invest. She regards large top-down investment as necessary but insists it must be paired with grassroots giving, which is where she believes real impact is achieved.
The funding model mirrors the foundation’s origins. Almost 70% of its money comes from the financial services industry, raised largely through galas and donor networks in London, New York and Singapore. The remaining 30% or so comes from institutional funders such as the Ford Foundation, Co-Impact and SIF. That institutional share matters because donations from finance professionals tend to track markets, and fell during the 2008 and 2013 downturns. Steadier institutional money cushions that volatility and gives the foundation room to back bolder ideas.
Long-term grants and local decisions
EMpower’s operating choices run against several sector norms. Grant decisions are made by country teams that identify and fund local organisations directly. Partners receive funding commitments of 10 years, rather than the one- or two-year cycles common in development philanthropy, which allows them to plan, retain staff and build capacity.
Young people drawn from the communities served also have real authority. In India, youth fellows make the final decision on bringing new organisations into the portfolio. In Mexico, they help design the national investment strategy. In South Africa, a cohort is shaping how mental health programming is built into the regional portfolio, while in Indonesia fellows helped create a health curriculum now used by grantees across greater Jakarta.
Dhawan rejects judging success by scale alone, preferring depth and influence. She points to the Antarang Foundation, whose school-to-work modules are now run by the Indian government across six states; Virlanie in the Philippines, which supports young people born on the streets; and an Argentine partner that embedded mental health programming across Buenos Aires. For her, the clearest measure of success is whether the work becomes sustainable.
How blended finance changes the investment case
Philanthropy alone cannot mobilise trillions, which is why blended finance has become a central tool for development agencies. The idea is to use concessional or lower-cost public capital to absorb part of the risk or reduce the cost of funding, so that projects become attractive to commercial investors who would otherwise stay away.
Triodos Investment Management offers a practical example. It has signed an agreement with the Austrian Development Bank and the Dutch development bank FMO, whose capital will be integrated into the Hivos-Triodos Fonds. The fund will invest in areas including agriculture and renewable energy. Maritza Cabezas, senior investment strategist at Triodos, explains that blended finance partnerships give the firm access to cheaper funding from development institutions, making projects viable and the resulting investments more attractive to clients. Triodos already finances technology-driven agricultural projects in Ghana.
The model has limits. Large development finance institutions impose demanding requirements that smaller investees can struggle to meet. Cabezas also highlights a deeper distortion: investors who ignore their impact can appear to earn higher returns because the costs of the harm they cause are not visible. That makes it harder to draw capital into priorities such as financial inclusion and biodiversity, where the benefits are real but not always captured on a balance sheet.
Why a gender lens matters
Mary-Therese Barton, EMpower’s co-chair and chief investment officer for fixed income at Pictet Asset Management, has argued that emerging markets are back as an asset class. Adam Heuman, the foundation’s vice president of global development, says the priority now is making sure no young person is left behind as that capital returns.
Dhawan applies a gender lens to every investment decision. She argues that GDP growth cannot be properly assessed without looking at the people who live in a market and the extra barriers women and girls face. Young people outside education, employment or training are often female, she notes, and breaking development data down by gender would significantly change how progress is understood.
Conclusion
No combination of philanthropy and private investment will replace official aid overnight, and the $4trn gap is far beyond what any single model can close. But the approaches described here point to a workable division of roles: blended finance to make larger projects bankable, patient and locally led philanthropy to reach the communities markets overlook, and better data to show where money actually changes lives. As aid budgets shrink, that mix may be the most realistic path forward.
