All crises bring opportunities. This could be the silver lining to “aid austerity”
Amid the chaos of a historic contraction in international development spending, one positive trend may be emerging
8 July 2026 · 9 min
AKDN / Harry Johnstone
By Harry Johnstone
Steep cuts to international development budgets are pushing donors towards direct funding for local civil society organisations. Writing in The Telegraph, journalist and aid specialist Harry Johnstone examines how donors can make this work. His suggestions range from long-term grants for community mobilisation and governance to loan guarantees, match funding and catalytic capital. Among the examples is AgroVida, an Aga Khan Foundation (AKF) programme helping Village Development Organisations in northern Mozambique to save and access credit. AKF is an agency of the Aga Khan Development Network (AKDN).
Talk of the “post-aid” world may be overblown but there is no doubt that we are living through a historic contraction in international development spending.
As the real impact of cuts becomes apparent, debates around the future of aid, its focus and utility continue.
But one positive trend may be emerging: a long-overdue shift towards localisation.
For those donors now willing to put their money where their mouths are, the question is how to fund local civil society organisations (CSOs).
“It's a conundrum,” says Olav Kjørven, once Norway's Deputy Minister for International Development.
“In the humanitarian space,” he says, “for at least 15 years, everybody agreed in principle that we should shift the model from working through top-down external organisations to providing resources more directly to local NGOs. But very little has actually happened.”
Mr Kjørven believes this is because large international organisations have continued to pursue funding for themselves, generally out-competing local CSOs when it comes to grant proposals and donor relations. Related to this, donors worry that funds going to small local organisations might end up in the wrong hands. Trust remains low.
Broadly defined, CSOs are independent institutions that operate alongside government and the private sector. Rooted in voluntary civic action, they work to improve community life, uphold human dignity and advance the public good across a wide range of sectors.
There are many examples of CSOs delivering extraordinary results across areas like agriculture, education and health care.
BRAC's Ultra-Poor Graduation programme in Bangladesh, for example, has lifted 14 million people out of extreme poverty.
In Tudor Creek, Mombasa, AKF is working with a local youth-led NGO called Big Ship to build on community-led mangrove conservation and restoration efforts. Big Ship is offering alternative sources of employment like beekeeping, crab hunting, nursery management and waste collection for recycling, opening up opportunities while protecting the ecosystem.
AKDN / Christopher Wilton Steer
Yet despite these results many donors struggle to change tack.
Doing so requires a shift in mindset, says David Matern, UNDP Country Representative for Cape Verde.
Mr Matern believes this comes once donors genuinely understand that local CSOs enable development, particularly in remote rural settings.
But it goes further than development metrics. Empowering these organisations can also strengthen the social fabric. Their very existence galvanises agency and accountability within communities. These structures and habits bode well for future stability, economic and political development.
In an age where rich governments are questioning how aid serves their national interest, it is worth re-emphasising that some of the headline concerns in the global North, such as terrorism, wars and immigration, can be mitigated by effective local development and governance that is sustained over decades.
And despite "aid austerity", local CSOs could potentially attract more funding than before. After cutting spending on top-heavy organisations like the UN and the biggest international NGOs, donors could possess more funds for more affordable grass-roots organisations.
Moreover, as the following section shows, donors like La Caixa Foundation can “de-risk” CSOs through their initial funding, rendering these small organisations eligible to receive additional funds via the private sector.
So how should aid officials in capitals fund these local entities?
Perhaps the most important principle is a long-term approach focused on strengthening local organisations' capacities and structures.
Grants for these CSOs should support a handful of key elements: community mobilisation, a model for financial growth, as well as organisational governance, accountability and monitoring. Funding should also encourage CSOs to engage with governments and administrations in their area's policy, planning and development processes.
Another approach to support local civil society is to reduce the financial risks that often prevent these CSOs from accessing funds.
Tools such as loan guarantees, low-interest loans, or agreements to absorb potential losses can encourage banks and other financial institutions to lend to community groups that they might otherwise consider too risky.
In Ethiopia, a scheme that committed to absorb 70 per cent of potential losses helped unlock funding for small farming cooperatives, women farmers, and young farmers – groups traditionally excluded from credit.
In northern Mozambique, too, farmers and local economies have benefitted from low-risk finance.
The Aga Khan Foundation's AgroVida programme is enabling Village Development Organisations to access credit and save money, which is vital for rural development.
Another approach is for donors to invest in CSOs as part of broader local economies. In Tanzania, cooperatives and small enterprises became "investable actors" because the UN helped them to access both credit and markets within the seaweed sector.
A last consideration is for donors to fund CSOs that source finance locally or through diaspora networks.
In Honduras, 146 municipalities mobilised themselves via the Champions for Education programme. They increased their contributions to education from 43 to 68 per cent. The UN Joint SDG Fund provided seed funding of just $250,000. Ultimately, the programme helped 96,000 children go back to school.
Related to this, financing institutions can provide “match funding” to CSOs that are mobilising support locally. Wilde Ganzen Foundation is an example of this model. It typically matches up to 50 per cent of whatever funds a CSO succeeds in raising locally.
To conclude and reiterate, donors should invest in organisations whose design includes a basic business case for domestic resource allocation, blended finance or co-investment. This is how Uruguay's green hydrogen initiative used $1 million in catalytic capital to unlock $20 million from the International Finance Corporation, mobilising a sector for decades.
All crises bring opportunities. In the current malaise around the impacts of aid cuts, this shift could be a genuine silver lining. It is time for donors to step up.
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Harry Johnstone is a freelance journalist, whose reporting has appeared in the Financial Times, The Guardian and The Telegraph. He covers topics ranging from climate change and food security to cultural heritage.
