The end of USAID and the beginning of what? Bangladesh's development sector at a crossroads

The dismantling of USAID has sent shockwaves through Bangladesh's development sector that extend far beyond cancelled contracts and frozen disbursements. With 83 per cent of USAID's global programming terminated and the agency effectively absorbed into the State Department, Bangladeshi NGOs that built decades of institutional capacity around American funding streams now face an existential question: where does the money come from next?

The numbers tell a stark story. Organisations across Bangladesh have seen revenue drops of 20 to 40 per cent as USAID contracts evaporated. Health programs, climate adaptation initiatives, and women's empowerment projects that operated for years suddenly went dark. Staff reassignments, hiring freezes, and program closures have become routine. The uncertainty isn't just about lost funding; it's about the collapse of predictability that allowed long-term program design and institutional planning.

Yet within this crisis, a different funding architecture is beginning to emerge. The USAID void has accelerated trends that were already reshaping development finance, forcing a reckoning with donor dependency that many in the sector knew was coming, but few were prepared to confront.

The Philanthropic Response Takes Shape

Multiple foundations across North America and Europe have begun stepping into gaps left by bilateral aid retrenchment, though their approaches differ significantly from traditional government funding. The Gates Foundation, Mastercard Foundation, and Open Society Foundations have all expanded programming in South Asia over the past year, but their grant-making philosophies emphasise different metrics than USAID historically demanded.

Foundations tend to favour multi-year core support over restricted project grants, a shift that allows organisational flexibility but requires different relationship management. The emphasis on "systems change" and "locally led development" means Bangladeshi organisations with strong community ties and demonstrated impact at scale are finding receptive audiences. Unrestricted funding, long the holy grail for development practitioners, is becoming more available, though competition for these dollars has intensified dramatically.

European foundations, particularly those in Germany, the Netherlands, and Scandinavia, are increasingly focusing on climate resilience and sustainable livelihoods programming in Bangladesh. Their funding cycles tend to be longer and their reporting requirements less onerous than USAID's, but they also expect stronger evidence of local ownership and sustainability planning from the outset.

Middle Eastern Philanthropy Enters the Conversation

Perhaps the most significant shift in Bangladesh's funding landscape involves Middle Eastern philanthropic capital, a source that remained largely untapped by the development sector until recently. Islamic development banks, Gulf based foundations, and high-net-worth family offices from the UAE, Saudi Arabia, Qatar, and Kuwait have begun exploring partnerships with Bangladeshi organisations, particularly around education, health, and economic empowerment aligned with Islamic principles of social welfare.

The Qatar Fund for Development (QFFD), the Islamic Development Bank (IsDB), and various zakat foundations represent substantial pools of capital that historically flowed through different channels than secular development aid. Their programmatic priorities often align well with Bangladesh's needs, technical and vocational training, microenterprise development, maternal and child health, disaster response, but the relationship building and proposal development require different cultural competencies and partnership models than Western donors typically demand.

These funding sources come with their own complexities. Due diligence processes can be lengthy, financial transfers sometimes face banking complications, and programmatic expectations may differ from Western development frameworks. But for Bangladeshi organisations willing to invest in understanding these funders' priorities and building genuine partnerships, the potential is significant. The capital exists; the question is whether development organisations can adapt their institutional approaches to access it.

Microcredit as Infrastructure, Not Just Intervention

The funding crisis has also renewed interest in financial sustainability models that reduce dependency on external grants altogether. Microcredit, long established in Bangladesh through institutions like BRAC and other microfinance institutions (MFIs), is being reconceptualised not merely as a poverty alleviation tool but as foundational infrastructure for sustainable development programming.

The traditional model, where Grants fund programs, programs serve beneficiaries, and programs end when grants expire, has shown its fragility. A hybrid approach, in this regard, is gaining traction where microcredit portfolios can generate revenue that cross-subsidises social programs, creating a self-sustaining ecosystem where financial services and development interventions reinforce each other.

Organisations are exploring how microcredit can anchor broader development portfolios. A women's empowerment program, for instance, might begin with grant funding for training and awareness raising, then transition participants into microcredit programs that generate both social impact and financial returns. Those returns can then fund continued program operations, reducing reliance on donor renewals. The model requires patient capital to establish and sophisticated financial management to maintain, but it offers something grants never can and that is permanence.

The integration of microcredit into development programming also addresses a persistent criticism of traditional aid, that it creates dependency rather than agency. When beneficiaries transition from grant recipients to loan clients and ultimately to entrepreneurs generating income, the power dynamic shifts fundamentally. This isn't charity; it's investment in productive capacity. And investors, whether they're foundations, impact funds, or commercial lenders, increasingly find that proposition more compelling than perpetual grant cycles.

Blended Finance and the Sustainability Question

The conversation in Bangladesh's development sector is increasingly moving beyond "philanthropic versus commercial" toward blended models that draw on multiple capital sources with different risk tolerances and return expectations. Concessional loans, loan guarantees, first-loss capital, and revenue-sharing arrangements are all being piloted in ways that would have seemed exotic five years ago but now feel necessary for organizational survival.

Organisations with strong microcredit portfolios are particularly well positioned for this transition. Their loan books represent tangible assets that can be leveraged, securitized, or used as collateral for growth capital. A development organization with a million-dollar microcredit portfolio isn't just serving borrowers, it's holding a financial instrument that impact investors and foundations increasingly view as fundable infrastructure.

This requires different skill sets than traditional grant management. Financial modelling, impact measurement that satisfies both social and financial investors, risk management, and regulatory compliance all become central to operations rather than peripheral concerns. But organisations making this transition are building institutional resilience that grant dependency could never provide.

What This Means for Institutional Strategy

The collapse of USAID has made clear what was always true but easy to ignore, and that is donor priorities shift, political winds change, and institutional commitments can evaporate. Organisations that built themselves around a single major donor's requirements are now discovering how vulnerable that strategy was.

Diversification is no longer a best practice; it's table stakes. But diversification isn't just about having multiple donors; it's about having multiple types of capital. Philanthropic grants for innovation and capacity building. Earned revenue from microcredit portfolios. Social investment from impact funds. Government contracts at the national and local levels. Corporate partnerships for specific programming. Each capital source serves different purposes and carries different risks, but together they create resilience.

The organisations thriving in this new environment share certain characteristics. They maintain financial reserves sufficient to bridge three to six months of operations. They invest in diversified fundraising capacity rather than relying on a single business development officer who knows USAID systems. They design programs with sustainability in mind from inception, not as an afterthought when grant renewals look uncertain. They also build genuine partnerships with local government and civil society rather than operating as parallel implementation arms for foreign donors.

The Path Forward Isn't Clear, But It's Opening

Bangladesh's development sector stands at an inflection point. The easy money, if American government funding was ever easy, is gone or dramatically reduced. What's emerging is more complex, more demanding, and potentially more sustainable.

Philanthropic foundations offer new partnership opportunities, but they require different value propositions than government contracts. The Middle Eastern capital represents substantial untapped potential, but accessing it demands cultural competence and relationship investment. Microcredit and blended finance models promise sustainability, but they require financial sophistication and patient institution building.

The organisations that navigate this transition successfully will likely look different from their predecessors. More financially sophisticated, more diversified in both programming and funding, more embedded in local systems, and less dependent on any single external actor. The irony is that this may be closer to what development was supposed to be all along: locally owned, financially sustainable, responsive to community needs rather than donor priorities.

The USAID collapse didn't create these possibilities. It made them necessary. And necessity, as Bangladesh's development sector is discovering, can be a powerful catalyst for transformation that stability never provided.

Purnata Talukder and Tanzim Khan work in resource mobilisation and programme development at an International Non-profit Organisation. Both have navigated the recent shifts in Bangladesh's development funding landscape firsthand.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.