Aid as we know it is changing – it’s time to innovate humanitarian finance

Humanitarian aid is reaching a breaking point, with needs growing faster than the weakened system can respond. Last year, the United Nations and partner organizations requested around $47 billion to provide humanitarian support to assist 180 million people.

However, that falls short of the estimated 300 million who require assistance.

Today’s humanitarian needs are not only growing, they have changed. Many of the world’s displaced people are no longer fleeing short-term crises but are caught in protracted conflicts that last for decades and offer no clear path home.

At the same time, climate-related disasters have become five times more frequent over the last 50 years, which have hit the most vulnerable communities the hardest, deepening cycles of poverty and displacement.

Therefore, the problem is not just a funding gap but an issue with how funding is designed. However, this moment also presents an opportunity to reassess those systems, helping people rebuild their livelihoods and prepare for what comes next.

At IMD Business School, our work through the Driving Innovative Finance for Impact programme has surfaced a growing wave of fresh thinking.

The educational programme aimed at building organizational capacity to form alternative financing models for development and humanitarian assistance has yielded solutions that combine public and private funding, embed dignity by allowing people to determine how support is delivered, and redistribute resources between immediate relief, recovery and rebuilding.

From this work, five simple yet powerful questions emerge that can help reshape how we fund humanitarian efforts to achieve lasting impact and offer new ways to think beyond traditional grant models.

Not every project should be expected to repay funding but some can. If we understand when there is a difference, we can stretch financing further.

Some small businesses, which are run by or that employ refugees, can return part of the money they receive, especially when they receive external start-up costs.

In Uganda and Jordan, the Refugee Investment Facility has assisted over 13,000 individuals, including nearly 9,500 refugees, through loans and training.

Its first round of funding created 565 jobs, improved access to basic goods and services and provided $2.6 million to local businesses.

Other programmes do not necessarily generate income and need grants. Fundamentally, being honest about what funding is suitable for each situation is key to sustainable aid.

Too often, those hit hardest by crises are left to bear the greatest risk, whether that is a failed harvest or a collapsed healthcare system.

However, risk can be shared. In Senegal, a parametric scheme helped aid agencies release emergency cash and food before a major drought struck, enabling 335,000 people to protect their livestock, avoid hunger and keep children in school.

The insurance paid out as soon as rainfall dropped to dangerously low levels. WFP R4 uses insurance, plus savings and risk planning for farmers.

Another example is the Red Cross’s humanitarian impact bond, which raised CHF 26 million to launch rehab centres in Nigeria, Mali and the Democratic Republic of Congo. Investors are only paid if these centres meet targets for helping people.

Such models shift the risk away from vulnerable individuals and onto those with broader financial means.

Aid should do more than meet basic needs; it should give people real control over their choices, futures and how resources are used.

In Ethiopia, when banks would not fund the construction of a $4.8 billion dam on the Nile river, the government turned to its diaspora – offering bonds to citizens abroad, wanting to invest in the country’s future.

Many bought in, not for financial return but because the project mattered to them.

When people are treated as partners, not just recipients, solutions are more relevant, better supported and more likely to last. Tools such as HesabPay expedite cash transfers in emergencies, providing people with choice and control.

Financial tools need to be tailored to the setting. Instead of trying to make one model of funding work everywhere, flexible approaches can deliver better results. Nilus utilizes technology to reduce food costs in underserved areas.

Traditional aid systems are struggling to keep up. Research from the IMD shows that humanitarian funding has increased from $33 billion to nearly $47 billion over the past five years.

However, that is still not enough, as approximately 40% of funding requests remain unmet. This only strengthens the case for more flexible funding models.

Too many projects disappear when the money runs out. We need to design aid so that it builds skills, systems or services that continue long after the initial support ends.

In Colombia, a fund backed by Canada and local foundations is investing CAD $15 million in education projects that are only paid if they help students stay in school and learn more.

Up to 18 projects will be funded over several years, and the results will be shared with schools and the government to help improve the system as a whole.

We can keep patching up a system that’s falling short by trimming costs, finding efficiencies and keeping it afloat. Or we can use this moment to build something different, with new capital, new actors and new ways of working.

In the short term, we’ll likely need to do both but a new beginning can start with changing the questions we ask.