NON-GOVERNMENTAL organisations, once defined by a spirit of solidarity and service, are undergoing a quiet transformation. What began as a sector rooted in volunteerism and rights-based development is now becoming increasingly entangled in financial markets. Many NGOs, particularly in the Global South, are shifting from grant-based programming to loan-driven operations 鈥� repurposing poverty not as a structural injustice to be dismantled, but as an opportunity to generate returns.
This change is not occurring in isolation. It is part of a broader international push by donor countries and multilateral institutions towards so-called sustainable finance. Under the guise of self-reliance, communities are being offered loans in place of support. Rather than providing access to education, healthcare, or food security as rights, they are increasingly being treated as services that must be bought, and paid back.
The implications are far-reaching. Microcredit, once hailed as an innovative tool for women鈥檚 empowerment and entrepreneurship, has become a key driver of indebtedness among the rural poor. Loans intended for small businesses are routinely diverted to meet urgent needs 鈥� medicine, school fees, food. In such cases, debt becomes a coping mechanism, not a step toward financial freedom. Borrowers find themselves caught in cycles of repayment that can spiral into dependency and distress. Default is not uncommon, and neither is the coercion that follows.
Bangladesh, long seen as the birthplace and model of microfinance, now finds itself confronting the limitations of its own invention. The line between NGO and financial institution is increasingly blurred. Several organisations have amended their constitutions to operate formally as lending bodies. Others, while retaining the language of development, have shifted their operational focus to microcredit as a primary mode of intervention. This trend reflects a deeper ideological turn: the move from service to extraction, from social change to financial management.
The consequences are not abstract. In India, the unchecked expansion of microcredit in states like Andhra Pradesh led to a full-blown crisis. Women borrowers, hounded by collection agents and driven by shame, took their own lives. The scandal forced the state to impose regulatory restrictions, but not before the damage was done. In Sri Lanka, too, widespread debt distress among rural women eventually pushed the government to intervene with relief measures. In parts of Africa, NGOs now facilitate education not through grants, but through credit, turning schooling into another site of debt.
The problem is not limited to the misuse of microcredit. It is systemic. With bilateral aid shrinking and traditional donor commitments in decline 鈥� evident in the recent closure of USAID 鈥� NGOs are under increasing pressure to become self-sustaining. In response, many are adopting loan-based models not because they are just or effective, but because they are convenient. The logic of profit has crept in, not only through microfinance, but also through the monetisation of essential services. Mission statements remain intact, but missions themselves have been quietly rewritten.
This transformation is not without critique. Development economists such as Abhijit Banerjee and Esther Duflo have questioned the sweeping claims made by proponents of microfinance. Banerjee has gone as far as to say that it has been 鈥榟yped beyond reason.鈥� Even professor Muhammad Yunus, the architect of Bangladesh鈥檚 microfinance movement, has expressed dismay at its commercialisation. His warnings, however, have largely gone unheeded by institutions now wedded to the credit model.
The risks to NGOs are considerable. As they transition into financial intermediaries, they risk eroding the public trust that once underpinned their legitimacy. More importantly, they drift further from their roots in rights-based advocacy. Once vehicles of collective empowerment, many resemble micro-lenders with a humanitarian face. This shift not only distorts the development agenda, it undermines it.
Corporate Social Responsibility, often presented as an alternative funding source, is at best a partial answer. While CSR can contribute to social programmes, it is frequently reduced to branding or tokenism. Without long-term commitment and grassroots partnership, it remains a supplement, not a substitute for genuine public funding.
What is needed now is a reaffirmation of the grant-based model, particularly for critical sectors like health, education and environmental protection. These are public goods that cannot be commodified without severe consequences. Lending may have a place in enterprise development or infrastructure, but it must never become the default mechanism for service delivery. Debt is not empowerment. It is a risk, one that disproportionately falls on the poor, and more often than not, on women.
The turn toward credit-driven development marks not just an economic shift, but an ethical one. It reflects a willingness to manage poverty rather than end it; to monetise suffering rather than address its roots. If NGOs lose sight of this distinction, they risk becoming part of the very systems they once sought to challenge.
Development must return to its core principles: dignity, justice and equity. It must place people before profit, and need before return. NGOs are at a crossroads. They must choose whether to become instruments of capital or remain vehicles of transformation. That choice will determine not only their future, but the future of the communities they serve.
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Tanver Hossain is the executive director of the Association for Community Empowerment.