It’s not just USAID.
The Trump administration also has frozen investments and grants approved by the US International Development Finance Corp., which helps secure private sector investments in emerging markets. Fund managers and project managers have been told by the DFC that such commitments are on hold pending a review of their projects, ImpactAlpha has learned.
That has jeopardized Africa-based fund managers’ funds and portfolio investments. Local small business lenders, for example, have had to drastically slow loan disbursements because pledged capital from the DFC for on-lending will not arrive on time — if at all.
Projects with independent financing are not immune. In South Africa, a fund for small businesses is concerned that commitments from local funders, which were contingent upon an investment from the DFC, will be jeopardized. Regional funds of funds in several parts of Africa were slated to receive grants from the DFC; they are also in limbo.
Funding gaps for sustainable development and climate goals in every region stretch from hundreds of billions to trillions of dollars. Catalytic funding for those goals and regions was already in short supply, even with the US government’s participation.
“What was small money for the DFC was enormous for us and the companies we would have funded,” the general partner of one small business fund told ImpactAlpha. The team is hopeful their funding will still go through after the 90-day freeze and review period. But they’re not waiting on it. “We’ll need to refocus on other funders – particularly local funders.”
This reporting is based on accounts from more than a dozen people who described the status of their projects on the condition of anonymity.
Despite reported disruptions and reviews of funding from the DFC to individual projects and funds, the agency doesn’t appear to be under a complete stop-work order. The DFC press office did not respond to ImpactAlpha’s request for clarification other than to say that the “DFC is working to review all executive orders in coordination with the administration. DFC will faithfully execute and comply with all executive orders and remains committed to advancing development finance initiatives that align with US foreign policy and national security objectives of the Trump administration.”
The DFC approved transactions totaling more than $12 billion in the 2024 fiscal year, ending last September, and $3 billion more through the end of 2024. Not all of the approved commitments had progressed to signed contracts; it’s unclear how much of that funding has already been disbursed.
The aid freeze coincides with a White House order that all federal employees return to in-person work or resign. That could result in a loss of legal, technical and investment experts, and further delays on previously approved deals.
“There will be major structural changes,” says one fund manager whose DFC commitment is in limbo. “If and when it does restart, we’ll have lost a lot of expertise.”
Commercial capital
Overseas aid and the US Agency of International Development has been in the crosshairs of Donald Trump and his allies since 2017, when he slashed development assistance in the early days of his first term. The extension this time to the separate US International Development Finance Corp. has caught many by surprise, since the Trump administration created the institution in 2020 specifically to focus on overseas private sector investment.
The DFC consolidated the Overseas Private Investment Corp., which had been the overseas lending arm of the US government, and the Development Credit Authority, a program of USAID that provides credit guarantees to mobilize private overseas lending. The DFC’s mandate was expanded and for the first time was given authority to make equity investments in addition to loans.
The new institution was given three objectives: “First, to invest in highly impactful projects in developing countries. Second, to advance US foreign policy. And third, to continue our consistent track record of generating returns for the American taxpayer,” said Adam Boehler, a friend of Trump’s son-in-law Jared Kushner, who led the DFC in Trump’s first term.
Given its private-sector mandate, commitments made by the DFC would seem to align with the priorities of the second Trump administration, says Drew von Glahn of the Collaborative for Frontier Finance, a network of more than 100 fund managers investing in startups and local businesses in Africa and Asia.
“The local capital providers in our network are driving job creation, business development and local solutions that are helping their economies become more resilient and self-sufficient,” von Glahn told ImpactAlpha.
The challenge: mobilizing commercial and institutional capital for development in emerging markets in the near-term without the DFC and its grant-making counterpart, USAID. The sudden funding gaps are spurring fund managers and other local investment-ecosystem players to find workarounds. Many have redoubled their efforts to mobilize local investors, including pension funds, insurance companies and commercial lenders.
African institutional investors, for example, hold about $2 trillion in assets. “Virtually none of which is invested in the small business sector,” says von Glahn. “We will have to accelerate our engagement with these investors and get local governments to facilitate a supportive regulatory environment.”
He cites India’s successful mobilization of small business banks and non-bank financial institutions as a model.
Trade promotion
Most news coverage of the blowup of USAID this past week focused on shuttered USAID-funded health clinics and lifesaving food, drugs and vaccines stuck at ports. The ongoing dismantling of the agency has stopped years-long projects in their tracks, as well as new disbursements from the agency’s nearly $43 billion annual budget for global humanitarian aid and development assistance.
US Secretary of State Marco Rubio announced that some of the agency’s operations would continue under the State Department. Some critical humanitarian projects have been granted a waiver.
“I have long supported foreign aid. I continue to support foreign aid,” Rubio told the press this week on a visit to Costa Rica. “But foreign aid is not charity. It exists for the purpose of advancing the national interest of the United States.”
That’s what USAID’s public-private partnerships and ecosystem building initiatives were designed to do. The agency’s catalytic funding has mobilized corporate and private sector resources for emerging fund managers, clean energy, small businesses, rural livelihoods, climate resilience and more.
“The role that the US government’s foreign aid assistance programs play is so instrumental in bringing private sector partners, donors, foundations and others to the table to support good development initiatives,” says one senior advisor for private sector engagement in international development. “So much of that wouldn’t happen without the US’s continued global leadership.”
Among the frozen programs is USAID’s Africa Trade and Investment initiative, set up in 2021 to partner with private sector actors to increase trade between the US and Africa. The planned five-year program is part of Prosper Africa, an initiative started in by the Trump administration in 2018 to foster stronger economic ties in Africa. Organizations approved for grants under ATI were required to match the funding with debt or equity from other funders, and to meet specified milestones, like delivering a certain volume of goods for export to the US.
So far, ATI’s work in 50 African countries has leveraged more than $200 million in grants and subcontracts into more than $400 million in co-investments from the private sector and $1.6 billion in trade deals.
Now many of those deals are falling apart, costing local communities essential businesses and jobs.
“It’s been a train smash for some of our investees,” says the general partner of a small business investment fund in Southern Africa.
A food products manufacturer in Zambia, for example, had gotten approval for funding through ATI to install solar panels on its factory. With Zambia’s unstable power supply, the factory was shutting down for days at a time; ATI’s funding would help the company keep the lights on, literally. The manufacturer was able to match the funding with an injection of equity capital.
The investment, coupled with reliable power, meant the company could hire more people and ramp up factory production.
When the stop-work order went into effect, the manufacturer had cleared two of the grant’s milestones and was waiting for the first tranche of funding to be paid. The fund partner, one of the company’s equity backers, tells ImpactAlpha that the company is now facing a major cashflow problem in the middle of harvesting season, when it needs cash most urgently to pay farmers and procure its supply of goods.
“They can’t wait 90 days. They now either have to find funding from someone else, or they risk going into liquidation,” she says.
Another fund, which was leveraging corporate and private capital for a fund of funds investing with a gender and climate-lens, has found itself cut off from operational funding from USAID.
Another fund of funds – one for women-led funds in Africa – was just getting off the ground, having just secured an asset manager and a sizable corporate backer.
Several funds in South Africa have been cut off from critical working capital that had come through a USAID-backed financial services firm supporting female and diverse fund managers.
And USAID’s Mobilizing Investment for Southern Africa cancelled a call for proposals for a program that fund managers in the region say has played an essential role in building an ecosystem for local capital providers over the past 18 months.
“This is very disheartening. It was a necessary source of support for emerging fund managers like ourselves,” shares one manager.
Limited options
For now, USAID’s office is shuttered and its website shut down, except for a notification on its homepage that all non-essential staff will be put on leave starting Friday.
Businesses that can’t secure alternative funding in the next 90 days could shut down. Furloughed and laid off workers could be forced to find new jobs.
In the meantime, a number of donors, investors and other organizations are trying to help fund managers bridge immediate funding gaps. Private, corporate and philanthropic partners of one USAID-backed climate and gender initiative are keeping dollars flowing to approved grantees while working to solve the operational funding shortfall.
A loan fund for small businesses in East Africa whose funding is tied up at the DFC secured bridge financing from one of its investors. Another is backstopping the bridge loan with a guarantee.
“There will be ripple effects,” says one financial advisor on global development projects, including several funded by USAID. “When you shut it all down, it won’t just restart.”
