The current wave of conflict is a humanitarian crisis and a stress test of global aid systems. Recent events show that shocks do not remain contained but move across markets.

Mass displacement in Gaza has reached near-total population levels, with famine conditions confirmed across all major indicators. At the same time, escalation involving Iran and the closure of the Strait of Hormuz has triggered immediate increases in energy prices. These effects are felt globally, most pronounced in the Global South. For example, fuel prices in Nigeria have risen sharply during escalating conflict in the Middle East, increasing the cost of running generators that power health clinics and forcing a reduction in coverage. Conflict impacts supply chains and shows up as service disruption elsewhere.

The global response system has not kept pace with this level of interconnected risk. In 2025 the United Nations (UN) raised approximately $12 billion in donor funding to support crisis response worldwide, the cost of UN-backed humanitarian response in 2025 was $45.5 billion, leaving a $32.8 billion funding gap. This marks a serious decrease in typical fundraising by the UN, which raised an average of $29 billion for humanitarian response each year between 2020 and 2024. In addition to the amount of available capital, the timing of when it arrives presents an additional challenge in crisis response. Funding is usually deployed only after crises have fully materialized, even though evidence shows that earlier intervention significantly reduces both cost and human impact. Grant-based systems are still built to respond rather than prevent the worst consequences of a conflict or disaster.

Impact investing provides financial mechanisms that have the potential to more adequately address specific points of failure in humanitarian aid. These include:

Recoverable Grants: In a crisis situation, recoverable grants can address delays that arise from institutional grant funding that takes time to disburse. In many cases, donors commit capital but release it months later, which creates funding gaps during active crises. Facilities like the UNICEF USA Bridge Fund step in by advancing that capital upfront, using those commitments as collateral. Since its inception, over $670 million has been deployed through this model, with leverage of roughly 3.5x on committed grants. With immediate funds, organizations can procure and deliver supplies when they are needed, rather than waiting for donor disbursements to clear. By bringing forward capital that would have arrived later, this model allows for a speedier, more effective response without any additional funding.

Private Credit: Private credit funds or credit-based approaches can help to address exclusion of displaced populations resulting from conflict. Displaced people have long been treated as unbankable, which has limited their ability to get started in a new place. However, early lending data suggests that the risk of lending to displaced populations is mispriced. Refugee participants in a pilot lending program have shown repayment rates near 99.7%. Investment vehicles that route institutional capital through microfinance intermediaries and provide loans to these underserved borrowers can help them build new lives. Performance depends heavily on local underwriting and distribution, but there is strong evidence that credit demand from refugee populations can convert into viable opportunities for investors, while providing greater access to funds and support for people in need.

Blended Finance: Blended finance refers to structures in which concessionary capital, typically from donors or development institutions, absorbs a portion of the risk so that private investors can participate. This is particularly relevant in untested markets, like refugees mentioned above, and conflict-affected settings, where instability and weak legal enforcement make many investments unviable on a purely commercial basis. By taking first-loss or subordinated positions, concessionary capital changes the risk profile of these transactions and enables private capital to support service delivery and economic activity during and after conflict, while building a track-record and models that can be replicated in the future. For instance, humanitarian impact bonds and similar structures demonstrate that transactions can be executed in fragile environments. It should be noted that the primary constraint in conflicted-affected environments is not primarily financial structuring but execution. Elevated counterparty risk, combined with limited legal recourse and constrained local deployment capacity, restricts how and where capital can be used. As a result, structures that work in more stable markets cannot be replicated directly and well-designed blended approaches depend on having local intermediaries in place before capital arrives.

Of course, each of these options comes with risks and drawbacks. Recoverable grants improve liquidity but are not structured to generate contractual returns. Repayment is contingent on donor disbursements, which introduces greater uncertainty than traditional investment instruments. Blended structures rely on concessionary capital and remain difficult to scale independently. Credible entry points for investors sit in credit-oriented strategies with demonstrated repayment behavior, though performance can be uneven and transparency remains limited.

Our view is that the financial product layer in humanitarian finance is more developed than the market’s deployment record suggests. Recoverable grants have demonstrated timing advantages that are operationally significant. Credit vehicles have produced repayment data that challenge foundational assumptions about risk in displaced populations. Blended structures have closed in environments that do not see much commercial capital.

The constraint is less the structure and more the conditions required to deploy capital on the ground. This means building the infrastructure for investment prior to a crisis.