ILLUSTRATION: KATMANDU JOURNAL
IN THE decade after democracy was restored to Nepal in 1990, a new civic class emerged. Development conferences proliferated. Acronyms multiplied. Freshly scrubbed Nepali professionals learned to speak the language of logframes and deliverables. The number of registered non-governmental organisations (NGOs) grew from a few hundred to over 22,000 by 2000. Today the tally has crossed 54,000, according to the Social Welfare Council (SWC), the sector’s regulator. Add in cooperatives and community-based organisations, and Nepal is home to more than 100,000 civil-society outfits. That is roughly one for every 300 citizens.
But the empire is fraying. A procession of international NGOs (INGOs) is heading for the exit. In 2021 alone more than 20 foreign organisations filed to terminate their operations. Many cited a funding crunch, worsened by the covid-19 pandemic and the natural end of post-earthquake recovery after the 2015 disaster that killed nearly 9,000 people. Others blamed rising compliance costs or donor fatigue. By that point 32 INGOs, many involved in quake response, had already left or were preparing to leave. This year more than 30 projects funded by USAID, America’s development agency, and worth more than $329m have been permanently terminated.
Nepal’s NGO sector is not alone in its decline. Across the world civil-society groups face shrinking budgets, donor scepticism and tighter regulation. But Nepal’s case is telling. Once called a “playground for international aid”, it has become an example of institutional decline.
The pandemic hastened what had already begun. The budget commitment from INGOs fell steeply, from over Rs12bn (then $100m) for some 240 projects in the fiscal year 2019-20, to just over Rs3.4bn for 230 projects a year later. Disbursements fell by more than 35%. Several INGOs began to offload operations onto local partners to save costs. Others shut down completely. Organisations like Americares, Caritas Switzerland and The Mountain Institute decamped.
The wider sector survived but shrank in scope. Around 14% of Nepali NGOs closed during the pandemic. Among those that remained, capacity and morale fell sharply. Direct foreign funding reached only around 10% of active NGOs in any given year. Few had reserves. Fewer had succession plans.
Donors were meanwhile recalibrating. By 2021 NGOs and INGOs together received just 14% of foreign aid; the rest went to the government. Many funders grew wary of intermediaries and preferred to back state programmes directly. Others funnelled money to emergency covid-19 work or pulled out entirely. Even the better-connected NGOs began to find institutional support elusive. As of 2023 only 17% reported their international partners were actively investing in their long-term capacity. The donor mood had changed from “build” to “exit”.
The NGO boom left its mark. For two decades civil society filled the voids the state could not. Earthquake relief, post-conflict rehabilitation, health outreach, sanitation campaigns: many of these bore NGO fingerprints. The sector became a pipeline into politics. An estimated 60-70% of local elected officials have passed through its ranks.
But the sheer scale of the sector hid its fragility. Most registered NGOs were either dormant or minimally active. A 2017 audit by the SWC found nearly half of the over 1,000 organisations it reviewed were misusing funds or were defunct. Many operated more like small family firms than professional outfits. Transparency varied wildly. Accountability, when it existed, flowed upward to donors and not downward to communities.
Some of the weaknesses were structural. NGOs were legally required to register under the SWC, which imposed cumbersome reporting obligations but provided little support or oversight. This contributed to a spike in interest in an alternative legal form: the profit-not-distributing company (PNDC). Between 2017 and 2021 new NGO registrations fell by 11%, whereas registrations of PNDCs grew by 15%. These entities—mission-driven but registered under company law—provided more flexibility, easier access to finance and less red tape. The smarter ones began to hoover up both funding and talent.
One reason for the sector’s slide is perhaps its governance. An empirical study of 225 NGOs found organisations with active board involvement in fundraising and oversight tended to be more innovative. Those with long-serving board chairs were the opposite: less likely to evolve or experiment. Leadership sclerosis is not unique to domestic civil society. But its effects are more acute when funding is scarce and public trust is brittle.
The erosion of trust is not new. Scandals abroad—from Oxfam’s sexual-abuse cover-ups in Haiti to fraud cases involving the Red Cross—have cast a shadow across the entire NGO world. In Nepal, although no single scandal has proven as incendiary, there have been enough petty misappropriations and opaque dealings to harden suspicion. The image of the well-fed NGO boss in a shiny four-wheel-drive is hard to scrub.
The SWC responded by tightening registration requirements and raising compliance thresholds. But its capacity to monitor tens of thousands of organisations is limited. Much of the sector is self-policing—when it bothers to police itself at all.
What exists is a fragmented landscape. Traditional NGOs—dependent on grants, beholden to donors, encumbered by paperwork—are in retreat. PNDCs, cooperatives and social enterprises are ascendant. These hybrids combine a mission orientation with commercial logic. They pitch to investors, launch fee-for-service models and explore digital platforms. Some run clinics, others incubate women’s businesses or offer training in return for a share of earnings. They speak the language of scale rather than solidarity.
The transition reflects a bigger pivot in the development industry. As overseas aid budgets tighten, donors increasingly expect “value for money” and sustainability. The ask is no longer compassion but returns, measured in outputs and metrics. That makes PNDCs, with their operational agility and entrepreneurial posture, more palatable than traditional NGOs.
But the change is not without consequences. PNDCs are not immune to the temptations of mission drift. Nor are they required to meet the same disclosure standards. The danger is that the new development class—slick, fluent, MBA-laden—becomes a closed loop of well-networked professionals solving problems for donor metrics rather than local needs.
The sector may need to prepare for deeper cuts. So far no credible domestic funding ecosystem has emerged to fill the void. Philanthropy is minimal. State support is tokenistic. Foreign partners are leaving. And the public, wary of both corruption and co-optation, is disengaged.
Yet the sector’s decay is not inevitable. Some NGOs are trying to reinvent themselves: merging with others or becoming part of regional networks. Others are turning to membership models or experimenting with fee-based services. The most thoughtful ones are returning to first principles: listening to communities, strengthening internal governance and clarifying purpose.
Nepal has never had so many civil-society organisations. Yet their collective voice has rarely felt so faint. Quantity abounds. Quality is harder to find. The NGO boom was built on the back of global goodwill and donor largesse. Neither is guaranteed in the years ahead. What comes next will call for new thinking and tighter focus. The golden age is over. Those that survive will need to prove their worth, again, and on tougher terms. ■
