Sustainable Capacity Building Services Market: A Long Way To Go
In the fall of 2012 CGAP undertook a survey to better understand the dynamics of the market – both demand and supply - for capacity building services for financial service providers. More than 400 financial service providers (FSPs), from all regions and institutional types, reported on their demand for and use of capacity building services to build their own human, organizational, and institutional capacity. On the supply side, over 200 capacity building service providers (CBPs) shared their perspectives and challenges. Respondents included individuals, companies and organizations that offer a range of advisory services, training and skills building, IT services, human resources functions, and market research. The results of the survey are summarized in this presentation.
The survey confirmed that the lack of capacity remains a major bottleneck for scaling up and diversifying quality financial services for low-income people. More than 40 percent of the FSPs that responded indicated that improving the capacity of their business is their main challenge for the coming years. This was especially the case for NGOs, cooperatives and non-bank financial institutions (NBFIs). On the supply side, more than half of the CBPs responding to the survey found that keeping up with the fast evolving financial inclusion space was their biggest challenge.
Mismatch of Demand and Supply
The study revealed a mismatch between demand and supply in terms of content prioritization. FSPs stressed the need for capacity building services in the areas of risk management, strategic planning, innovation, and mid-level people management skills. Yet, only one of these topics was among the top three services offered by capacity building providers. Indeed, CBPs perceive relatively more demand for product development than for mid-level management skills. Their perception of the need for governance is also much higher than FSPs reported in the survey.
Why this mismatch between demand and supply? Some respondents suggested that many FSPs are not aware of their own weaknesses and thus they don’t really know what they need. Yet others posited that “demand” is actually more a reflection of what donors are willing to pay for than the needs FSPs would express left to their own devices. Addressing these demand issues is critical to building a viable market.
Many FSPs still see capacity building services as a cost to doing business as opposed to an investment in growing their businesses. In order for this mindset to shift, it is key for capacity building to demonstrate results through change and improved performance. Capacity building doesn’t work without management buy-in: 86% of FSP respondents reported that managerial support for capacity building is by far the ingredient most likely to lead to change through capacity building.
The majority (85%) of FSPs that have benefitted from capacity building services have found these services worth their money. But what are they actually paying? In most regions, external support – in the form of subsidies and grants - for capacity building remains important for around two-thirds of the FSPs. In Sub-Saharan Africa, for example 25% of FSPs have training and technical assistance fully-funded by scholarships and grants while 43% pay less than half the costs of those services. One-third of the capacity building service providers indicated that more than 50% of their income is derived from subsidies. Interviews with capacity building providers indicate that these numbers probably underestimate the actual dependence on subsidies. This raises the big question, are these subsidies helping or hurting the market for capacity building services?
Getting the Market for Capacity Building to Work
The views of those who use or deliver capacity building services are revealing: we are still very far from getting the market for capacity building right. Despite years of donor programs that have an explicit goal of helping build the market for capacity building, the market—where it exists—is highly subsidized with few viable providers able to adapt to an evolving landscape. How do we move beyond this?
Deeper research is needed to understand the constraints, answer some of the big questions we raise, and uncover possible solutions and innovations that will truly facilitate market building. CGAP is planning more research, a case study series, and eventually some new guidance for funders to help move beyond this stalemate. If you have lessons to discuss, please share them in the comments.