Facilitating and Measuring Market Development

Donors and investors advancing financial inclusion increasingly are doing so through a market development approach. This approach to financial inclusion – also known as a market systems approach or M4P (Making Markets Work for the Poor) – begins by identifying market barriers that prevent financial systems from serving the poor. It encourages funders to shape all their investments and interventions with an eye toward developing financial markets and ensuring the sustainability of market actors beyond the length of funding.

In the context of financial inclusion projects, the M4P approach often incorporates a “market facilitation” element. Facilitation focuses on addressing systemic constraints while remaining “outside of the market.” To work through these constraints, facilitators often coordinate activities in the following areas: information, capacity building, incentives, and the enabling environment. Facilitation can be characterized by the temporary nature of its interventions, its flexibility, a reliance on partnerships, and the independence of the actor taking on the “facilitative” role.

The facilitator role can be assumed by different kinds of organizations depending on their capacity and perceived independence. Funders can also act as facilitators either directly or through national coordinating bodies, or they can fund individuals or organizations to do market facilitation on their behalf. Facilitators can focus on a single country market (such as members of the FSD network in Africa), or address a global market (such as CGAP, Better than Cash Alliance, or GSMA).

As donors and investors advance these approaches, they need ways to measure impact. Limited guidance currently exists on how to measure the development of financial markets, however, in part because the approach is relatively new and in part because of how complicated financial markets are.

It is difficult to attribute changes in a market to a specific intervention, given the various external factors and actors influencing the same market over the same time. In addition, interventions occur within dynamic and evolving markets that function within a wider socio-economic and political environment. This means there is a broader range of outcomes associated with any intervention – intended, not intended, positive or negative – all of which are hard to capture.

CGAP is developing practical principles and guidelines for measuring systemic market development interventions for both program implementers and funders. In order to continuously strengthen the guidelines and further improve the development community’s capacity to measure market development, CGAP has established a platform for funders, industry experts and market measurement experts to share practices, ideas and openly discuss their measurement challenges.

CGAP believes that real systemic shifts are required in the market for the financial sector to be fully inclusive of poor people. This will only be realized if more funders and development organizations put their resources behind this development approach. Sound measurement practices that provide lessons and evidence of impact will play a vital role in driving this shift.

Related Resources
Blog Series: Funding 2.0: Building Inclusive Financial Markets
Blog Series: Why and How to Measure Market Development
Focus Note: Facilitating Market Development to Advance Financial Inclusion
Focus Note: Facilitating the Market for Capacity Building Services
FSD Africa

Publications

23 October 2017
Despite significant funding for financial inclusion efforts worldwide—an estimated US$34 billion was committed as of 2015—approximately 2 billion adults remain excluded from the formal financial system. How do funders of financial inclusion programs know if and how development programs are making a difference?
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English (120 pages)
17 March 2017
It is time for DFIs to adopt an alternative approach to financial inclusion that prioritizes needed market changes. A shift to a market systems approach addresses this need and requires that DFIs carefully analyze each market to determine the key gaps, underlying causes, critical actors, and theory of change for bringing about sustainable market development.
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English (24 pages) | Spanish (28 pages)
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