Around the world, too many poor people are still excluded from financial markets, leaving them with insufficient options to manage their financial lives. According to the most recent Global Findex data, only 41 percent of adults in developing economies have an account at a formal financial institution. There are 2 billion people globally without any type of transactional account.
Recently, funders have tried to address this problem through market facilitation, a key component of the market systems development approach. A market facilitator remains outside of the financial market, addressing systemic constraints by coordinating activities related to information, capacity building, incentives and the enabling environment. The market facilitation approach promotes targeted interventions that address specific barriers, identified through thorough market diagnostics. This differs from more traditional approaches, which focus narrowly on supporting individual institutions. For this reason, market facilitation is more likely to lead to systemic change in the way markets work.
There has been a lot of optimism surrounding the approach, and CGAP has encouraged funders to adopt a facilitative role or to fund designated market facilitators. But there remain a lot of open questions. How much of the market facilitation thinking comes from theory versus evidence? What works best? Who is best positioned to do it? And what does it really mean to facilitate financial markets?
We can learn a lot from the most well-known example of market facilitation in action, the network of Financial Sector Deepening trusts (FSDs) in Africa, which are primarily funded by DFID. These regional organizations, as well as FSD Africa, work at all levels of the financial market to address market failures that impede financial inclusion. When FSD Africa decided to commission a series of case studies on “The Art of Financial Market Facilitation,” CGAP saw a valuable opportunity for the financial inclusion field to learn about how the approach has played out in actual markets. The case studies offer concrete lessons on how and why facilitation has done well (and not as well) across the FSD network, which shed light on how market facilitation can work more generally. The first case study in the series looks at the 10-year history of FSD Kenya. The mini case studies examine savings groups in Kenya, FinScope in South Africa, M-Shwari and savings and credit cooperatives in Kenya, and microinsurance in Zambia.
This blog series will look across the FSD case studies to distill their key findings and the lessons they offer to funders or organizations interested in financial market facilitation. The series will also try to unpack the idea of systemic change. What does it mean? How do you know when it has been achieved? Is there evidence that market facilitation is more effective than other types of interventions in bringing it about? We will look at successes and missteps. Are both a natural part of facilitation, given the complexity of market systems? What are some examples of learning from mistakes? We will also examine the roles of information and measurement in market facilitation, and look at what it takes to do market facilitation right.
If we want to fundamentally change financial markets so that poor people can more actively participate and access the services they need, we need to know much more about the role of market facilitators and how they can most effectively contribute to these changes.