Practical Tools for a New Approach to Financial Inclusion Funding

CGAP recently published new guidelines for funders of financial inclusion which encourage funders to take a market systems approach. A question that always comes up: It sounds right to take a more systemic approach to financial inclusion, but what does that mean in practice? In short, it means considering all aspects of the market system and working to break down barriers that exclude the poor by nudging market actors to take up missing or weak functions in the market. This animated video also helps explain what we mean by a market systems approach:

Market systems approaches have been applied in other sectors, notably agriculture and enterprise development, for many years and lessons and operational tools have been developed based on these experiences. In financial inclusion, experiences with market systems approaches are still rare and there is a limited body of accessible knowledge on how to operationalize a market systems approach in financial inclusion. To fill this gap, CGAP plans to develop a series of case studies that illustrate the practice of market systems development and highlight implications for funders’ strategies and operations.

While you are waiting for the CGAP case studies, here a list of our favorite resources on market systems development:

Start with the Springfield Centre’s Operational Guide for the Making Markets Work for the Poor Approach. The Guide takes you through the key steps of implementing a market systems program and also provides real examples from the field. It’s THE reference for market systems development practitioners and has significantly influenced CGAP’s "Guidelines for Funders: A Market Systems Approach to Financial Inclusion."

A great resource for learning more about market systems development is the BEAM Exchange, the online forum where the market systems development community meets. It’s a good starting point if you want to learn about the market systems approach, access guidance, or join one of the many webinars. If you are looking for evidence that shows that market systems programs are more effective than traditional interventions, have a look at the evidence map, where you can access evidence by sector and level of results. Another place to engage with like-minded market development professionals is the SEEP Network’s Market Facilitation Initiative, where you’ll find practitioner learning groups and tools for facilitators.

USAID is one of few funders who deliberately take a market systems approach and invest in integrating market systems thinking into policies and operations. USAID’s Leveraging Economic Opportunities project (LEO) provides practical guidance and advice to USAID programs and many of the tools are accessible on USAID’s learning platform Microlinks or the Learning Lab. You will find a framework for market systems development and how it relates to value chains and women’s economic empowerment, but also practical guides to build your own facilitation skills, (see: Being a Market Facilitator).

Unfortunately, there are not many country case studies with a financial inclusion focus. A rare jewel is IFC’s case study on achieving interoperability in Tanzania, which offers a concise summary of lessons learned. Not fresh off the press anymore, but just as interesting, is Springfield’s case study on Finmark’s role in facilitating a more effective and inclusive financial services market in South Africa. The Swiss Development Cooperation (SDC), a long supporter of market systems approaches, has also developed country case studies, for example on expanding access to finance for rural populations in Ecuador. Some case studies show how improving the financial services market helps make markets for real goods work better, for example this study from Mercy Corps on how the introduction of leasing products helped improve working conditions in tofu and tempeh production in Indonesia.

If you want to know more about how to do market systems diagnostics, have a look at Making Access Possible (MAP). MAP is a multicountry initiative to support financial inclusion through a process of evidence-based analysis, incorporating a demand-side survey with a comprehensive supply and regulatory analysis. MAP was initiated by the United Nations Capital Development Fund (UNCDF) and is implemented in partnership with FinMark Trust and the Centre for Financial Regulation and Inclusion. On the website, you’ll find diagnostic reports for ten countries, from Botswana to Thailand, as well as lessons learned from MAP.

Measuring the results of market systems programs is a challenge, given the complexities of market development and the indirect nature of funders’ interventions. CGAP is currently developing a handbook that will help funders and implementers of financial inclusion programs think through how they measure results. As part of this process, CGAP worked with Oxford Policy Management, DFID and the Donor Committee for Enterprise Development (DCED) to develop a measurement framework for FSD Africa and its affiliated FSDs (Financial Sector Deepening Trusts). Other resources exist on measurement of market systems programs, but they are not specific to financial inclusion. See for example, the DCED Standard for Results Measurement or USAID’s “Evaluating Systems and Systemic Change for Inclusive Market Development”, which summarizes lessons from an extensive literature review on evaluating systems and systems change.

We hope you enjoy browsing through those resources and please share your own favorites by posting comments to this blog.