A Synthesis of Mking Markets Work For The Poor Synthesis PDF

A synthesis of
The Making Markets

Work for the Poor
(M4P) Approach
A publication financed by the UK Department for International Development (DFID) and the Swiss Agency for Development and Cooperation (SDC)
A Synthesis of the Making Markets Work for the Poor (M4P) Approach
TABLE OF CONTENTS
FOREWORD
glossary
overview 1
The context 1
The approach 2
The paper and how to read it 3
1. MARKET SYSTEMS MATTER FOR THE POOR 5
1.1 Introduction 7
1.2 Understanding the poor in market systems 7
1.3 Emerging conceptual thinking on market systems 12
2. WHY M4P? 15
2.1 Introduction 17
2.2 The wider development experience 17
2.3 M4P in practice 19
2.4 Caution and caveats 23
3. WHAT IS M4P? 25
3.1 Introduction 27
3.2 M4P as an approach 27
3.3 A focus on market systems 27
3.4 Leveraging scale and impact 29
3.5 Giving meaning and priority to sustainability 30
3.6 Addressing causes not symptoms 31
3.7 A facilitation role 32
3.8 An overarching approach 33
4. HOW TO IMPLEMENT M4P? 35
4.1 Introduction 37
4.2 Setting the strategic framework 38
4.3 Understanding market systems 40
4.4 Defining sustainable outcomes 41
4.5 Facilitating systemic change 44
4.6 Key attributes of facilitators 46
REFERENCES 48
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FOREWORD
An estimated 2.6 billion people live on less than $2 a day. Over Opportunities for the Majority and the IFC’s Next Four Billion.
a billion lack clean water, 1.6 billion lack electricity and 3 billion Amongst businesses, there is growing interest in social investment,
lack access to telecommunications. This represents huge unmet sustainable business practices, fair trade and engaging with the
needs. As many of the world’s poor live in areas with limited Base of the (Economic) Pyramid. Although terminology and
state service provision they must rely on private markets for emphasis may differ, all of these approaches see a market-based
their livelihoods. As consumers, poor men and women rely on economic engagement with the poor as essential for sustainable
markets to meet their needs for food and essential services. As development.
employees or producers, they sell their labour or products in
these markets. But these markets are often difficult or costly In order to improve the understanding and uptake of market
to access for poor people. These markets may be informal, un- development approaches and to consolidate existing experience,
competitive and may not meet the needs of the poor effectively. DFID and SDC have commissioned a series of three documents
on M4P. Aimed at agency and government officials, consultants,
researchers and practitioners, these together provide a
More widely, the world’s poor are not well integrated into comprehensive overview of the approach in theory and
the global economy and do not get access to its benefits. In practice.
Development as Freedom, Amartya Sen describes participation
in economic interchange as a basic part of social living and The M4P Synthesis paper (this document) explains the essence
argues that economic freedoms are closely tied to political and of the M4P approach – its rationale, including evidence of
social freedoms. The poor often lack these freedoms. impact, and key features in implementation. M4P Perspectives
introduces the conceptual underpinnings of M4P and explores
Making Markets Work for the Poor (M4P) is an approach to its application in different fields including finance, agriculture,
poverty reduction that donors such as the Department for water, labour and climate change. These first two documents
International Development (DFID) and the Swiss Agency for have been sponsored by SDC. The M4P Operational Guide
Development and Cooperation (SDC) have been supporting (sponsored by DFID) provides a substantial operational
over the past few years. The central idea is that the poor are resource on how to implement M4P, including an overview of
dependent on market systems for their livelihoods. Therefore good practices, common management challenges and the main
changing those market systems to work more effectively and lessons from experience.
sustainably for the poor will improve their livelihoods and
consequently reduce poverty. More accessible and competitive Development of these documents was led by a team from The
markets enable poor people to find their own way out of Springfield Centre. They were assisted by advice and comments
poverty by providing more real choices and opportunities. from Marshall Bear, Gerry Bloom, Richard Boulter, Don Brown,
Markets that function well have wider economic benefits too. Jean-Christophe Favre, Tracy Gerstle, Alison Griffith, Justin
Highstead, Joanna Ledgerwood, Marc Lundy, Luis Osorio,
They stimulate investment and encourage firms to innovate, Alexandra Miehlbradt, Mark Napier, Kate Philip, David Porteous,
reduce costs and provide better quality jobs, goods and Peter Roggekamp, Prashant Rana, Hugh Scott, Dominic Smith
services to more people. The involvement of poor people in and Jim Tomecko.
economic growth is the best way to get people out of poverty
and represents the exit strategy for aid. All of these documents are also available in electronic form
at www.M4Pnetwork.org. We hope you find them helpful
The last few years have seen an upsurge of interest in market in meeting the challenge of developing market systems that
development approaches amongst aid agencies. Alongside benefit poor people.
M4P there is UNDP’s Growing Inclusive Markets, the IADB’s
Peter Tschumi Harry Hagan

Head of Employment and Income Division Senior Economic Adviser and Head of Growth Team
SDC, Berne Growth & Investment Group, Policy & Research Division
DFID, London
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GLOSSARY
Agencies: development organisations – funded by aid or other Hierarchical exchange: exchange where one party, for example
non-commercial sources – who act as funders or facilitators in a large firm, has relatively more power in setting the terms of
pursuit of developing market systems. exchange with vertically-integrated suppliers.
Approach: a set of principles, frameworks and good practice Institutions: structures and mechanisms of social, political
points to guide both analysis of a market system and actions to and economic order and cooperation – formal and informal
bring about change. – in a society/economy which shape the incentives and
behaviour of market players. Institutions therefore refer both
Asymmetric information: when one party in a market to the supporting functions and rules – sometimes referred to
trans-action – supplier or consumer – knows more than the other. collectively as ‘rules of the game’– in a market system.
Basic services: a range of services important in building people’s Intervention: a defined package of temporary activities or
capacities, where consumption serves not just individuals but actions through which facilitators seek to affect change in a
impacts on the wider economy and society. This includes market system.
education, health, water and sanitation.
Lead firms: businesses capable of exerting a leading influence
BDS: business development services. on other firms and other players because of, for example,
their size or their reputation for innovation.
BMO: business membership organisation or business association
(see Representative organisation). M4P: the making markets work for the poor or market
development approach.
Core function: the central set of exchanges between providers
(supply-side) and consumers (demand-side) of goods and Market: a set of arrangements by which buyers and sellers are
services at the heart of a market system. The medium of in contact to exchange goods or services; the interaction of
exchange can be financial or non-financial (such as through demand and supply.
accountability mechanisms).
Market player: organisations or individuals who are active in
Crowding-in: the central process in – and purpose of – a market system not only as suppliers or consumers but as
facilitation through which interventions catalyse or bring other regulators, developers of standards and providers of services,
players and functions into the market system so that it works information, etc. This therefore may include organisations in the
better for the poor. Crowding-in can result in enhanced breadth private and public sectors as well as non-profit organisations,
(more transactions in the core of a market), depth (supporting representative organisations, academic bodies and civil society
functions) or reach (new areas or markets). groups.
Externalities: negative or positive spill-over effects that are not Market system: the multi-player, multi-function arrangement
reflected in a market price. comprising three main sets of functions (core, rules and
supporting) undertaken by different players (private sector,
Facilitation / facilitator: action or agent that is external to a government, representative organisations, civil society etc)
market system but seeks to bring about change within a market through which exchange takes place, develops, adapts and
system in order to achieve the public benefit objective of grows. A construct through which both conventionally-defined
systemic change. markets and basic services can be viewed.
Gift exchange: exchange based around shared values and Organisations: entities with a formal structure that play a range
reciprocity that is non-financial but still conducted on an informal of roles in the market system.
transactional basis.
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GLOSSARY
Public goods: goods or services which are non-rival and

non-excludable and therefore cannot be offered by private
firms.
Representative organisation: an organisation which acts to

advance the interests of a specific group, such as a trade union
or a consumer rights body. Also referred to as a membership
organisation (see also BMO).
Rules: formal (laws, regulations and standards) and informal

(values, relationships and social norms) controls that provide
a key input in defining incentives and behaviour in market
systems.
Supporting functions: a range of functions supporting the core

exchange helping the market to develop, learn, adapt and grow
including, for example, product development, skills enhancement,
R & D, coordination and advocacy.
Sustainability (M4P definition): the market capability to ensure

that relevant, differentiated goods and services continue to be
offered to and consumed by the poor beyond the period of an
intervention.
Strategic framework: a hierarchy of objectives linking an M4P

programme’s final goal of poverty reduction with an intervention
focus on sustainable market system change.
Systemic change: change in the underlying causes of market

system performance – typically in the rules and supporting
functions – that can bring about more effective, sustainable and
inclusive functioning of the market system.
Tools/instruments: relatively standardised methodologies for

market analysis (eg value chain analysis or usage, attitude and
image surveys) or for intervention (e.g. vouchers or challenge
funds).
Transaction costs: the costs associated with the basic process

of exchange including costs concerned with searching, screening,
negotiating, contracting, monitoring and enforcing transactions;
the ‘‘cost of running the economic system’’ (Arrow, 1969).
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OVERVIEW
Nothing much seems to be going right Rahim is in two minds over globalisation. Sam’s a natural optimist but even he has
for Jyoti. She wants her four kids to have On the one hand, he knows that the fast- to recognise that his vision of turning his
the education she didn’t but the teacher growing food processing factory where small machine shop into a sub-contractor
at the village school, even when he does he is employed depends on exports. His to large companies is a pipedream.
turn up, seems only half-interested. Jyoti job and wages – and the amount he can He can’t meet their quality or delivery
doesn’t know what to do about it. She send to his extended family back in his standards and he’s never really had a
does know what she’d like to do with her village (many of whom have no job) – are chance to meet those people anyway.
youngest. He’s sick and she’d like to take all derived from overseas markets. His In the meantime, he has more pressing
him to the private doctor in the nearby concerns have the same source. problems. One customer has decided
town, but she can’t afford the fees. So she Stories circulate in the company about not to pay the full amount for his order.
can only try her luck at the government stiff competition from other countries. Although Sam has pleaded, he knows that
clinic. Foreign buyers, previously the bringers the courts are too expensive and complex
Money is tight. She and her husband of orders and prosperity, are, according for him – his customer also knows this.
work hard on their small patch of land to his manager, now becoming more He’s asked his business association for
– and on any they can lease – but the demanding. They don’t just want the advice but they seem equally powerless.
returns are small. They never seem to get same ‘old stuff ’; they want ‘higher quality’, Sam feels that a better deal from the
better prices at the local market, while ‘safer’, ‘compliant’ with higher standards, bank would help his immediate cash
other farmers seem to squeeze more ‘pre-packaged’, ‘quicker’ and ‘more reliable’. flow problems and provide capital for
production from their lands. They have They want ‘better’… and would prefer to investment in new equipment. But Sam’s
always gone to a relative for their inputs – pay nothing more for it. bank seems unmoved by his requests.
seeds, fertiliser, pesticide – and his advice How is the company going to achieve Legally, they can’t accept his ageing plant
has always been to use more. this? It needs to change, but how? Who as collateral and when he produced
Jyoti thinks that they’re coping just now can advise it? Rahim worries and ponders the title deeds to his village land, they
but, when she allows her mind to think whether he should reduce his weekly disputed their authenticity. The optimism
ahead, she can’t really envisage how payment to the family. Just in case. of ‘Enterprise Sam’ is being tested.
things might get better.
The context education and health, supposedly provided by the government

– are barely functional. But her limited access to effective channels
This paper is about how to improve the lives, fundamentally, of of representation makes it hard to push for change. And without
Jyoti, Rahim and Sam and the billions of other poor and excluded improvement here, her children’s vulnerability remains high, their
like them, by making market systems work more effectively. opportunity low.
‘Poor people’, of course, are very diverse.They come from different Rahim’s situation is different. He and his family have benefited from
locations, urban and rural; they have different cultures and values; the success of the company he works for in newly-open export
they have different livelihoods and expectations. Different, yes, but markets, and the growth it has generated. But his employment is
in many ways also alike. They share a sense that their lives could now tied to the company’s performance; and it needs to change.
be better and, like Jyoti, Rahim and Sam, face a common reality; Low-cost production of commodities is no longer enough; it needs
for their lives to improve, their immediate environment needs to to move up the chain of value-added and to do so needs to use
change. In particular the markets and services around them, the a range of business services in logistics, production and quality
‘market systems’ which are often failing, and are an underlying control. But if the markets for these services are not working well,
cause of their problems, need to work better for people like if supply is limited or Rahim’s managers don’t see the need to
them. invest in them, the company’s competitiveness will be threatened
and jobs may go – including Rahim’s.
For Jyoti, living in a rural area, the key to higher incomes is better
markets for agriculture inputs and outputs. Without the right As a struggling small enterprise-owner, Sam is subject to a broad
information to hand, she doesn’t have the right answers to basic range of the economy’s problems. Inappropriate regulations
questions – what to use, how to grow, what to grow, when to sell, mean that he can’t use his ownership of property and land to
who to sell to. Higher incomes would clearly help her but only access finance – land markets are not working. He can’t pursue
to some extent. The services available to her family – especially a major debtor because commercial justice services are not
1
OVERVIEW
working. And he can’t bridge the gap dividing his small business The approach
from other larger businesses because the formal and informal
means of business exchange – networks, standards, information M4P is an overarching approach to development that provides
– have passed him by. agencies and governments with the direction required to
achieve large-scale, sustainable change in different contexts.
Addressing the underlying reasons why market systems – such as Focused on the underlying constraints that prevent the effective
those around Jyoti, Rahim and Sam – are not working well is at development of market systems around poor people.
the heart of the market development or making markets work
for the poor approach (M4P). M4P contains:
l
A strategic rationale.
l
A framework for understanding market systems.
l
Guidance for intervention.
M4P is neither a narrow prescription nor a branded tool

but a flexible, comprehensive approach with application in
both economic (eg agriculture, finance, investment climate
and livelihoods) and social (eg water, health and education)
fields. Building on a wide range of experience and learning,
it recognises both the achievements and limitations of many
conventional approaches and the growing number of diverse,
successful applications of M4P.
For people like Jyoti, Rahim and Sam, M4P in practice might
mean a range of interventions. It might mean strengthening the
capacity and incentives of suppliers and retailers to provide
farmers, like Jyoti, with relevant information so they too can
be valued participants in the agricultural system. And it might
mean developing health and education provision that is more
responsive to the demands of rural households. For Rahim,
M4P might mean actions that tackle the core reasons for the
low level of business services. While for Sam, facing multiple
challenges, actions might concentrate on flaws in regulation and
enforcement that undermine the land and finance markets and
the commercial justice system. Or on the ‘softer’ constraints
related to business networks and lack of representation for the
thousands of emerging but disconnected entrepreneurs like
Sam. In each case, M4P offers potentially practical and lasting
solutions.
M4P is now being successfully used to reach and change the

lives of millions of people. Its potential to reach many more
– more Jyotis, Rahims and Sams – and to bring about sustained,
systemic change for more competitive and inclusive economies
is the impetus for this paper.
2
OVERVIEW
The paper and how to read it
This paper seeks to explain the essence of M4P – its rationale, its
key principles and features and the main implementation tasks. It
is aimed at a broad audience for whom M4P is relevant – policy
makers, agency officials, consultants, NGOs, researchers and
government staff – and provides a brief synthesis of the main
evidence and arguments for the approach. Its purpose is to:
l
Summarise key trends and issues in M4P.
l
Contribute to new thinking and more effective practice.
l
Provide an introduction to a series of connected documents
on M4P.
It is structured in four sections. It can be read as one document

or readers can go directly to the section which is most relevant
for their needs. Each section can therefore be been seen as an
integral part of the paper as a whole or read as a self-contained
document.
Section Go here for:
1. Market systems matter for the poor

The two principal background factors that have influenced development agencies and An overview of the ‘roots’ – real world
governments to pursue M4P. First, the observed reality of the poor in market systems, and conceptual – of M4P.
and second, new conceptual thinking on how market systems function.
2.Why M4P?
How the specific arguments for the approach emerged from development experience. The immediate factors driving agencies
It focuses first on similar learning from different fields and second on examples of M4P and governments to consider M4P – an
success. Together these make the case for M4P. organisational perspective.
3.What is M4P?
The key features of M4P, highlighting what is distinctive about the approach. These A concise explanation of M4P and its key
include its focus on market systems, the priority it gives to sustainability and large-scale characteristics.
impact, the facilitation role required in intervention and M4P’s overarching nature as an
approach within which many tools can be used.
4. How to implement M4P?

The main components in the M4P intervention process. An outline of key considerations A summary of how to put M4P into
in setting the strategic framework, understanding market systems, defining sustainable practice.
outcomes and acting to achieve systemic change.
This Synthesis paper is the first in a series of three documents that examine and explain M4P. The M4P Perspectives contain a
set of specific analyses of key issues in particular market systems (such as finance, agriculture, and water) and of the conceptual
underpinnings of the approach. In addition, the M4P Operational Guide builds on the outline given in Section 4 and presents the
main lessons learned in implementing M4P in order to provide an operational resource for users.
3
1. MARKET SYSTEMS MATTER FOR THE POOR
Summary The underlying rationale for the M4P approach stems from
a new appreciation of the importance and role of market
systems in reducing poverty.
Economic growth (the most important contributor to

poverty reduction) and expanded access are critical factors
in developing competitive and inclusive economies. These, in
turn, require:
l
Markets for goods, services and commodities that operate
effectively for everyone but especially the poor as consumers,
producers or employees.
l
Basic services – for example such as education, health
and water – that can build people’s capacities to escape
poverty.
Markets and basic services are traditionally regarded as very

different.The first is seen as being commercial and the domain
of private providers and the second primarily the domain of
government. However, recent trends and major changes in
economic thinking have allowed a more nuanced and realistic
view to emerge which recognises that they have common
characteristics.
Both are multi-functional; they require a mixture of different

functions to be undertaken such as regulation, information
and delivery. Both are multi-player; they require a range of
public and private players. In both, appropriate incentives and
capacities are central to success.
The term market system describes these shared features

of markets and basic services and provides a common lens
through which both can be viewed.
Changing the lives of the poor – stimulating growth and

expanding access – means changing the market systems around
them. M4P recognises this reality and provides a coherent
and unified approach first to understanding and second acting
to improve market systems.
5
1.1 Introduction Overall, at least 80% of the variation between countries’ poverty
reduction performance is attributable to differences in growth.5
Two sets of key factors provide the underlying rationale for
the M4P approach. First is the observed reality of the poor This straightforward message – that growth is good for all,
in market systems and the need therefore to understand including the poor – does not mean that all types of growth
and influence those systems. Second, in support of this, are are the same. In some Latin American countries the poor, while
the conceptual foundations for M4P, particularly changes in still benefiting from growth, have done so proportionately less
economic thinking. Both of these factors have brought new than the average population.a But in many Asian countries the
insight into the importance of market systems and the way reverse has been true.6 Growth that is pro-poor tends to be
in which they function and interact with the poor – and have more labour intensive and/or circulates the benefits more
major implications for agencies and governments, shaping both effectively through public transfers.
their policies and actions.
Access – poor people’s access to a range of basic services (Box 1)
1.2 Understanding the poor in market systems such as education, health and sanitation also has a strong
influence on poverty reduction. Consumption of these services
The eradication of poverty remains the main goal of the is related closely to economic growth.7 As incomes rise,
international development community and against it the world individuals and societies often choose to use this new freedom
has experienced mixed fortunes in the last two decades. Globally, to invest in services such as education, health and telecommu-
the number of people with incomes below $1 a day has fallen nications. Growth can generate a ‘virtuous circle’ of opportunity
to below 1 billion (18% of the population) with spectacular and prosperity, where higher incomes leads to a healthier and
reductions in many countries.1 This progress is mirrored in the more educated population, building capacity to take advantage
general health, education and other benefits associated with of opportunities and contribute to future growth.8
higher incomes.
But if growth and access are mutually reinforcing, access is not
But this aggregate picture disguises considerable diversity. simply a formulaic result of higher growth. The Indian states of
Reductions in some regions (such as East Asia where poverty Kerala and Uttar Pradesh, for example, have similar levels of
rates are now only 9% of the population) are countered by the GDP but Kerala has far superior health and education services,
rise in numbers elsewhere (Africa remains at 41%). While global with neo-natal service coverage four times higher and female
inequality (ie between countries) has reduced, within most school enrolment rates 50% higher than in Uttar Pradesh.9
countries it has increased. Changing the definition of poverty Higher incomes do not always translate into better access to
to an income of $2 a day places 2.5 billion people, almost half services. How services are offered – the mechanisms, incentives
the world’s population, under the poverty line – a figure that and relationships that guide delivery – may be as important as
has changed little in two decades. Other analyses refer to 4 the amount of resources (how much) devoted to them.
billion people on low incomes at the base of the “economic
pyramid’’ .2 Self-evidently, many people are still poor, subject to Given this, what are the characteristics of an environment that
the vulnerabilities of low incomes and largely excluded from the delivers growth and access to poor people? At one level there is
benefits that others enjoy. broad consensus on this: an environment conducive to poverty
reduction will offer overall macro-economic stability, access to
Why growth and access are important international trade, security and rule of law, effective voice for
The central challenge for development agencies and the poor to decision-makers and transparent property rights –
governments is to learn from this disparate experience and the central tenets of mainstream economic thinking. But beyond
create an environment that allows more people to build their this, it must also provide markets and basic services that work
capacities and assets, earn higher incomes and take advantage for the poor.
of opportunities to escape from poverty. Such an environment
has to deliver two critical features: growth and access. Why markets matter for the poor
Markets are arrangements through which buyers and sellers
Growth – economic growth is the single biggest contributor to exchange goods and services and are the central organising
poverty reduction.3 Regions that have experienced the highest principle at the heart of successful economies. Markets stimulate
growth rates have seen the highest falls in poverty. For example, choice and competition so that producers are continually
the halving of poverty in Vietnam between 1993 and 2002 – pressured to improve their efficiency and products and, in doing
from 58% to 29% – was fuelled by annual growth rates of 6%.4 so, offer better value to more consumers. When set within
a Here the growth elasticity of poverty has been below one – whereas on average it is close to one. r
7
an appropriate framework of rules, functioning markets are a Absence of information – about prices, trends, contacts – is
means through which both private and wider public gains are a key constraint for the poor in markets where, characteristi-
realised and are the basis for competitiveness and growth. cally, they have less ‘know-how’ and ‘know-who’ than those with
more resources. However, information flow in rural areas has
Markets matter for everyone. But for the poor – with weaker been greatly improved by better functioning markets. More than
informal networks and links to government patronage – one-fifth of Africans now subscribe to a mobile phone service
markets are especially important.They provide the direct means offered by private providers within an environment set by public
through which the poor participate in economic activity – as regulators.15 And newly-permitted private media, especially
producers (farmers, business owners), as employees (providers radio, are now the main information source for rural people in
of labour) and as consumers (of goods and services). Markets many countries.16
operating in an inclusive way offer the poor the things they
need – jobs, opportunities, goods, services – to increase their The main asset of the poor, however, is not land, but labour, and
incomes. Conversely, where markets are working exclusively or it is labour productivity which has to grow if incomes are to
inefficiently, poor people have fewer chances to benefit directly rise. Some countries allow poor people to use this asset more
from growth. Indirectly, even if the poor are not immediately than others. Globally, the garment industry has often been the
involved, markets such as those for services and the factor foundation for industrialisation and its starting point has been
markets of land, labour and capital, affect the whole economy labour-intensive manufacture. Countries such as Bangladesh
and the poor within it. (2.2 million employees) and Lesotho (50,000) have created
labour conditions that attract investment and allow wages that,
Whether direct or indirect, the sometimes complex ways in for women in particular (80% of the garment workforce), are
which markets function shape the environment of the poor. higher than for comparable jobs.17 18 In others, such as South
Access to land for example is always a critical issue in agriculture Africa and many East European countries, labour regulations
and is often problematic. In China and Vietnam, changing the render them high cost and unproductive locations.19
rules governing the use of land – allowing farmers to take de
facto title – altered incentive structures and stimulated major Whether countries can progress from cheap labour to higher
increases in output (7% per annum in China) and productivity. 10 11 value-added products, competing on quality, delivery and design
In many African countries, however, traditional land ownership depends critically on better functioning service markets. In
patterns and the social norms around them, especially for middle-income economies such as those in South East Asia,
women, provide few incentives for investment. specialised services – consulting, technology, transport and
design – may not involve the poor directly but indirectly as
This weakness in the operation of land markets may be worsened interconnected markets are crucial for the competitiveness of
by other market flaws. In Rwanda, agriculture is intensive but farmers the industry and for the livelihoods of those working in it.
have little access to information about good practices, seeds or
other inputs. Consequently productivity is low – one-third that Markets are always interconnected and the cause of one
of Ghana.12 People work hard in Rwanda but their environment market’s weak performance frequently lies in related markets.
does not allow them to work ‘smart’. In contrast, farmers in other As Hernando de Soto20 has highlighted, the operation of
countries, such as Bangladesh, are better served by a network of land and property markets is often central to the operation
input suppliers who provide information and advice as well as new of other markets. For example, effective land markets provide
seeds and fertiliser – and here productivity is rising. the collateral basis to stimulate financial services; differences
in national financial sector performance have been shown to
More widely in Africa the absence of developed market account for approximately 20% of variances in overall growth
structures such as commodity exchanges13 – which offer pooling rates.21 And the interconnection of markets is also evident in
mechanisms to reduce price volatility – means that farmers the environmental sphere where some potential solutions to
are especially vulnerable to ruinous boom and bust cycles. For addressing climate change centre on more effective marketsb
example, record grain harvests for Ethiopian farmers in 2001 – ranging from carbon markets to those for energy production
were followed by a disastrous (80%) price collapse in 2002.14 technologies and conservation.22
b The Stern Report into the economics of climate change characterised it as the “greatest and widest-ranging market failure ever seen’’. r
8
These examples show how markets can work efficiently for

all and in particular in favour of the poor – but also how, in Box 1
many situations, they don’t. They also illustrate that markets are Explaining ‘basic services’
pervasive and important parts of the poor’s socio-economic
environment. As Amartya Sen23 notes, there’s little point being Commonly-used terms can serve to confuse rather than clarify
against markets per se. Like breathing air, they’re there… the nature of services. ‘Public’ and ‘private’ imply an unrealistically
the point is to make them work more effectively. concrete distinction. By the normal definition (non-rival,
non-excludable etc) there are very few genuine public goods
M4P recognises this central fact – the ubiquity and importance or services. Services widely perceived to be public – such as
of markets – and its clear consequence: poverty reduction water – provide direct (private) benefits to individuals as well as
requires that markets work better for the poor. contributing to better public health and economic growth.
Basic services and the poor On the other hand, services often seen to be ‘private’ including
A range of services are important in building people’s capacities to most business services such as mobile phones (although fixed
develop beyond poverty. ‘Basic services’c – where consumption lines are often seen as a public service) bring direct benefits for
serves not just an individual but impacts on the wider economy users but also serve a public purpose of reducing information
and society – are related most obviously to education, health, and search costs in markets and therefore increasing economic
water and sanitation. However, basic services might also include efficiency. In both there are significant externalities.
new services of growing relevance in a changing economy such
as mobile telephony, vocational training and basic finance.
In relation to children’s education for example, direct
Fixed lines cannot be drawn easily around ‘basic’ services to government delivery has a mixed record. While some publicly-
distinguish them from others, like accounting for instance, which delivered services are seen to be excellent (as in Singapore),
can be seen as within the domain of private markets (Box 1). for lower-income countries the record is often one of low
But basic services can be distinguished by the strong externalities standards, little accountability and weak provider motivation and
associated with them and, for some, their connection to human competence. For the most remote and poorest areas, teachers
rights.d In this sense, basic services cannot simply be ‘left’: they are often simply not there. In India, for example, teachers’
are always a concern for and responsibility of governments. absenteeism averages 25%.24 State-delivered education has
become dysfunctional in many countries.
For poor people, access to and use of these basic services is
especially important since they are pivotal to strengthening The weak state of children’s education is a key reason why
capacity – which the poor characteristically lack – to take wealthier people pay for private education. However, in a grow-
advantage of opportunities. Yet, despite their importance, ing number of situations, poorer families are also abandoning
there are no fixed models of delivery that can claim to be government schools for private providers. One recent study
best practice and define what a successful system looks like for covering India, Ghana, Nigeria and Kenya found that a majority
providing basic services. Rather there are a range of experiences of residents in selected poorer slum areas used local, relatively
involving both private and public players from which common low-cost private schools – and that the standards in these were
themes emerge. higher than in their government counterparts.25
There are other examples which actively combine public and

private players. In El Salvador, community-based schooling,
supported financially by government and with accountability to
parents and the community, has delivered higher enrolment and
standards than conventional state schools.26
Innovations in water and sanitation services also revolve around

a re-alignment of public and private roles. In some cases, blanket
privatisation which has not understood the incentives and
capacities of different players has not succeeded. However, in
many other situations realignment of public and private roles
has produced clear benefits. In Latin America, for instance, a
range of different models of public regulation and supervision
and private provision have been used.
c Often referred to in economics literature as ‘merit goods’. r

d The Universal Declaration of Human Rights covers both health and education.
9
These have produced major growth in water connections (in From markets and basic services to market systems
Argentina these increased by 30% during the 1990s), with the Countries where markets and basic services work effectively
largest gains for the poorest groups (Figure 1), and have achieved in favour of the poor offer the most conducive environment
discernible reductions in child mortality.27 But this improvement for poverty reduction. At first sight, markets and basic services
stands in contrast to the overall picture of low and static access might seem to be entirely different, one being commercial,
where the traditional subsidies given to existing consumers payment-based and offered by private providers and the other
exclude those who are not connected (the poor). And the poor with public organisations in prominent roles. Closer inspection,
commonly only have access to unsafe and expensive services; however, shows that they share a number of features (Box 2):
buyers of door-to-door water in Africa typically pay between
three to ten times more than tap-connected users. Multi-player
In both cases, the mixture of different functions necessary for an
There are similar issues in the relationship between public and effective system requires a range of private and public players
private roles in the more complex world of health and nutrition. (such as private firms, government departments, membership
Here, services include those aimed at individuals (personal organisations and academic groups). ‘Public’ services are never
treatment) and the wider population (immunisation, public entirely public, and ‘private’ markets never entirely private.
health messages). The wider experience with public delivery
in low-income economies is mixed. In some countries, such as Figure 1
Cuba, Malaysia and Sri Lanka – it has been relatively successful. Growth in water connections following private sector
However, poorly motivated staff (absenteeism in public health participation
facilities in Bangladesh averages 35%), low capacity and poor
performance are more common. In most cases, the reality is a
‘messy’ pluralist, public and private, health sector. This poses new 35
challenges for public policy such as more appropriate regulatory

% Growth in connections
30
arrangements and the state as a purchaser of services – rather
than continued pursuit of a unitary centralised system. 25
Promising new initiatives have sought to, among other changes, 20 Argentina
place the management of services in community hands (as in
15
Benin, Guinea and Mali28) and, by requiring co-payment from
users, make providers more accountable to them (as in Mexico29). 10
But this kind of successful re-alignment of roles between public
Bolivia
and private players is still rare. And some reforms produce 5
negative results; for example, as a consequence of reforms, The poor benefit most
0
Chile
heath workers in China have been encouraged to sell excessive
poorest 2 3 4 richest
drugs in order to earn higher incomes.30
Income quintile
These examples, covering a diverse range of basic services,

illustrate that the poor can be reached, but often aren’t. Learning
from these trends, M4P recognises that successful approaches
often involve a realignment of public and private players guided
by a better understanding of incentives and capacities.
10
Multi-function
Traditional centralised systems of service delivery, with some Box 2
exceptions, are often failing. The reality is pluralistic or hybrid The common ground of markets and basic services
systems and the challenge is to make such systems work better.
Similarly, markets (for land, labour, products, commodities etc) While there might appear to be little in common between a
often don’t work because public roles – regulation, information, market such as food products and a basic service such as water,
access to research – are not undertaken properly. closer analysis shows that they exhibit similar characteristics.
In each, in order for the ‘core’ activity (the production and
Built around incentives and capacities consumption of food and water) to be successful, other
Successful change in both markets and basic services is based functions (such as regulation, information, training and research)
around developing the technical capacities of different players need to be performed by different players – and they need to
and aligning better their incentives and motivations. Such have sufficient capacity and incentives to do so.
incentives might well be sharpened through changing formal
rules or the informal norms which often connect directly to the In food markets, the direct product flow is likely to be a series
lives of poor people. Especially important is to recognise the of commercial links between private sector players (grower to
centrality of transactional relationships in successful systems. processor to retailer to consumer etc).These are governed by an
increasingly complex set of rules. Some are national regulations
The term ‘market system’ used throughout this paper describes on food safety and environmental protection set and enforced
these shared characteristics of markets and basic services. by governments. Others are quality standards set by supra-
M4P recognises this common ground and provides a basis for national non-profit bodies with certification done by private
a coherent, unified approach to first understanding and then providers. Training and consulting to companies is also usually
acting to improve market systems. the domain of the private sector but this may be influenced by
advice and information from research bodies and associations.
Associations’ primary role however is likely to be advocacy to
government and international bodies.
A basic service such as water might involve a variety of different

arrangements. If provision is by the private sector (or a not-for-
profit association), a range of other tasks will be required largely
from public bodies, including supervision and coordination,
target setting, performance monitoring, testing and inspection.
Consumer information might be provided through an industry
association which might also set performance standards.
Specialised technical support services would lie with the private
sector. And a water consumers group might be necessary to
ensure better provider accountability.
The point here is not the precise make-up of each, which may be
different from one context to another. Rather it is to recognise
that both markets and basic services can be viewed through the
same market system lens and that M4P is relevant to both.
11
1.3 Emerging conceptual thinking on market systems

Box 3
Accompanying this new realisation of the position of the poor Different types of exchange in a market system
within market systems has been new analysis on the nature
and role of markets. Much of this recognises the limitations The maize market in Bangladesh has been growing, driven
of conventional economic thinking and the need to better by booming demand from the poultry feed industry. The
understand how people behave within market systems. This functioning of the maize market system and the distribution of
new thinking on market systems has implications for agencies its benefits is based around different types of exchange. Maize
and governments.e farmers sell to buyers either for cash or promise of payment.
Farmers themselves increasingly operate in hierarchical contract
In conventional economics, markets are seen to be the means farming arrangements where a lead (large) farmer provides
through which resources are allocated. When operating under inputs, advice and finance to a large number of contractors in
conditions of perfect competition and perfect information, return for all their maize output at a fixed price.
rational market players respond to price signals (and these
alone) and this price-regulated, money-based cash (or spot) In general lead firms prefer to deal with larger rather than smaller
exchange ensures efficiency and delivers growth. farms since this reduces their transaction costs. Other than some
employment gains, this preference has raised concerns over
Of course, the assumptions underpinning this view of markets how the smallest farmers and the landless benefit directly from
often do not apply. Markets are prone to a number of well- maize. In practice, however, benefits stem from the informal,
known imperfections (or failures). Asymmetric information patron-client-based relationships common in rural Bangladesh.
– when suppliers know more than consumers and vice versa Contract farmers, informally, often sub-contract production
– can lead to under- or over-supply of particular goods. to smaller farmers using a variety of risk and income-sharing
Externalities (either negative or positive) exist when the mechanisms. Such arrangements are outside (and disapproved
production or consumption of a good has spill-over affects that of) by lead farmers but they are important in helping the poor
are not reflected in the market price. And public goods are participate directly in the market system.
those which are non-rival and non-excludable and therefore
cannot be offered by private firms.
These weaknesses undermine the usefulness of conventional
So, one problem with conventional economic thinking is that the analysis in providing a cohesive platform for analysis and action.
central framework for analysing markets is a theoretical abstract They also highlight the need for a more practical and holistic
that tends to assume away inconvenient facts and is not likely framework to guide agencies and governments. Emerging
to provide useful guidance for policy-makers. Blunt analysis of thinking from a number of different perspectives (such as
problems can lead to equally blunt actions. behavioural and new institutional economics33) has sought to
offer this framework.
Two other types of exchange are recognised in economics,
outside of the theoretical idyll of the spot market. Gift exchange Most important here are the related concepts of transactions
is based around shared values and reciprocity, exchange is non- costs and institutions. In a perfect economic world it is assumed
financial and based on mutual obligations – and this obviously that there are no costs to exchange between buyers and
may be especially important for poorer people. Hierarchies sellers. In the real world however, buyers and sellers often
occur where one party has relatively more power, and is able to lack information, lack trust or are physically separated, erecting
exercise more command and control. Large firms, for example, barriers to exchange which then take resources to overcome
can dictate terms and control information flow to smaller (these are known as transactions costs). More efficient markets
suppliers.31 find ways of dealing with these costs, through mechanisms for
defraying risk, making information available, maintaining and
Economics therefore identifies different types of exchange – enforcing standards, and protecting consumers (these are
market, gift and hierarchy – all of which may be relevant for known as institutions).
poor people. But the problem with this, as guidance to policy
makers, is that the distinction between the three categories is
forced and artificial. In reality, all three types of exchange often
co-exist and the boundaries between them are blurred and
shifting32 (Box 3).
e M4P Perspectives has a more detailed analysis of conceptual issues in M4P. r
12
Transaction costs are a key indicator of the efficiency of a market l

The validity of the narrow prescriptions for government
and are, to a considerable extent, a function of institutional action which are generated by inaccurate analyses is called into
development. The burden of transaction costs tends to fall question. For example, services are often incorrectly labelled
disproportionately on the poor. For example, a bank, supported ‘public goods’ (there are very few public goods in reality) and
by regulations and knowing how these work, will pursue an this designation used as a carte blanche justification for direct
unpaid debt – a fact which the debtor is aware of. In contrast, state provision with little consideration of other options (such
a poor producer doesn’t know about the relevant regulations as regulation, research and information) that may actually be
and cannot afford to go to court to recover unpaid debts – a more useful in promoting access (Box 435).
fact his/her debtor is very aware of.
Transaction costs and institutional development apply not just Box 4

to the monetary exchange within commercial markets but also From analysis to actions in aquaculture
to other types of exchange. For example, schools are more
likely to be effective when teachers feel accountable (formally In aquaculture, up-to-date information is recognised as important
or informally) to parents and pupils. And information flow to promote new ideas and practices. Often this is seen as a
between players in a value chain is more effective when built public good which should be provided through government
upon trust. extension services. However, in Bangladesh, a more nuanced
analysis recognised that:
Inherent within transaction costs is stronger recognition of the l
Extension service officers had few incentives for good
role and nature of incentives in market systems. In particular, performance and a dysfunctional working culture prevailed.
people’s motivations and behaviour are not seen simply as a l
Private input suppliers (such as nurseries) had a commercial
function of prices but are shaped by a range of factors, both incentive to provide useful advice to farmers as a means of
formal and informal. For example, while the leasing of land is improving their performance and of differentiating what they
permitted in Ethiopia and should provide opportunities for did from their competitors.
investment, informally, a widespread perception of tenure
insecurity undermines farmers’ incentives to do so.34 Intervention built on this analysis and improved information
flows through private players with subsequent improvements
These trends in economic thinking have a number of implications in productivity.
for agencies and governments:
l
Different types of exchange – monetary and non-monetary
– are intertwined and are all subject to transaction costs and M4P builds on these recent trends in conceptual analysis to
institutional development. Separating these into artificial establish a common framework that recognises exchange in
boxes of analysis is neither practical nor aids clarity. They need different forms, the mixture of functions and players and the
to be brought within the same conceptual framework – incentives and rules within market systems. More importantly,
market systems. M4P seeks to go beyond the conceptual analysis of markets.
l
Analysis and understanding needs to reflect a more nuanced Increasingly, as Section 2 shows, the evidence of M4P in practice
view of how markets operate. Seeing exchange (supply is that it provides a useful framework not just to understand the
and demand) as the only function in markets is simplistic and world but to act to change it significantly.f
inaccurate, missing the important functions related to rules
(formal and informal) and information where the underlying
determinants of market performance are often to be found.
l
Since institutions are human-created, evolution towards more
efficient and inclusive markets is not inevitable. Market systems
(and countries) can become stuck in paths of under-
development and poverty, reflecting the vested interests of
powerful groups. However, more positively, the ‘rules of the
game’ that shape behaviour can be understood, influenced
and changed through purposeful, focused action. It is this that
offers opportunity for agencies and governments.
f To misquote Marx, the point of M4P therefore is not simply to interpret the world but to change it. r
13
2. WHY M4P?
Summary The specific arguments driving agencies and governments to

adopt M4P stem from two factors:
l
Learning from a range of development experiences on what
works (and what doesn’t).
l
The success of M4P in practice.
First, across a range of different development experiences and

fields – from agriculture and finance to water and sanitation
and health – similar conclusions have been drawn. Many efforts
at direct intervention and distant reform have failed – achieving
limited outreach, impact and sustainability, and distorting rather
than developing markets.
Learning from these experiences indicates that agencies and

governments need to ground what they do in the reality of
market systems and focus on stimulating systemic change.
Second, from different sources, there is growing evidence

that M4P works. Major programmes, in different contexts
and markets systems explicitly using the M4P approach and
governments and agencies influenced by its key tenets, have
achieved significant change.
Change is manifested in high levels of outreach and impact

– for example, the number of people accessing and benefitting
from new services. More important, in each case, capacities
and incentives have been developed to show that change is
sustainable and therefore impact will grow further in the
future.
M4P is not a panacea and there are still areas of debate over its
application. Nonetheless, taken together, these factors highlight
the value of the approach in addressing misconceptions of
market systems, introducing a more positive (yet realistic) view
of their role, and setting out how to realise their potential for
all – and for the poor in particular.
15
2. WHY M4P?
2.1 Introduction 2.2 The wider development experience
The immediate rationale for the M4P approach for agencies The direct experience of development agencies and governments
and governments is provided by two factors. Building on wider whose policies and resources impact on the development of
trends – the importance of market systems and changes in market systems and the poor is often the most powerful driver
conceptual thinking accompanying this – these relate to specific of change. What has been their experience and what can be
experiences of organisations. First is their experience in different learned that might help to guide future actions?
fields and the common learning to emerge from these: the need
to adopt a new approach focused on systemic change. Second One of the distinctive features of M4P is that its origins lie
are the achievements of M4P in practice and the evidence that, in a broad range of development fields where poor people
as an approach, it can deliver substantial, sustainable impact. interact with market systems. These include agriculture, finance,
While there are some outstanding issues in relation to the poor private sector development, water and health. Traditionally, each
and market systems where there is still much debate, these operates as a separate ‘box’ of activity, knowledge and models
factors together help make the case for M4P. of practice – with little cross-over learning between them.
However, despite their difference, the experience of each and
the parallel learning processes they have spawned have reached
Box 5 remarkably similar conclusions. M4P grows from the common
Intervening impulsively in business services experience in these fields. Generalising (and simplifying), this can
be presented as a continuum with, at either end, two contrasting
The perils of impulsive intervention have been exposed most perspectives: impulsive intervention and remote reform.36
notably in the business services (BDS) field – the swathe of
non-financial services critical for business development. From Impulsive intervention
the late-1990s onwards, BDS was the focus of an almost unique This first strand of development practice has been concerned
collaborative effort between agencies coordinated through the with intervening directly to ‘get things done’. Here, the essence
Donor Committee on Enterprise Development. The purpose of the approach is that, if the market system isn’t delivering well,
was to explore agencies’ experience transparently so that the ‘we’ (agencies and governments) should replace it and provide
learning curve would be ‘cleaner’, more widely accepted and finance, advice, materials, services… whatever is required,
more effective. directly. We should do it ourselves to ‘get on with the job’.
The message from this process was that: Interveners emphasise their ‘hands-on’ business-like ethos and
l
Direct support to business was usually ineffective, producing – impatient with the perceived inaction of others – see their
few benefits. approach as practical, a tangible means of generating ‘quick-
l
The horizon of sustainability only lasted as long as the wins’. For governments, the interveners’ impulse manifests
external subsidy. itself in direct delivery by them. For agencies, intervention may
l
The core task of agencies should be to facilitate markets for either mean delivery directly by them or, more commonly,
BDS, not to subsidise delivery directly and continually. working with partners (such as government or not-for-profit
organisations) to deliver directed, subsidised services.
The outputs from this process have influenced practice
significantly. Of course, there are examples of agencies that do After many years, with some exceptions, it is now clear that
intervene in a direct manner. But at least the challenge for them this has not been a hugely positive experience. Major reviews
is laid out more clearly: how to ensure that they develop rather in different fields (Box 5) indicate that the results of these
than distort incentives and the process of longer-term change interventions have been characterised by37:
and development. l
Limited outreach – typically with a small proportion of potential
users being served.
l
Limited impact – with only patchy signs of positive change
and little evidence that directed support stimulates wider
development.
l
Limited sustainability – with the whole apparatus of ‘support’
requiring continuous infusions of external resources.
l
Limited efficiency – with relatively high costs required to
deliver.
17
2. WHY M4P?
Why has this happened? Overall, the interveners’ experience has However, even if the most obvious examples of inappropriate,
been undermined by two inadequacies. First has been a failure distant reform are fading, there are still many instances of
to question the roles of key players given their competence and unsuitable ‘solutions’ being imported to different contexts. For
incentives; ie to consider the key issues of who does what and example, the comparative failure to establish effective stock
why in a market system. This factor is especially the case where exchanges in Africa appears, in part at least, to be attributable
governments have drifted into roles which are inappropriate to the strong emphasis placed on ‘heavy’ regulatory and judicial
and unsustainable – often persisting to just play a direct delivery regimes which are incongruent with local needs and capacities.
role and neglecting the wider system of which they are a part. And the current emphasis on enhancing the investment climate
So, rather than considering what role they could best play in the runs the risk of overlooking “the many industry-specific policy and
overall system and “move away from a market versus state optique enforcement issues which collectively have been found to be the
and work from existing realities”38, governments have stuck to the most important constraints to growth”.41
conventional (and often ineffectual), for example, in fields such
as agriculture extension, vocational training and health. Why has this happened? Two critical weaknesses have
undermined the reformers’ efforts. First, there has been a
Second, especially in economic fields, there has been a failure to failure to recognise the importance of informal rules and the
place businesses in a market context. The interveners’ instinct complexity of institutional change processes. Achieving changes
has been to ask the question “what problems do businesses have in laws and regulations – the formal ‘rules of the game’ – is of
and how can I solve them?” and not to ask the more relevant little use if enforcement practices are not also changed. Change
systemic questions: “why isn’t the market environment providing processes have to be driven by key people within countries and
solutions?” to these and “How can I address the constraints that based on an understanding of the political economy – especially
prevent it from effectively doing so?” Improving the functioning the incentives of stakeholder groups. Change can seldom be
of market systems and addressing the underlying causes shaping decreed from outside.
business behaviour have not been priorities. Logically, if the
right questions are not asked the right approaches are unlikely Second, there has been a failure to recognise that an ‘environment
to emerge. The conclusions reached in a recent review of EC that enables’ growth is more than the right regulations. It also
private sector development programmes (1994-2003) could includes, for example, information, appropriate services and
apply to many agencies39: levels of skills and knowledge – elements of a system which are
as important as regulations. Other, more practical and holistic
“EC programmes often focused on the direct provision of services perspectives support this view:
for immediate impact, rather than addressing the constraints
that preclude correct functioning of the market. [As a result] PSD l
Michael Porter emphasises the importance of supporting
activities are not designed so as to improve the competitiveness of services, infrastructure and information in his ‘diamond’ of
the private sector in a sustainable manner”. factors that contribute to the microeconomic environment for
competitiveness.42
Remote reform l
Rodrik et al’s ‘growth diagnostics’ framework43 addresses the
The prevailing views of the development world have shifted in ‘binding constraints’ in economies, based on decision-tree
recent years.40 At a macro-level, the key tenets of the mainstream analyses of cause and effect.
‘market-friendly’ approach are relatively straightforward: fiscal
discipline, low marginal taxes and a broader tax base, openness to
trade and investment, and liberalising microeconomic reform. Getting
‘prices right’ in an economy is still seen to be critical in providing
an overarching enabling environment conducive to development
– and this is the key priority for governments. Now, however, there
is recognition of the complexity of growth processes and the
need to adapt approaches (to some degree) to different contexts.
Prompting this revision is acknowledgement of the mixed experience
of previous rigid, imposed approaches – with some countries
succeeding in achieving strong growth and others (especially in Africa)
palpably not. There is broad acceptance of the need to go beyond
the previous policy mantra of “stabilise, privatise and liberalise”.g
g As seen in the statements from the 2004 gathering of leading economists – the Barcelona Consensus. r
18
2. WHY M4P?
It is the case that successful change in market systems may well 2.3 M4P in practice
require regulatory reform inspired by examples from elsewhere
as well as active intervention. But remote reformers and The final argument in support of M4P is the tangible evidence
impulsive interveners – both (slight) caricatures at either ends from its application in different contexts. A growing body
of a spectrumh 44 – represent real experiences. They are united of experience attests to the utility of M4P. In terms of the
by a common problem – namely a failure to ground what they key challenges of growth and access, the central tasks for
do in market realities, in the way that market systems work development agencies and governments, M4P is increasingly
and a clear vision of how they can work better. More positively, seen as a means of achieving large-scale and sustainable change.
however, they are united by a common conviction that the In short, M4P works.
lessons from these experiences can be learned, and that this
learning is increasingly evident across different development The most obvious examples of M4P working, of course, are
spheres. For example: where governments – without consciously using the label
and largely unprompted by aid agencies – have successfully
l
Business development services: “The objectives of outreach developed market systems. For example, while the global
and sustainability can only be achieved in well-developed advance of mobile telephony is sometimes seen as a result
markets for business services” (International Donor Committee, of technological innovation only, the space for mobile phone
Blue Book). providers to be effective has been created by a major strategic
l
Financial services: “To achieve its full potential, microfinance innovation in governments’ role. Instead of trying to be service
must become a fully integrated part of a developing country’s deliverers (as they are often with fixed lines) they have shifted
mainstream financial system” (CGAP45). to a licensing and regulatory position. In doing so, they have
l
Health: “Key systemic reasons for suboptimal functioning of created the competitive incentive and opportunity for providers
health systems are… disjointed engagement of the private to reach out to low-income groups and consumers in remote
sector in delivering health care” (Spinaci et al46). areas, and to develop new services. None of this would have
l
Land: “We need to move away from project-based thinking to occurred without a major realignment of roles in the market
systemic approaches that lead to national roll out” (Augustinus system.
and Deininger47).
l
Rural livelihoods: “A more imaginative approach is needed, Alongside this kind of successful change instigated by
rooted in stronger understanding… of institutional develo- governments, there are other more specific examples where
pment in economic growth, with market development one part of agencies, acting with partners, and consciously following the
that institutional development” (Dorward et al). M4P approach, have stimulated major change. The three cases
l
Agriculture: “The key requirement is to engage in ways that are of M4P in practice given here (Table 1) have been selected on
non-distorting, market-oriented and capable of generating net the basis of their performance, because they have been subject
benefits for the poor” (Joffe and Jones48). to external review and because they represent a diversity of
contexts and market systems – financial services in South Africa,
M4P is the outcome of this hard learning. mass media (radio) in Uganda and vegetables in Bangladesh.
h There are parallels here with the modernist – activist categorisation used in the financial services sector. r
19
2. WHY M4P?
Table 1
Illustrating M4P in practice
FinMark Trust, South Africa FIT-SEMA, Uganda Katalyst*, Bangladesh
Context: low reach of financial services Context: poor quality of business-related Context: low productivity stemming
(initially 38%) among low-income groups, programming in radio services restricts from incorrect practices and use of
excludes them from the mainstream information flow in the economy and inputs restricts the potential income,
economy and restricts their contribution limits accountability. employment and nutrition effects of
to growth. vegetable cultivation.
Goal: to make financial services markets Goal: to improve the quality and relevance Goal: to improve the productivity of
work more effectively for the poor. of commercial radio programming on a vegetable farming on a sustainable basis.
sustainable basis.
Challenge: understanding and addressing Challenge: changing the prevailing radio Challenge: building information and advice
a range of systemic constraints in a business model. as embedded services in the value chain.
politicised and divided context.
Main activities: building a shared view of Main activities: work with small number Main activities: provide support to input
the industry’s future; supporting service of radio stations to improve programme suppliers to develop a retailer training
innovation; developing information innovation and quality; demonstrate programme and so build retailers’
services; improving regulatory process; ‘business case, ‘crowd-in’ others; incentives and capacity to offer better
stimulating consumer education. strengthen wider market functions advice to farmers.
(audience research, journalism etc).
Achievements: contributing to 7.1m Achievements: 25 stations offering 50 Achievements: new business model in
increase in ‘banked’ population; new new programmes and reaching 7m more supply chain serving and improving
information services; stronger public listeners. performance among 1m farmers.
roles; better innovation environment.
*
Katalyst works in more than 20 different regional
sectors; vegetables is one of these.
In each case, these projects have sought to pursue a different Each project has been operating for a number of years and
approach from ‘conventional practice’. For example: some key achievements can now be identified. In relation to
outreach, in each case, considerable scale has been achieved:
l
FinMark Trust49 (FinMark), rather than setting up a ‘provider for
the poor’ or changing isolated regulations, worked to address l
In South Africa, the number of people with bank accounts
the underlying causes of low access – information, innovation, (Figure 2) has grown from 11.8 million (38% of the population)
stakeholder relationships and regulatory processes. to 19.0 million (60%) in a six-year period. FinMark has been
l
FIT-SEMA50 (Small Enterprise Media in Africa), rather than buying one among a number of influences but its contribution has
airtime from radio stations to broadcast specific information, been critical.
worked to build the capacity and incentives of radio stations l
In Uganda, there were no relevant programmes in 1999, but now
and other players to improve programming. more than 25 radio stations are now serving 7 million listeners
l
Katalyst51, rather than paying for the direct delivery of training with more than 50 different business-related programmes.
to farmers, worked initially with one (and then several) input l
In Bangladesh, Katalyst’s work in the vegetable sector over a
supply firms to build their capacity to offer training to retailers three-year period has reached nearly 3,000 retailers serving a
so that they, in turn, would change their business offer to farmer clientele of approximately 1 million farmers.
farmers (provide better information and advice).
20
2. WHY M4P?
Figure 2
Users of new bank accounts, 1994-2007 (percentage of adult population)
65
19m
60
55
50
Adults %
45 FinMark starts
11.8m
40
35
30
8.8m
25
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Years
In each case relatively large numbers of people have gained For this increased scale and final impact to be genuinely
access to new services – but what is known of the final meaningful, these need to be more than transient gains; they
benefits they have accrued through these? In the case of fee- need to be enduring. In relation to sustainability, a range of
based banking services, there is of course a difference between changes have been stimulated which show that, not only are
access to, use of and benefit from services. However, it can be benefits likely to continue, but the capacity and incentives have
assumed that people buy banking services because they offer been developed to suggest they will grow further.
value and so, in aggregate, rising coverage can be equated with
consumer satisfaction. For radio in Uganda, case study evidence l
New commercial services – in FinMark, a new syndicated
shows direct links between improvements in the incomes and information service (FinScope) has been developed and
livelihoods of thousands of poor producers and the extra voice operates on a commercial basis in South Africa. New support
and advocacy provided by radio that has resulted in rules being services have also been created in Uganda – such as radio
enforced, public promises enacted and corruption exposed. journalist training – to allow continued improvement in
quality.
Finally, case studies in Bangladesh show that overcoming this l
New public roles – in the financial services market in South
information barrier has typically brought productivity gains of Africa, processes of regulatory reform as well as public functions
20-30% in vegetable production thus helping to enhance the such as consumer financial literacy have been re-energised.
country’s competitiveness relative to its neighbours. Survey l
New business models – in Katalyst and FIT-SEMA in particular,
evidence indicates that total factor productivity in farmers who market players see the value of different business models.
are clients of trained retailers is, on average one-quarter higher Radio stations have an incentive to provide better business-
than those who are clients of other retailers. focused programming since this will attract new listeners
and, in turn, more commercial sponsorship. Input suppliers and
retailers in Bangladesh have increased profits from following
a more information-rich business approach. They have an
incentive to continue to expand and deepen their work and
their competitors an incentive to emulate their achievements.
l
New relationships – inherent within these changes are more
mutually-beneficial relationships between market players, for
example, between radio stations and training organisations
and between input suppliers, retailers and farmers.
21
2. WHY M4P?
How do these achievements compare with other interventions These examples illustrate that, in different contexts and in
which have pursued a more directed, delivery route? Side-by- different market systems, M4P works, offering greater and more
side comparisons are not always possible and, by concentrating lasting change than other conventional approaches.This is not to
on headline indicators, can be misleading. However, the data say however, that M4P should be regarded as a purist, jealously-
suggest that the scale of outreach and impact evident in these guarded brand. Indeed, in many other diverse situations, key
examples is much higher than is normally seen. Nor has this dimensions of M4P have been incorporatedi with very positive
enhanced performance been achieved simply by more external results. For example, in Somalialand – in a context of conflict and
inputs (ie at the expense of efficiency). Again, while detailed near-collapse of central government – a successful collaboration
comparisons are not available it is clear that the M4P approach between municipalities and the local private sector over water
is no more (and generally much less) expensive than more services has led to an eight-fold increase in connections,
conventional project routes. For example, Katalyst’s work in improved health in the community and higher revenues for
vegetables cost around $120,000 over three to four years. the municipality.52 While in neighbouring Kenya, a project in the
FIT-SEMA’s total budget over a seven-year period was around avocado and passion fruit value chains has focused successfully
$1.5 million. on the introduction and development of fee-based, commercial
services – spraying, grafting, pruning – for small farmer groups,
Overall, however, the most significant feature of change in these contributing to a five-fold increase in exports over a five-year
examples is that it has been ‘systemic’ – it has addressed the period.53
underlying causes of ‘under-performance’ of the system as a
whole and of poor people within it. FIT-SEMA’s work in Uganda
offers a relevant comparison with other projects that, with similar
objectives (improved information for small businesses), focused
on directly buying air time from radio stations. While these
initially achieved high outreach, they failed to bring about lasting
change in the radio market. Indeed no donor-financed radio
programme in Uganda has ever lasted beyond the duration of
its initial funding (Figure 3).
Figure 3
Stylised comparison of FIT-SEMA outreach versus a
conventional project
Project end
FIT-SEMA
Outreach
Conventional
project
Time
i Without any mention of M4P per se. r
22
2. WHY M4P?
2.4 Caution and caveats These points highlight the need to tailor actions to local context and
to think through in each circumstance how market systems impinge
If it is clear that there are strong arguments for M4P, it would be upon poor people. However, this does not undermine the validity
a mistake to see it as a doctrinaire panacea.There are many areas and value of the approach in addressing misconceptions of market
of legitimate debate over a range of issues and, in considering systems, introducing a more positive (yet realistic) view of their role
market systems and the poor, a number of questions which do and setting out how to realise their potential for all and for the poor
not neatly fall into a simple, ‘good-bad’ distinction. in particular.
Is the replacement of informal mechanisms of exchange with commercial

services always good for the poor?
Poor people often have developed arrangements, especially in relation
to finance, through which resources are allocated and information
and knowledge shared. These arrangements are set within social
networks and relationships that may often discriminate against the
poorest – and cement their ‘lowly’ position. But it is over-optimistic
to assume from this that inclusion in commercial services will accord
them equal and respected status as market players such as clients or
producers.
Do the poor ‘win’ from market change?

Change is a recurring feature of market systems and processes of
change are seldom smooth. Markets are competitive, with firms and
individuals juxtaposed against each other. In this context,‘the poor’ are
not an homogenous group; they may well have conflicting interests
such as producers versus consumers. Simply ‘stopping’ change is
rarely a realistic option but neither is it straightforward to determine
where and how the best interests of poor people (in aggregate) are
served.
What should the role of government be?

In determining an appropriate role for government, institutional
experience may provide conflicting evidence about what to do.
Government-controlled health services are excellent in Cuba but
dysfunctional in many low-income countries. State-owned banks
often have high numbers of poor people as bank account holders
but does providing access equate with offering useful services?
Is M4P consistent with rights-based obligations?

Proponents of rights-based development argue that they create a
moral and legal climate to force change. Critics see them as empty
promises that fall into disrepute because they fail to consider how
obligations will be met. It is often assumed that government will
deliver directly: but if it can’t or won’t – and this is frequently the
case – can a different government role be interpreted within a rights
context?
Where does market development meet social protection?

Social protection, by definition, is different from development
(dealing with symptoms not causes) but in practice the distinction
is often blurred. Obviously, many of the poorest people in difficult
circumstances need welfare but there are recognised dangers that
over-dependence on welfare damages the incentives and self-reliance
necessary for longer-term-development.
23
3. WHAT IS M4P?
Summary M4P is an approach to developing market systems so that

they function more effectively, sustainably and beneficially for
poor people, building their capacities and offering them the
opportunity to enhance their lives. Applicable to development
agencies and governments working in both economic and
social fields, it is an approach defined by a number of important
characteristics.
M4P is an approach to development that provides guidance

not only on understanding of the poor in market systems
(analysis) but on how to bring about effective change (action).
Analysis should identify the underlying constraints impinging
upon market systems and concentrate on addressing these.
Its focus is on developing market systems, assessed with

respect to different market functions and players, public and
private, formal and informal. This systemic character of M4P
defines many of its most important features.
By addressing underlying causes (rather than symptoms)

of weak performance, M4P aims to unleash large-scale
change. Interventions may be small in themselves, but should
continually strive to leverage the actions of key market players
to bring about extensive and deep-seated systemic change.
Sustainability is a prime concern of M4P. This means conside-

ring not just the existing alignment of key market functions
and players but how they can work more effectively in the
future, based on the incentives and capacities of players
(government, private sector, associations etc) to play different
roles.
M4P requires that agencies and governments play a facilitating

role. As external players they seek to catalyse others in the
market system (while not becoming part of it themselves).
For governments, except where they are playing longer-term
roles within the market system, and agencies, facilitation is
inherently a temporary role.
Finally, as an overarching framework M4P does not necessarily

replace other specific methodologies and tools but provides
a transparent and multi-disciplinary framework within which
they can be utilised and adapted in order to address their
limitations and so enhance their efficacy.
25
3. WHAT IS M4P?
3.1 Introduction 3.2 M4P as an approach
M4P is an approach to developing market systems that benefit M4P is an approach which means that it is both about analysing
poor people, offering them the capacities and opportunities the poor in market systems and about providing guidance on
to enhance their lives. Building on a detailed understanding of how to act to bring about positive change. It is the combination
market systems and a clear vision of the future, M4P allows of both of these elements – frameworks for analysis and for
agencies to address identified systemic constraints and bring action – that makes M4P more than an interesting analytical tool
about large-scale and sustainable change. (there are many of these) or a set of useful operational tips (and
these). Its aim is to provide coherence and consistency in how
However, beyond this rather generalised definition, there is we understand the world and, given this, how we intervene to
less of a consensus over what M4P is – what its distinguishing bring about change.
features are – or what its ambition could be. From these early
years of M4P experience, it is evident that establishing this It is primarily for those who are pursuing the public goal of
clarity is important. On the one hand, M4P is an overarching poverty reduction – development agencies and governments
approach with the potential to be applicable to a wide range chiefly – and who can do so through making market systems
of socio-economic development fields. It is not a specific, work more effectively and inclusively. While it may also be of
prescriptive tool. On the other hand, there is a welcoming interest to private companies, its primary audience is those
wholesomeness to the term ‘making markets work for the who are trying to shape the market system rather than be
poor’ which, since many development activities aimed at participants in it.
poverty reduction often involve some engagement with
markets, leads to the mistaken view that everything, broadly, M4P is an approach to promote systemic change – change
can be categorised as M4P. that goes beyond individual players and that is relevant to the
wider environment, affecting many. Indeed, many of the specific
This tendency to assume that breadth of approach and features which follow are concerned with giving meaning to
application equates with an ‘anything goes’ looseness in M4P what is meant by ‘systemic’.
interventions is problematic. M4P is shaped by a rigorous
assessment process to guide action. While the approach will 3.3 A focus on market systems
evolve, activities which are inconsistent with this are, logically,
not M4P. In order to avoid drift and confusion therefore it is The reason for M4P’s focus on market systems is clear. By
important to be clear about what M4P is. bringing about change in the market systems within which
people live and work it is possible to effect substantial and
This section captures the defining and interrelated features of lasting change that can impact on many sustainably rather than
M4P related to its nature (an overarching approach combining a few temporarily. Learning from past experiences has logically
analysis and action), its key areas of focus (market systems, taken the development community to an emphasis on systemic
scale, sustainability) and its implications for agencies and change.
governments (the facilitation role).
What is less clear is what is meant by a ‘market system’? The
composition and structure of specific market systems varies
greatly with context. The market system for small business
finance in a middle-income country will obviously look and feel
very different from the water and sanitation services market in
an urban slum. Markets for land, labour, raw materials, capital,
goods and services are all different but they share the same
key elements. In practice, all market systems can be viewed
through the same lens consisting of different sets of functions
and players (Figure 4).
27
3. WHAT IS M4P?
Figure 4
Stylised view of the market system
market players
(delivering and resourcing different functions)
supporting functions
Information
Government Private sector
R&D Skills & capacity
Coordination
Informing and communicating
Related
services
Infrastructure
Informal supply core demand

Membership
networks function organisations
Regulations Informal rules

Setting and enforcing rules & norms
Standards Laws
Not-for-profit sector Representative bodies
rules
The core function in any market system is to provide a space Core

for transactions of a good or service. However the nature and This is the central set of exchanges between providers (the
efficiency of the core is shaped by formal and informal rules and supply-side) and consumers (demand-side) of goods and
a range of supporting functions. These determine behaviour services at the heart of any market. Exchange is conventionally
and practices, shape relationships, and provide information, through money, but can be through non-financial accountability
knowledge and incentives. Within this environment, a diverse (say in government-provided services) or through informal quid
range of public and private, formal and informal players may be pro quo arrangements (in social or business networks). In most
active. It is this multi-function, multiple player arrangement that market systems, the private sector can be seen to be the main
M4P refers to as a market system. provider.
In any market system, there are three main sets of functions

– core, rules and supporting functions.
28
3. WHAT IS M4P?
Rules Two other factors need to be recognised. First, all three

These act to shape market outcomes and govern participation dimensions in a market system – core, rules and supporting
and behaviour in markets. Rules include informal rules or functions – can be seen in an international, national or local
norms, formal rules or laws and other standards and codes of context. It is an approach which is adaptable to different contexts
practice. Formal providers of rules are commonly governments and different resources, although more fundamental change will
or membership organisations. Rules are essentially a non- often require looking beyond the local environment. Second, by
commercial or public or collective role in markets. However, their nature, the influence of factor markets – even if they are not
their enforcement (often the most problematic issue) can the core market under consideration – is pervasive. Obviously
involve private sector players (for example, in international food change here can result in widespread impact54, although it is
quality standards). Informal rules are generally a product of local often relatively more difficult to bring about.
culture and value systems and practices and invariably define
the extent to which formal rules are accepted. 3.4 Leveraging scale and impact
Supporting functions M4P is concerned with achieving large-scale change. Of course,

A range of other functions support the core exchange and all agencies and all governments avow the same ambition but
help the market to develop and grow including, for example, M4P can claim legitimately to be an approach that is inherently
consultation processes; research and development (R&D); about stimulating large-scale change. By focusing on systems,
information; and capacity development and co-ordination. M4P is seeking to go beyond individual organisations and
The nature of these, and who provides them, varies from one groups, to consider how the wider system can be enhanced to
context to another. Labour markets, for instance, may require influence many.
information on market trends, vacancies, available skills levels
and the legal framework – which is often best provided by Two notable implications flow from this concern with scale. First,
government. Employment agencies linking supply and demand M4P projects need to think continually about how to go beyond
might be best provided by the private sector, while training their immediate context, to leverage greater change. For example,
is likely to involve both public and private organisationsj. interventions that work with only one partner – and stop there
Coordination in specific skills and disciplines is always likely to – without considering how the experience can be used to bring
involve government and business or professional associations. in others or hoping that an (often ill-defined) demonstration effect
will somehow happen need to reconsider their approach (Box 755).
For governments and agencies, intervening to bring about The age-old criticism of development projects – that they are small
change throughout a market system usually involves addressing and scattered, interesting perhaps but adding up to very little (the ‘so
rules and supporting functions (Box 6). what?’ question) – is confronted directly in M4P by a requirement
to consider from the outset how resources will promote large-
scale change.
Box 6
Change throughout the market system in South Africa
The growth and greater inclusiveness of financial services in raw material for product development. Consumer education
South Africa (the core) can be clearly attributed to changes in has been pursued more vigorously by public and private players.
supporting functions and rules. Extending financial services to the ‘unbanked’ population has
become recognised as a collective responsibility of the banks.
Although there has been some regulatory change, more
important has been the wider social and political shift which In other words, achievements in the core of the market system
has influenced banks’ incentives and provided a spur for are explained in relation to change stimulated in the market’s
innovation and cooperation. New commercial information supporting functions.
services and informal information exchange have provided the
j Self-evidently, supporting functions – such as vocational training – are often market systems in their own right. r
29
3. WHAT IS M4P?
Second, ‘large-scale’ does not imply that interventions only aim

at the national level. Scale depends on the nature of the market Box 7
system. In some situations the most pressing obstacles can only The lure of lead firms
be addressed at a national level (changes in customs regulation,
for example). In other cases, change can be affected at a more Recent years have seen increased interest from agencies
localised level, for instance developing information flows in value in supporting large companies directly. Some of these
chains. In others, international action may be required. collaborations – sometimes done under the auspices of public
private partnerships (PPPs) – have resulted in successful
The ambition to achieve large-scale change does not mean innovations. Large-scale impact appears to be more easily
interventions themselves have to be large in terms of resources. achievable by working with large firms – especially reaching out
Starting small to achieve ambitious objectives may be a perfectly to low-income consumers.
valid strategy but small ‘pilot’ projects, if they are to achieve
larger-scale impact, need to be grounded in the incentives of Yet, beyond the immediate outreach achieved, the rationale for
players, the transactions between them and the supporting and long-term effects of this support are less clear. Risk-taking
functions required for growth. Small that can only ever be small innovation is the essence of business. Financing single (large)
– the worthy tokenism of some development efforts – is not companies to perform their core business task, so defraying
consistent with M4P. their risk, runs the danger of conferring an unfair competitive
advantage.
3.5 Giving meaning and priority to sustainability
For direct support, as with all interventions, the key M4P test
Clearly, meaningful development is about more than delivering a of its value is the extent to which it contributes to wider
one-off hit – making lasting change is what differentiates long-term development – to systemic change that unleashes more business
development from short-term relief measures. However, in practice, focus on the poor. This means, among other issues, considering
sustainability is often demoted to a secondary concern. Frequently how competitors learn and the services that support innovation
what is seen to matter most are final ‘deliverables’ – productivity in the market system.
improvement, employment growth, enrolment rates. The means
through which these might be achieved continually are a distant In some cases, this broader change has been stimulated – for
afterthought. Sustainability is a particular priority in M4P and its example Vodafone-Safaricom’s M-Pesa banking product in
approach to sustainability is distinctive in four ways. Kenya which received DFID support. But in most other cases,
any benefits are found only in the direct support recipient.
First, sustainability is defined. Sustainability is always concerned both
with final benefits and with the means (or capacity) through which
those benefits are achieved. In the context of market systems, Fourth, sustainability is operationalised into every aspect of
sustainability can be seen as: M4P activities (see Section 4). Initial market analysis shows
which players are performing and paying for different market
The market system capability to ensure that relevant, differentiated goods functions. In considering sustainability, we also need to consider
and services continue to be offered to and consumed by the poor beyond who will undertake (who will do) and who will pay for these
the period of an intervention. functions in the future. It requires that realistic future scenarios
be developed for market systems. This requirement to be
Second, sustainability is seen to be intertwined with scaling-up and transparent forces interventions to take sustainability into their
further change. Functioning market systems are never static – they objectives and planning – to plan for sustainability at ‘entry’
have within them the capacity and incentive to be dynamic – to rather than at ‘exit’.
grow and to change. Therefore the remaining sustainability issue to
be faced is: how will growth and change take place in the future? For example, if training or information provision in the water
Objectives for sustainability and scale are consistent with each other. and sanitation sector – common areas of support for agencies
– are seen to be important now then there’s every reason
Third, the priority is clear. Inherent within M4P’s focus on to consider that they will be important in the future. And an
systemic change is recognition that priority should be given obvious sustainability question is posed: who will provide and
to developing capacity in the market system – the means by who will pay for training and information services in the future?
which benefits continue to flow – rather than simply delivering
benefits directly.
30
3. WHAT IS M4P?
3.6 Addressing causes not symptoms Second, in pursuing the process of distinguishing causes from
symptoms, a range of potential tools might be used – some
M4P is based around identifying and pursuing the causes more complex and resource-intensive than others. There is no
rather than the symptoms of constraints. In this sense, M4P is single ‘magic-bullet’ methodology that must be utilised - the key
consistent with the essential principle that genuine development point is not what tools are used, but that the process of analysis
is always about addressing fundamental causes of poverty. It is of deep enough to provide appropriate guidance for action.
is an approach led by analysis – in simple terms, a process of
continually asking ‘why?’ that allows the underlying issues to
be identified. Two implications emerge from this process of
narrowing down to the specific constraints that should be the
focus of intervention.
First, pursuing underlying systemic causes can take an intervening

agency to an apparently ‘different place’ from the original focus
of concern (Table 2). The interconnected nature of markets
– the fact that one market impinges on another as a supporting
function – makes this inevitable, and can be an argument for
concentrating interventions on cross-cutting factor or service
markets in parallel with, or in advance of, more recognisable
problems within product-specific markets.
Table 2
Distinguishing between causes and symptoms
Symptom Initial cause Underlying cause
Low levels of output, productivity and Lack of access to suitable financial Uncertainty and confusion over formal
investment in African farming. services. title and informal rules in relation to
traditional rural landholdings acts as
major disincentive to bank finance.
High prices for water in urban slums in Small private providers are main Regulatory system provides no protection
Latin America. operators with no public sector role. for consumers and doesn’t prevent price
fixing – while public investment in basic
infrastructure is absent.
Lack of product innovation in Vietnamese Weak legal services associated with Reform processes and the political
business. intellectual property rights and a weak economy surrounding reform among
legal framework. researchers, associations, the media and
decision-makers are undeveloped.
Low prices and struggling sales in the Poor product differentiation, productivity Weak provision and low use of specialised
Ghanaian export craft industry. and professionalism among exporting consulting, design and communication
companies. services (in turn a result of demand-
side hesitancy and supply-side capacity
weakness).
31
3. WHAT IS M4P?
3.7 A facilitation role

Box 8
M4P requires that organisations play a facilitating role. Standing Different roles for government in the Mali water industry
outside of the market system (Figure 4), facilitators work with
different players within the system, to make it work more Water delivery in Mali’s towns is undertaken primarily by
effectively. Their essential role is active and catalytic, to enable Water Users’ Associations under the overall supervision
others to do rather than do themselves – stimulating changes in of government. In 1994, in an attempt to improve overall
a market system without becoming part of it. performance, the Water Ministry introduced a new Advisory
Unit providing financial, management and training services to
In practice, the facilitation role can involve many different tasks, the Associations, in exchange for a fixed fee per cubic metre of
depending on the nature of the constraints to be addressed water distributed.
– strengthening supply-side capacity, introducing new ideas
and innovations, enhancing networks and exchange, providing After several years of operation, the Unit appears to be
information, increasing demand-side awareness. This range of achieving positive results. Operating costs of delivering water
tasks, however, and the way in which they are conducted should have reduced by more than a half, savings which amount to
always be consistent with a vision of how the market system can more than six times the Unit’s fees. And the Unit’s monitoring
work more effectively and sustainably in the longer-term. This is of water consumption, production and costs enable it to identify
the guiding discipline that shapes facilitation. where future opportunities might arise.
Four other implications follow from recognition of the nature While this twin role from government – regulator and technical
of the facilitation task. First, M4P facilitation is a temporary task. provider – appears to have worked, a question is posed for the
Learning from other experiences and the dangers of creating future. Government may have to maintain its regulatory role but
distortion and dependency, M4P takes the development should it also continue to be a specialist provider of services?
challenge at its word, and sees facilitation as an independent, Or, having introduced this role, should it seek to build it into
transient role.k other players within the water market system?
Second, consistent with the priority given to sustainability,

facilitators need to consider, realistically and transparently, the
role of different market players. This is especially important in Fourth, M4P differentiates between short-term temporary
relation to government where – given its limited resources – it subsidies that can encourage or facilitate lasting change, and
is crucial to focus on areas of competence and strength. longer term recurrent subsidies that might well be required to
ensure on-going access to ‘merit goods’ – such as water and
Third, if M4P facilitation as a temporary role fits well with health services. Where long term subsidy is required to ensure
development agency mandates, what about governments, who access, M4P simply asks how this will be provided, and how such
clearly are not temporary players? There are legitimate roles recurrent expenditure will be financed once support ceases.
for government in different situations – such as regulation,
information provision and R&D. Can government wear different
hats and play different roles – one being concerned with M4P
facilitation (outside the market) and another with delivering
functions within the market? In principle this separation of roles
(Box 856) – undertaken by different parts of government – can
certainly happen but in practice there may be difficulties. This is
especially the case when it comes to roles such as coordination
where there is debate over whether a government presence
is required permanently. And government may find the idea of
withdrawal from a role unpalatable or impractical to execute.
k How long ‘temporary’ should be varies from one context to another; M4P interventions may often have relatively light financial resource requirements but require time to address underlying constraints. r
32
3. WHAT IS M4P?
3.8 An overarching approach This utility in relation to other tools is strengthened by three
other complementary characteristics of M4P:
M4P is an overarching approach that guides the assessment l
Multi-disciplinary – applicable to a variety of economic and social
of market systems, planning for the future and acting to bring fields. It can therefore provide the basis for more coherence in
about change. It is not therefore in competition with more the work of multi-disciplinary agencies and governments.
specific methodologies or tools. It is built on a framework for l
Not descriptive – it sets out a framework for understanding
analysis and action within which they can be used and amended and developing the roles of different players in relation to
so that their strengths are best utilised, limitations addressed market functions but is not prescriptive in dictating who does
and effectiveness enhanced (Table 3). (or does not) undertake particular tasks.
l
Transparent – while it does not assign players to functions,
Similarly, M4P can provide a means through which agencies M4P does provide a transparent basis for assessing the role of
and governments can encourage business activity that is both different players and requires that these roles are justified
profitable for individual firms and more inclusive towards the in the context of functioning market systems. M4P, in short,
poor.57 M4P, in other words, can help to differentiate between provides an open basis for decision-making on interventions.
interventions which are simply providing subsidies to private
firms (largely for private gains) and those which use firm-level
support to stimulate systemic (public) change (Box 9).
Table 3
M4P in relation to common development tools
Tool Characteristics M4P can:
Livelihoods analysis Useful in understanding the poor, Place the poor within market systems,
but less so in relation to the dynamic identify the systemic constraints
market systems around them, and on affecting their participation, and focus
guidance for intervention. interventions accordingly.
Value chain analysis Useful in mapping out the flow of Strengthen systemic analysis of value
added value, but can understate the chains (including services, fee-based
importance of services required for and embedded) and provides stronger
sustained competitiveness. guidance for intervention.
Drivers of change Can provide an excellent under- Place the political economy as
standing of the political economy but one factor within a wider systemic
less instructive in guiding what to do framework of analysis and action.
to influence it.
Investment climate reform Useful in analysing the technical Place regulations as one factor in
challenge of regulatory reform but less the wider system of incentives,
so in assessing the informal incentives enforcement, services and
and ‘political markets’ impinging on information.
change.
Local economic development Geographic focus for analysis with Bring clearer focus on market
emphasis on stakeholder tools and analysis within geographic areas and
participatory processes but no clear interventions emerging from this.
focus on market systems.
33
3. WHAT IS M4P?
Box 9
The potential and limitations of BOP
Bottom of the Pyramid (BOP) has attracted much attention

in recent years. Coined by CK Prahalad, it describes a business
objective of targeting the vast numbers of poor (primarily as
consumers) and of offering better products and services to them
(such as consumer goods) as a profitable business. However,
while new strategies and investment towards the poor is a
positive trend, the implications for agencies and governments
are less clear.
Although BOP recognises the importance of an environment

that is conducive to innovation for low-income consumers, it
does not provide a framework to develop such an environment.
This is not its purpose – but this is the central development task,
and is the focus of M4P. Potentially, M4P can complement the
objective and ambition of BOP by addressing the barriers in
the market system around firms that limit their pursuit of low-
income consumers.
34
4. HOW TO IMPLEMENT M4P?
Summary The M4P approach comprises three elements:
l
A strategic rationale for achieving poverty reduction
objectives through market systems development.
l
A framework for understanding market systems and
defining a realistic picture of sustainability.
l
Guidance for intervention action.
M4P’s strategic rationale establishes a hierarchy of objectives

based on recognition that the poor exist within wider
market systems. Therefore the objective of interventions is
to stimulate those market systems to work more effectively
and sustainably for disadvantaged groups – and consequently
reduce poverty.
In M4P understanding market systems is the basis for all

interventions – in particular why markets don’t work for the
poor currently and identifying how they might work more
effectively in the future. A realistic analysis of sustainability
is crucial, providing the basis for agencies and governments
to stimulate and align the incentives and capacity of market
players so that they play more effective roles in market
systems.
M4P emphasises explicitly that the role of intervention is

temporary and catalytic. Agencies should avoid performing
market roles directly and try to facilitate market players to
perform more effectively. Interventions therefore need to be
sensitive to local market conditions and seek to stimulate
deeper and larger change by ‘crowding-in’ other players to
improve the functioning of the market system. Successful
facilitation, although not a fixed model, requires organisations
that have credibility, independence and relevant knowledge
and skill.
The three elements of M4P are overarching, helping agencies

position different development methodologies and tools,
and deploy them more effectively to understand the poor in
market systems and determine valid roles for interventions.
35
4.1 Introduction interventions, however, are not conceived and executed in an

ad hoc manner, they are guided by overarching strategy and
The M4P approach in practice can be broken down into a underpinned by appropriate analysis.
number of main components. This section introduces this
essential M4P intervention process – and provides the basis In considering the essence of ‘how to implement M4P’, this
for planning, implementing and measuring interventions in a (potential) tension needs to be borne in mind – on the one
coherent and effective manner. Drawing on examples from hand a coherent, logical sequential approach and, on the
the three projects referred to earlier – FinMark Trust in South other, the need for flexibility and creativity. While the following
Africa; Katalyst in Bangladesh; and FIT-SEMA in Uganda – it also explanation, therefore, may give the impression of M4P as an
sets the context for the M4P Operational Guide which contains orderly linear progression, in practice, there is a requirement for
more details of how to operationalise M4P. continual learning and adaptation in interventions.
M4P is an approach that helps agencies and governments to M4P provides agencies with:
shape their poverty reduction interventions. It has been strongly l
A strategic rationale: a clear hierarchy of objectives focused
influenced by their practical experiences: on making market systems more inclusive and effective for the
l
Learning from shortcomings – many interventions have failed poor, which reflects M4P’s vision of large scale and sustainable
to produce sustainable outcomes which incorporate the poor impact on poverty reduction.
within the economic mainstream because, in their quest for l
Frameworks for:
immediate impact, they have: (a) failed to understand adequately
- Developing a detailed understanding of market systems

market systems and where the poor fit in to them; and (b) to shape intervention design and action, which reflects the
been overly-direct or invasive in their actions. Consequently, complexity of markets in the real world.
in some cases, interventions have distorted market systems,
- Developing a transparent and realistic picture of sustainability,

perpetuating exclusion and dependency. which recognises that ownership within market systems is
l
Informed by success – more facilitative intervention approaches vital to achieving enduring change.
– with clear objectives for sustainability, sound understanding l
Guidance for intervention action: operational principles
of market systems and an orientation to work with market for facilitating systemic change, which permit flexible, multi-
players – have demonstrated promising levels of impact, scale faceted interventions aimed at stimulating market players and
and sustainability. functions.
Experience shows that intervention in complex systems cannot The different components of the M4P approach relate to a typical
be formulaic or use a step-by-step handbook. M4P’s emphasis on project cycle (Figure 5) so this section is structured to reflect
indigenous ownership – ie by players within the market system the chronology of such a cycle and within each stage of this it
rather than external facilitators – requires responsiveness to highlights key questions. Finally, it considers some key attributes
local context, demanding flexibility and enterprise. Successful of organisations who can implement M4P successfully.
Figure 5
M4P process within a typical project cycle
setting the strategic
Assessing framework
change
Vision
Monitoring & rationale
& evaluation
understanding
Identification market systems
& research
Information
& feedback
Planning &
facilitating systemic Implementation design
change & adaptation defining
sustainable outcomes
37
4.2 Setting the strategic framework Defining poverty reduction objectives

M4P is about making markets work for the poor. So, defining
M4P requires that agencies set a clear strategic framework specific poverty reduction objectives is the first key step for any
– a hierarchy of objectives (contained in, for example, a logical intervention – the basic rationale for all development agencies.
framework) – which explicitly links objectives for large scale M4P interprets poverty according to context and project type.
poverty reduction with a focus on sustainable market system Generally M4P interventions will have an ultimate objective
change. aimed at improving the socio-economic welfare of disadvantaged
people, regions or countries. For example, reducing absolute or
This framework (Figure 6) provides intervening agencies with relative levels of deprivation, either income/asset-based or non-
a coherent overarching direction and establishes the basis for income-based. This entails asking some basic initial questions:
monitoring and evaluation (M&E) of the effects of their actions.l l
Which group of poor people is being targeted?
The constituent links in this hierarchy are explained below. l
What is the profile of that target group, particularly the nature
of their economic activity?
l
How is their poverty influenced by exclusion, inequality or
Figure 6 deprivation in market systems?
Strategic framework for M4P
Defining access and growth objectives
M4P’s ambitions for large-scale impact through increased
access and growth means that, from the outset, agencies must
Poverty reduction identify market systems which have the potential to work well
for significant groups of poor people. There must also be a
reasonable prospect of bringing about durable pro-poor change.
Agencies must take care not simply to rush to where the poor
are without first understanding where there is realistic potential
for change (Figure 7).
Improved
access and growth Key questions include:
l
Are there reasonable prospects of affecting significant numbers
of poor people?
l
Which market systems are important to the target group and
what is the nature of their engagement in those systems?
l
In what ways might improving the market system(s) enhance
Market system change access and growth?
l
Is intervention likely to be feasible given the resources
available?
To achieve its ultimate objective, M4P aims to enhance

the poor’s access to opportunities and their capacity to
Systemic respond to opportunities within the economic mainstream,
intervention
either as producers/entrepreneurs, workers or consumers.
This means58:
l
Stepping up – improvements in existing market systems:
increased productivity or value-added; more (or better)
employment; more appropriate goods and services.
l
Stepping out – new market systems: access to new markets;
new employment; new goods and services.
l
Hanging in – for extremely disadvantaged groups: reducing or
mitigating vulnerability or instability.
l Many of the issues to be faced in ‘setting the strategic framework’ overlap with ‘assessing change’. For this reason, there is no separate section here on assessing change – but there is in the M4P Operational Guide.
r
38
Defining systemic change objectives Figure 7

M4P seeks to stimulate sustainable change in markets systems Defining market system focus
that are important for the poor. Agencies and governments
therefore need to identify specific dimensions of those systems
that they wish to change – what is ‘wrong’ and needs to be
addressed if market systems are to shift from their existing Pro-poor access or
Poverty reduction
path (Box 10). The key question therefore is: what are the key growth potential
potential
dimensions of specific market systems which interventions will Stepping up?
seek to change? Significant numbers
Stepping out?
of poor people?
Hanging in?
Market system change might include:
l
Improved delivery (such as increase in access or participation
rates, improved quality or levels of satisfaction).
l
Changes in practices, roles and performance of important
system players and functions. M4P intervention potential
l
Changed attitudes of, and evident ownership by, market Feasibility of stimulating
players. systemic change?
l
Demonstrated dynamism of market players and functions (for
example, responsiveness to changed conditions in the system).
l
Independent and continuing activity in the system (ie the
extent to which changes are maintained after direct intervention
support has ceased).
Defining intervention strategy and assessment framework
The systemic change objectives that facilitators pursue may vary The process-oriented nature of M4P requires responsive
greatly, depending on their perspective and capacity. For example, and multi-faceted interventions. The main strategic focus and
one approach to connecting an under-served population might direction of interventions should be clear in order to guide
be to enlarge and deepen the existing mainstream system to decision-making and M&E in a dynamic context. The minutiae
expand the ‘access frontier’. Another might be to establish of activities, however, cannot be ‘locked down’ in advance.
separate ‘providers for the poor’ and then connect them to the Intervention strategy should be based on a clear vision of
mainstream – an approach which may allow an immediate direct change and pathway towards exit, but should permit operational
focus, but runs the risk of isolating populations from mainstream flexibility to be responsive to market players. Typically, this
providers. means establishing the main focal areas of intervention, within
which multi-faceted intervention activities that are responsive to
prevailing conditions can be pursued.
Box 10
A focus on media system change in Uganda From the outset, intervention has to establish a framework for
assessing market system change. Effective M&E is necessary
Many agencies pay mass media channels to provide information not just to demonstrate results but to provide feedback on
to the poor. FIT-SEMA recognised that the media is more than performance. Arguably, the systemic nature of M4P, and the fact
a one-way distribution channel. Effective media can provide that the time from interventions to final impact can be relatively
voice to the poor and act as a restraint on the powerful. FIT- long compared with the illusory ‘wham’ of direct delivery, renders
SEMA therefore sought to understand how the media could M&E especially important for M4P. Key questions include:
better serve the poor and directed its interventions towards l
What is the impact logic (or causal model) of the intervention?
improving the FM radio system, focusing on radio stations and l
What are the key indicators at each level?
wider supporting functions, such as investigative journalism l
Is the choice of indicators providing the right targets/incentives
practices, production services and audience research. for interventions?
l
Is there an adequate approach to attribution and to assessing
wider change beyond immediate partners?
39
The purpose of the strategic framework is, by definition, to The livelihoods of poor people are affected by the market
provide overall strategic direction – not to tie facilitators down systems in which they operate – which, in turn, are affected by
to specific operational detail. How much detail is often a point of other market systems and the broader socio-economic context.
tension between funders (who like more) and facilitators (less). So the key challenge is to be sufficiently focused on developing
In practice, managing this tension and balancing accountability a sound understanding of the operations of specific market
and flexibility requires setting out basic programme design systems while maintaining an informed awareness of wider
parameters (such as the main impact logic) and clarifying context, such as patterns of trade, international standards and
responsibilities between funders and facilitators. macroeconomic performance.
4.3 Understanding market systems This requires a diagnostic process – provision for which must
be reflected in planning and budgeting – which assists in moving
The complexity of market systems requires that intervention from a broad awareness to a sharper understanding of the
is guided by a good understanding of specific market systems, specific market system constraints to be addressed – from
including a diagnosis of the symptoms and causes of under- symptoms to causes (see Figure 8).
performance. M4P interventions require a strong emphasis on
information gathering and interpretation, not out of academic
interest, but to shape design, ascertain prospects for sustainability Box 11
and guide actions throughout the course of intervention. An Analysing financial exclusion in South Africa
agency’s understanding of market systems can never be perfect
– the ‘paralysis by analysis’ syndrome must be avoided – but it In a context of heated public debate about the poor’s exclusion
has to be sufficiently strong to provide the basis for informed from formal financial services, FinMark analysed the reasons for
action (Box 11). exclusion in considerable depth. As a result, FinMark focused on
two key constraints, stakeholder coordination and specialised
Information gathering is not a large-scale, formal activity only information services for commercial banks, while in contrast,
conducted at the design stage. Interventions in dynamic socio- many other development initiatives were focusing on poverty
economic contexts will always be iterative in nature, requiring banking models.
constant feedback and adaptation. Nor is information gathering
to be regarded purely as a resource for planning, design and
measurement. An intervention’s new insights developed through Figure 8 also illustrates that M4P interventions may need a
analysis can enrich weak information environments and serve as diversity of tools for analysis and understanding that cover the
a powerful tool for changing the perceptions or behaviour of different dimensions of market systems and the broader socio-
market players – often more effectively than financial support. economic context of intervention. There is no single analytical
tool that does it all, but a range of tools are available. M4P
Information gathering for M4P interventions should draw from does not generally seek to introduce new or displace existing
a variety of sources ranging from pilot activities to stakeholder tools. The purpose of M4P frameworks is to help practitioners
feedback. However, whatever the source however, M4P places make sense of the different types of information they might
a premium on gathering intelligence and deploying it effectively. require, determine which of the myriad information tools they
Key questions are: might use, and interpret the information generated for effective
l
What are the underlying causes of a market system’s under intervention design and action.
performance?
l
What are the main reasons why the poor’s participation is The key point to recognise is that M4P interventions use analysis
currently weak? to guide action, but do so within the confines of available resources
l
What are the primary challenges to increase their level of (different tools have different resource implications) according
participation? to the requirements of context. For example, M4P uses market
system analysis to identify market players and their interests to
determine their appropriateness for engagement. This contrasts
with many conventional development approaches which seek to
engage with as broad a range of stakeholders as possible in the
interests of ensuring participation and building consensus. M4P
uses information to act in a more focused manner, and to ensure
meaningful participation and ownership from market players.
40
Figure 8
The M4P diagnostic process and a selection of tools of analysis utilised
Symptoms The poor and their context l Socio-economic studies

l Census data
l Poverty assessments
l Livehoods analysis
l Regional economic and
industry studies
l Competitiveness analysis
l Investment climate survey
Specific market system(s) l Drivers of change
l Access frontier
l Value chain analysis
l Consumer research
l Productivity studies
l Regulatory review
Systemic l Organisational
Causes constraints appraisal tools
l Stakeholder analysis
l Participatory and
consultative tools
Focus of
intervention(s)
M4P also recognises that paucity of information in weak market 4.4 Defining sustainable outcomes
situations is often an indication that information gathering and
analytical capacity within market systems is limited. Therefore, Sustainability is central to the M4P approach. Interventions are
where feasible, M4P interventions seek to develop and transfer guided by an understanding of market systems and, in particular,
analytical capacity to market players – for example by working of the constraints that inhibit market development. However, in
hand-in-hand to conduct analysis – so that the information parallel with this analysis, it is important to develop a clear view
function (gathering, interpretation and distribution) can continue of where an intervention is going – of how it is envisaged that the
in the future. market system will operate in a sustainably in the longer-term.
While sustainability holds a prominent place in development
vocabulary and is generally seen to be important, it is seldom
defined tightly or operationalised into tangible objectives
and activities. M4P considers sustainability throughout the
implementation process – when setting objectives, conducting
market analysis, designing interventions and taking action.
M4P regards sustainability (see Section 3) as the market

system capability to ensure that relevant, differentiated goods
and services continue to be offered to and consumed by the
poor beyond the period of an intervention. In practical terms
therefore a transparent view of sustainability is one that defines
market capability in depth, linking market players with market
functions by addressing two key questions: who does (and in the
future who will do) and who pays (and who will pay)?
41
Using these two key questions, M4P develops the market What is the nature of the specific market system(s) in question?
system construct into a simple framework which facilitators can Markets are inherently different. For example, they differ with
use to examine the specific combinations of market functions respect to the degree and nature of information asymmetry
and players which are necessary for a market to work better in (such as in commodity markets where poor producers typically
the future (Figure 9). know less than large players), and of externalities (basic services
potentially have major implications for society as a whole) which
In considering their future vision and in order that this does are central in determining the nature of public role required.
not simply become a mechanistic exercise in box-filling,
interventions should consider five determining factors. Three of The key point is that market systems differ greatly, and these
these are ‘given’ and are not changeable through interventions differences have implications for the combination of functions
– the nature of specific market systems; history; and the and players that make up the market system. The challenge for
innovation landscape – and two are ‘open’ to influence through interventions in any context is how to interpret the varying
interventions – capacity and incentives. degrees of public and private interest in relation to specific roles.
Figure 9
Framework for defining future sustainability
current situation future vision
Players Players
Functions Functions
Who does? Who pays? Who does? Who pays?
core core
Facilitating intervention
rules Determined by 5 factors: rules

Nature of market system
History
Incentives
supporting functions Capacity supporting functions
Innovation landscape
42
What is the historical context of the market? What is the prevailing capacity of market players?
Different histories and traditions lead to wide variations in The message here is a simple one; role has to fit with capacity. Yet,
institutions and capacity between countries. An acknowledged in practice, capacity is often ignored. In weak market situations,
failure in development has been the practice of exporting the capacity of market players – both public and private – is
apparently successful structures or practices from one country correspondingly fragile. For example, governments who have
– with limited understanding of the reasons for their success provided services in the past but do so ineffectively are also
– to another country whose institutional realities are markedly likely to be weak in other functions – such as regulation or
different. Interventions should take into account historical information. So any revision of roles has to address new capacity
factors that have shaped the current arrangements of a market issues. Interventions need to be guided by a realistic assessment
system when considering how that market might work better of the distinctive core competence of market players – of what
in the future. they can do.
What relevant innovations might inform realignment of functions The key point is that M4P is particularly concerned with the
and players? economic and institutional sustainability of different functions in
Development interventions are about stimulating change. It market systems. It places great emphasis on thinking through the
is therefore important to be aware of the wider ‘innovation respective roles of private, government and civil society actors.
landscape’, such as innovation in the collaboration between Through its focus on understanding institutional realities and the
public and private players which can often be the key to capacity and incentives of different players M4P actively seeks to
improving a market system’s performance. For example, recent stimulate realistic and sustainable market development.
improvements to vocational training in Peru – manifested in
training outcomes and job placements – can be attributed
to a shift in government role from direct provision to private Box 12
sector training delivery, enabled by a framework of oversight Assessing sustainability in the vegetable sector, Bangladesh
set by a partnership of government, employers’ and employees’
organisations, together with targeted subsidies for disadvantaged Katalyst’s analysis of information constraints showed a range
groups.59 of potential information sources for farmers – including
government, input suppliers, retailers and NGOs. Examination
What are the underlying incentives for change? of the historical performance, capacity and incentives of these
In recognising institutional differences between countries, sources led to the conclusion that only large suppliers had the
there is however a risk that interventions become a prisoner potential to sustainably adopt and adhere to new practices.
of moribund institutional structures which – even if they are
traditional – are not delivering.m Interventions must strike The challenge then was how to bring about this change – this
a balance between change that is ambitious and change that vision of the future – focused on supply companies and their
has a realistic chance of success. The actual process of change retail counterparts.
is therefore as important as the vision of the future. For this
reason, stakeholder incentives are central to any consideration
of the roles of different players. For instance, the main advocates
for government subsidies – such as fuel subsidies in India which
account for 2% of government expenditure – are generally not
the poor but higher income groups who have captured the
benefits and are a formidable obstacle to change. In building a
valid and realistic vision of the future, understanding incentives
so that interventions can be aligned to them is central in shaping
a valid and realistic vision of the future (Box 12).
m Referred to as ‘path dependence’ in economics literature. r
43
4.5 Facilitating systemic change

Box 13
The M4P approach seeks to change markets systems through What do facilitators do?
interventions that are facilitative or catalytic in nature, ie they
bring about change which alters the way in which a market While the facilitator’s role might be clear in theory, there remains
system operates into the longer term, without the agent of an air of mystery over what facilitation means in practice. Funding
change remaining within the market system. agencies, sensing the potential of the approach but frustrated
by a perceived lack of specifics, ask “But what is it that you do...
If this then is the principle, what does facilitation mean in exactly? ” To which facilitators commonly respond, with equal
practice and what might facilitators actually do? As the examples frustration, “well, it depends…”
from Bangladesh (vegetables), Uganda (radio) and South Africa
(financial services) illustrate, interventions can include a range So what do facilitators do? The following gives a flavour of
of activities: the activities undertaken for one intervention* – Katalyst’s
l
Technical assistance to supply-side players (radio and introduction of training as an embedded service from
vegetables) – and then to the providers of specialist advice. agricultural input suppliers to retailers in order to improve the
l
Introducing a new business idea (such as retailer training in information flow to vegetable farmers (see Box 5, in Section 1).
vegetables) and providing technical support to develop this, Once initial market analysis had been undertaken, tasks were
and limited financial support to defray initial risk. divided (slightly arbitrarily) into those done during the initial
l
Establishing a forum for new ideas and exchange (financial phase and those undertaken periodically throughout the two-
services). year intervention period.
l
Providing technical assistance and some financial support to
regulators and researchers to improve the process of policy Initially
analysis (financial services). l
Identify and approach potential partners over possible
l
Offering information to other players in the market on new collaboration.
opportunities (radio) l
Develop ideas, negotiate and finalise agreement with one lead
l
Developing a new commercial service – when it was clear firm.
that no one else in the market could or would do it (financial l
With lead firm:
services). - Develop methodology, content and structure of
programme.
This breadth of activity does not, however, mean that facilitation - Familiarise lead firm trainers with approach.
is an undisciplined rag-tag of ‘things to do’ (a common - Agree on logistics, venue and costs.
misapprehension – see Box 13). Interventions inevitably will - Observe and review initial programmes.
comprise myriad actions and need to be sufficiently flexible to - Refine programme after feedback.
respond to conditions on the ground. A step-by-step guide is
therefore not realistic. But they are guided first by the strategic Periodic
imperative of ‘crowding-in’ other players and activity and, second, l
Review progress against targets and monitor participant
by some key operating principles. feedback.
l
Monitor participants’ use of training and perceptions of value.
Developing an approach to crowding-in is central to facilitating l
Manage cost-sharing financial support to lead firm for
system change. Crowding-in refers to how an intervention (or delivery of programmes.
series of interventions) can help to catalyse or bring other players l
Monitor wider developments in sector, including competitors’
and functions into the market system so that it works better for response.
the poor. Figure 10 sets out three steps to operationalise this l
Establish baseline for impact study and undertake impact
‘pathway to crowding-in’. assessment.
l
Commission and manage external case study, including
dissemination.
l
Start discussions with lead firm and other players on next
steps to promote crowding in.
* Several interventions usually take place concurrently.
44
Figure 10
The pathway to crowding-in
Market not working Market working better

for the poor for the poor
Period of temporary intervention
Step 1: Initial interventions Step 2:

Overall market
vision
Step 3: Interventions to crowd-in
Step 1
Having something to build on – initial interventions are often Crowding-in demonstrates what is distinctive about facilitators
small-scale pilot projects or research-oriented activities. The especially in relation to commercial players in a market. With
purpose of these is to test ideas (typically a new service or their own private organisational perspective, commercial players
product) with a committed partner as the basis (if successful) seek to develop the market for themselves and essentially
for stimulating further activity – which might require further want to keep out others who don’t contribute to their goals.
(different) interventions. In contrast a facilitator, with a public, institutional perspective,
wishes to bring in other activity that contributes to the overall
Step 2 efficiency of the market system so that it is both more inclusive
Having a vision of the future – a future picture of how the and competitive.
market should operate in the future is driven by the ambition of
a facilitator with respect to different features of market change
such as breadth (more transactions in the core of the market)
and depth (supporting functions and rules).
Step 3
Developing other interventions to stimulate change – while in
some cases, crowding-in may simply happen, in many instances it
will require further action. Part of crowding-in may be concerned
with commercial rivals ‘copying’ the actions of an innovative
market leader. But crowding-in is not only replication (‘more
of the same now’): it is about stimulating other supporting
functions so that the depth of the market system is improved
(not just ‘more now’ but ‘better in the future’).
45
Given a strategic commitment to crowding-in, there are a 4.6 Key attributes of facilitators
number of guidance principles (rather than fixed rules) to be
taken into consideration (Box 14). The main stages in successful implementation of M4P defined
above – the strategic framework, understanding market systems,
l
Ownership – seeking to ensure that ownership – psychological, defining sustainable outcomes and facilitating change – all
legal and economic – lies with market players so that they emerge from the experience of M4P projects. But one other
have the wherewithal to continue after a period of intervention ‘active’ factor is of central importance, namely the characteristics
has ended. of the facilitating organisation itself.
l
Relationships – developing transactional relationships between
facilitators and market players based around quid pro quo There are no fixed rules about the specific organisational form
exchange (rather than unconditional giving – a classic welfare of a facilitator – project, trust etc – but, whatever the structure,
relationship). Relationships might contain a financial exchange facilitators need to show a number of characteristics, all of which
(most don’t) or might be contractual in nature (or on a less are apparent in Katalyst, FinMark and FIT-SEMA.
formal basis) but, however they are defined, to be successful
they must encourage commitment and ownership. Closeness
l
Appropriate resource levels – externally-funded interventions Arelationship with market players which shows understanding
(especially from foreign donors) can easily displace market and informed empathy but without being captured by them.
mechanisms, replacing them with activities in a way which The task of facilitation can be seen as acting as a bridge between
can’t continue without further infusions of funds. Interventions the public objectives of funders (agencies and government) and
therefore have to be sufficiently resourced to make a difference the narrow, private aims of individual market players.
– but not to the extent that they cause negative distortion.
Knowledge and insight
So, in considering facilitation a number of key questions are Knowing enough to be able to analyse a market system and
posed: assess opportunities to intervene and add value.
l
Do intervention activities relate to a potential market function
in the future or are they ‘one-off ’ activities? Entrepreneurial instincts
l
Are relationships with the ‘right’ players – in terms of what Married to knowledge, the capacity to see where opportunities
they do, their motivations and their capacities? may lie and be able to shape and convey an ‘offer’ to different
l
Is the nature of the relationship one that encourages ownership players in the market that responds to their situation and
and commitment? addresses systemic constraints.
l
Is the type of support offered by the facilitator – in amount
and kind (technical support, finance etc) – appropriate? Independence
l
Underpinning all these questions, is intervention encouraging A status that allows facilitators to be and – equally as important
crowding-in; ie ‘opening the door’ for market players to – to be seen to be independent in the eyes of market players so
perform market functions more effectively? that their role and their status is understood and accepted.
These qualities allow facilitators to develop credibility and

respect, and a growing capability to intervene effectively. Indeed,
the evidence from successful experiences shows that credibility
is not acquired instantly – these qualities develop and accumulate
over time and with experience.
46
Box 14
Facilitating systemic change in Uganda
FIT-SEMA’s initial intervention to improve the way the media content. FIT- SEMA saw these functions as integral to the media
served the poor started with one leading radio station, testing system and recognised the distortionary dangers from direct
new, more responsive programming formats and practices. involvement.
Once this trial had proved successful, FIT-SEMA sought In behaving in this way – and in developing transactional
out other players to work with, seeing crowding-in as vital relationships with partners – FIT-SEMA was able to differentiate
for diversity, competition and broader change. Throughout itself from the approaches of other donor-supported projects
its interventions they took pains not to become involved (buying air time and dictating content) common in the industry.
directly in financing broadcasters or in developing programme
47
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A synthesis of

The Making Markets

Peter Tschumi Harry Hagan

Public goods: goods or services which are non-rival and

Representative organisation: an organisation which acts to

Rules: formal (laws, regulations and standards) and informal

Supporting functions: a range of functions supporting the core

Sustainability (M4P definition): the market capability to ensure

Strategic framework: a hierarchy of objectives linking an M4P

Systemic change: change in the underlying causes of market

Tools/instruments: relatively standardised methodologies for

Transaction costs: the costs associated with the basic process

The context education and health, supposedly provided by the government

M4P is neither a narrow prescription nor a branded tool

M4P is now being successfully used to reach and change the

The paper and how to read it

It is structured in four sections. It can be read as one document

Section Go here for:

1. Market systems matter for the poor

4. How to implement M4P?

1. MARKET SYSTEMS MATTER FOR THE POOR

Economic growth (the most important contributor to

Markets and basic services are traditionally regarded as very

Both are multi-functional; they require a mixture of different

The term market system describes these shared features

Changing the lives of the poor – stimulating growth and

1. MARKET SYSTEMS MATTER FOR THE POOR

1. MARKET SYSTEMS MATTER FOR THE POOR

1. MARKET SYSTEMS MATTER FOR THE POOR

These examples show how markets can work efficiently for

There are other examples which actively combine public and

Innovations in water and sanitation services also revolve around

c Often referred to in economics literature as ‘merit goods’. r

1. MARKET SYSTEMS MATTER FOR THE POOR

challenges for public policy such as more appropriate regulatory

These examples, covering a diverse range of basic services,

1. MARKET SYSTEMS MATTER FOR THE POOR

A basic service such as water might involve a variety of different

1. MARKET SYSTEMS MATTER FOR THE POOR

1.3 Emerging conceptual thinking on market systems

e M4P Perspectives has a more detailed analysis of conceptual issues in M4P. r

1. MARKET SYSTEMS MATTER FOR THE POOR

Transaction costs are a key indicator of the efficiency of a market l

Transaction costs and institutional development apply not just Box 4

Summary The specific arguments driving agencies and governments to

First, across a range of different development experiences and

Learning from these experiences indicates that agencies and

Second, from different sources, there is growing evidence

Change is manifested in high levels of outreach and impact

2.1 Introduction 2.2 The wider development experience

FinMark Trust, South Africa FIT-SEMA, Uganda Katalyst*, Bangladesh

i Without any mention of M4P per se. r

Is the replacement of informal mechanisms of exchange with commercial

Do the poor ‘win’ from market change?

What should the role of government be?

Is M4P consistent with rights-based obligations?

Where does market development meet social protection?

Summary M4P is an approach to developing market systems so that

M4P is an approach to development that provides guidance