Making Markets work for the Poor (M4P)

DFID’s experience

Structure of this presentation

1. What M4P is and why it matters

2. DFID involvement

3. M4P in practice

4. M4P issues

5. Proposed next steps

1. What M4P is...• M4P: temporary and catalytic interventions to overcome

the main failures and constraints in markets that are important to the poor

• influencing the development of market systems so that they offer increased opportunity and benefits for poor people

• M4P features: Systemic and institutional change; the use of market-based incentives to leverage the “enterprise” contribution to development and ensure sustained impact

• Successful M4P interventions lead to sustained pro-poor growth, and better opportunities, incomes and choices for poor men and women

M4P– key featuresAimed atAimed at

Systemic change

• The systems around the poor

• Large-scale • Causes not symptoms

Implementation through Implementation through

Facilitation• Crowding-in other market

players and activity• Key principles and frameworks

Overarching approach Applicable to wide range of situations and using many tools

‘Close’ knowledge of:•functions and players•constraints and opportunities

Based on an understanding ofBased on an understanding of

Market systems

A strong emphasis on A strong emphasis on

Sustainability

• View of the future shapes interventions now

• Who does’/‘who pays’ framework

…and why M4P matters• Well functioning markets that support competition and

lower the costs of doing business provide incentives for trade and investment leading to growth and poverty reduction

• Markets a key linkage or “transmission mechanism” between the lives of the poor and the wider growth and economic integration process.

• New data (“the next four billion”) describes a substantial, poorly served, informal, and hence inefficient and uncompetitive market at the base of the pyramid.

• Markets often don’t work well for the poor, excluding them from the benefits of growth. Informality is a “poverty trap”.

• M4P a means to ensure growth is pro-poor growth.

2. DFID involvement

• 2000 framework paper

• 2006 lesson learning

• 2008 M4P at core of DFID private sector strategy

• 2008/09 M4P knowledge management initiative

• South Africa – FinMark, ComMark, LandMark

• Kenya, Nigeria, Uganda

• Bangladesh – Katalyst

• Vietnam

• Nicaragua, Bolivia

Rationale

1. Inclusive growth is the best way to get people out of poverty and is the exit strategy for aid. Growth driven by private sector investment and productivity. Well functioning markets that support competition and lower the costs of doing business provide incentives for trade and investment

2. The poor are dependent on poorly functioning inefficient markets for the livelihoods.

• M4P a practical way to contribute to shared growth?

Poverty reduction

Improved access or growth

Market system change

Systemic intervention

Understanding BOP markets“the next four billion”

• Significant Unmet Needs

– (telecoms, finance, housing, health, transport)

• Dependence on Informal or subsistence livelihoods – a poverty trap

• the BOP penalty – the poor pay more

M4P and Growth Diagnostics

Political Stability

Infrastructure

Market failures e.g. finance, information

Macroeconomic Stability

Microeconomic risks – tax, corruption, crime, property rights

Market coordination failures e.g. agriculture and processing

Trade regime

Sustaining Growth

M4P interventions in relation to market failures (macro)

Issue/Market Failure InterventionPublic Goods (market undersupply)

Govt Investment or PPP

•Monopoly

•Abuse of Market Power

Competition Authority interventions – unbundling etc

•Externalities – “spillovers” not priced in market e.g. pollution, global warming, skills development, merit goods

Fiscal interventions

Emissions markets

Collective action by firms

PPP

M4P interventions in relation to market failures (meso/micro)

Issue/Market Failure InterventionUnequal Access to Information •Public interventions

•Market Development / private participation (e.g. ICT, credit bureaux etc)

•Collective action and network development

•Excessive Costs and Risks of Transactions

•Coordination failures – no access to supply chains /hierarchies

•Indivisibility (minimum transactions sizes)

•Risk reduction

•Guarantees

•Value chain interventions

•Institutional innovation e.g. Contracting, Collective Action

•Market facilitation and Development

3. M4P in practice

1. Setting Strategic Objectives – inclusive growth, poverty reduction

2. Understanding market systems and how they affect the poor

3. Identifying constraints and systemic change objectives

4. Temporary and catalytic market development interventions – portfolio approach?

5. Monitoring, learning, feedback

“influencing the development of market systems so that they offer increased opportunity and benefits for poor people”

Which poor? Which markets?

M4P intervention potential

Feasibility of stimulating systemic change?

Poverty reduction potential

Significant numbers of poor people?

Pro-poor access or growth potential

Stepping up?Stepping out?Hanging in?

Producers, consumers, employees

Diagnostic process

The poor and their context

Specific market system(s)

Systemic constraints

Focus of intervention(s)

Symptoms

Causes

Incentives

Capacity

Relationships

Using different tools

Socio-economic studies, census data, poverty assessments, livelihoods analysis, investment climate

surveys, competitiveness

analysis, drivers of change

Symptoms

Causes

Specific market system

The poor and their context

Systemic constraints

Intervention focus

Access frontier, value chain analysis, consumer research, productivity studies, regulatory

reviews, organisational appraisal tools, stakeholder analysis, participatory tools

Focused interaction with informants, interviews, focus

group discussions, brainstorming

M4P: delivering significant, sustainable change

Coordination

Financial services in South Africa

Higher access: 39% (8.8m) in 2002 – 60% (19m) in 2007

Systemic changes• New commercial information source• Improved regulatory processes• Better coordination • Improved innovation processes

Vegetable value chain in Bangladesh

Higher outputs and productivity amongst 1m vegetable farmers

Systemic changes• Better farming practices, resulting from ...• ... Improved information flows through input

retailers• Training supplied by input suppliers• Changing the input supply business model

Dairy sector in Armenia

Doubling output, securing market access, tripling incomes for 2000 farmers

New M4P “models” in Vietnam

Making carbon markets work for the poor; small-scale infra services

Small wool farmers in S Africa

Improved access to services and higher incomes for 5,000 farmers

4. M4P issues• Improving usability: perceived complexity, lack of

instruments, “linked” or inter-locking markets

• People, people, people: market for M4P services?

• Political economy of multi-stakeholder approach

• Measurement of systemic change in markets and development impact

• Time scales and capacity to spend

• Over design – under implement: donor incentives

• Risk: Portfolio approach – accountability and flexibility, based on good M&E

• M4P and the “Grand Challenges”

5. Next Steps?• Better knowledge management and learning from positive

experiences on the ground

• Further refining the M4P approach, making it easier to understand and more compelling

• Sharper definition of “core M4P products”

• Deeper integration of political economy approaches

• Gaining more buy in from Governments, civil society and other donors

• Attracting more direct participation from the private sector

• Building advocacy capacity and alliances with “change agents”

• Better understanding of M4P impact and potential contributions to growth strategies

Thank You!