The Operational Guide

Transcription

1 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach A pubication financed by the UK Department for Internationa Deveopment (DFID) and the Swiss Agency for Deveopment and Cooperation (SDC)

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3 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach TABLE OF CONTENTS foreword GLOSSARY 1. INTRODUCTION What is the M4P Operationa Guide about? Who is the Guide aimed at? The Guide and how to use it Notes of caution about the Guide 2 2. GETTING STARTED Introduction: basic considerations Why are these basic considerations important? Characteristics and requirements of successfu M4P programmes Impications of these basic considerations 4 3. COMPONENTS OF THE M4P INTERVENTION PROCESS Introduction The M4P ens 8 3A Setting the strategic framework 9 3B Understanding market systems 19 3C Defining sustainabe outcomes 31 3D Faciitating systemic change 41 3E Assessing change MANAGING AND GOVERNING M4P PROGRAMMES Introduction Personne and capacity requirements Externa reations Systems and structures GOOD PRACTICE NOTES Vision buiding Impementing demand-side surveys Access frontier Log frame Deveoping the offer Deveoping BMOs Making a dea with ead firms Promoting vaue chain deveopment Understanding incentives Giving grants to business Guiding participation processes Liveihoods anaysis Knowedge management system Intervention impact ogics Interconnected markets Stimuating demand Anatomy of a transaction Rapid market assessment GOOD PRACTICE NOTES 4. MANAGING AND GOVERNING 3. M4P INTERVENTION PROCESS 2. GETTING STARTED 1. INTRODUCTION

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5 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach foreword An estimated 2.6 biion peope ive on ess than $2 a day. Over a biion ack cean water, 1.6 biion ack eectricity and 3 biion ack access to teecommunications. This represents huge unmet needs. As many of the word s poor ive in areas with imited state service provision they must rey on private markets for their iveihoods. As consumers, poor men and women rey on markets to meet their needs for food and essentia services. As empoyees or producers, they se their abour or products in these markets. But these markets are often difficut or costy to access for poor peope. These markets may be informa, uncompetitive and may not meet the needs of the poor effectivey. More widey, the word s poor are not we integrated into the goba economy and do not get access to its benefits. In Deveopment as Freedom, Amartya Sen describes participation in economic interchange as a basic part of socia iving and argues that economic freedoms are cosey tied to poitica and socia freedoms. The poor often ack these freedoms. Making Markets Work for the Poor (M4P) is an approach to poverty reduction that donors such as the Department for Internationa Deveopment (DFID) and the Swiss Agency for Deveopment and Cooperation (SDC) have been supporting over the past few years. The centra idea is that the poor are dependent on market systems for their iveihoods. Therefore changing those market systems to work more effectivey and sustainaby for the poor wi improve their iveihoods and consequenty reduce poverty. More accessibe and competitive markets enabe poor peope to find their own way out of poverty by providing more rea choices and opportunities. Markets that function we have wider economic benefits too. They stimuate investment and encourage firms to innovate, reduce costs and provide better quaity jobs, goods and services to more peope. The invovement of poor peope in economic growth is the best way to get peope out of poverty and represents the exit strategy for aid. The ast few years have seen an upsurge of interest in market deveopment approaches amongst aid agencies. Aongside M4P there is UNDP s Growing Incusive Markets, the IADB s Opportunities for the Majority and the IFC s Next Four Biion. Amongst businesses, there is growing interest in socia investment, sustainabe business practices, fair trade and engaging with the Base of the (Economic) Pyramid. Athough terminoogy and emphasis may differ, a of these approaches see a market-based economic engagement with the poor as essentia for sustainabe deveopment. In order to improve the understanding and uptake of market deveopment approaches and to consoidate existing experience, DFID and SDC have commissioned a series of three documents on M4P. Aimed at agency and government officias, consutants, researchers and practitioners, these together provide a comprehensive overview of the approach in theory and practice. The M4P Synthesis paper expains the essence of the M4P approach its rationae, incuding evidence of impact, and key features in impementation. M4P Perspectives introduces the conceptua underpinnings of M4P and expores its appication in different fieds incuding finance, agricuture, water, abour and cimate change. These first two documents have been sponsored by SDC. This third document, the M4P Operationa Guide (sponsored by DFID), provides a substantia operationa resource on how to impement M4P, incuding an overview of good practices, common management chaenges and the main essons from experience. Deveopment of these documents was ed by a team from The Springfied Centre. They were assisted by advice and comments from Marsha Bear, Gerry Boom, Richard Bouter, Don Brown, Jean-Christophe Favre, Tracy Gerste, Aison Griffith, Justin Highstead, Joanna Ledgerwood, Marc Lundy, Luis Osorio, Aexandra Miehbradt, Mark Napier, Kate Phiip, David Porteous, Peter Roggekamp, Prashant Rana, Hugh Scott, Dominic Smith and Jim Tomecko. A of these documents are aso avaiabe in eectronic form at We hope you find them hepfu in meeting the chaenge of deveoping market systems that benefit poor peope. 4. MANAGING AND GOVERNING 3. M4P INTERVENTION PROCESS 2. GETTING STARTED 1. INTRODUCTION Peter Tschumi Head of Empoyment and Income Division SDC, Berne Harry Hagan Senior Economic Adviser and Head of Growth Team Growth & Investment Group, Poicy & Research Division DFID, London 5. GOOD PRACTICE NOTES

6 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach GLOSSARY Agencies: deveopment organisations funded by aid or other non-commercia sources that act as funders or faciitators with the aim of deveoping market systems. Approach: a set of principes, frameworks and good practice points to guide both anaysis of a market system and actions to bring about change. Asymmetric information: when one party in a market transaction suppier or consumer knows more than the other. BMO: business membership organisation or business association (see Representative organisation). CBO: community-based organisation. Core function: the centra set of exchanges between providers (suppy-side) and consumers (demand-side) of goods and services at the heart of a market system. The medium of exchange can be financia or non-financia (eg through accountabiity mechanisms). Crowding-in: crowding-in is the centra process in and purpose of faciitation through which interventions catayse or bring other payers and functions into the market system so that it works better for the poor. Crowding-in can resut in enhanced breadth (more transactions in the core of a market), depth (supporting functions) or reach (new areas or markets). Domestic: a payer (particuary used to refer to government) or function that is part of a specific market system, in contrast to a faciitator which is externa to the system. Embedded transaction: a good or service which is not paid for directy but is incuded or hidden within an exchange of another good or service which is paid for. Externaities: negative or positive spi-over effects that are not refected in a market price. Faciitation / faciitator: action or agent that is externa to a market system but seeks to bring about change within a market system in order to achieve the pubic benefit objective of systemic change. Funder: an organisation such as a deveopment agency which sets objectives and provides resources for the pursuit of market deveopment, usuay in the form of a programme or project. Impact ogic: a mode showing the chain of causaity through which a programme s activities ead to poverty-reducing benefits. Impact ogics are taiored to specific interventions or markets and consequenty are more detaied than a strategic framework (see Strategic framework). Institutions: structures and mechanisms of socia, poitica and economic order and cooperation forma and informa in a society or economy which shape the incentives and behaviour of market payers. Institutions therefore refer both to the supporting functions and rues sometimes referred to coectivey as rues of the game in a market system. Interconnected markets: a market system which, as we as being a market in its own right, constitutes the supporting functions or rues of another market system. Intervention: a defined package of temporary activities or actions through which faciitators seek to effect change in a market system. Lead firms: businesses capabe of exerting a eading infuence on other firms and other payers, because of, for exampe, their size or their reputation for innovation. LED: oca economic deveopment. M4P: the making markets work for the poor or market deveopment approach. Market: a set of arrangements by which buyers and seers are in contact to exchange goods or services; the interaction of demand and suppy. Market payer: organisations or individuas who are active in a market system not ony as suppiers or consumers but as reguators, deveopers of standards and providers of services, information, etc. This therefore may incude organisations in the private and pubic sectors as we as non-profit organisations, representative organisations, academic bodies and civi society groups. Market system: the muti-payer, muti-function arrangement comprising three main sets of functions (core, rues and supporting) undertaken by different payers (private sector, government, representative organisations, civi society, etc) through which exchange takes pace, deveops, adapts and grows. A construct through which both conventionay defined markets and basic services can be viewed.

7 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach GLOSSARY M&E: monitoring and evauation. MoU: memorandum of understanding. Organisations: entities with a forma structure that pay a range of roes in the market system. Pausibe attribution: an approach to M&E which aims to baance credibiity with practicaity when assessing a programme s contribution to changes in growth, access and poverty reduction. Pubic goods: goods or services which are non-riva and non-excudabe and therefore cannot be offered by private firms. Sometimes referred to as merit goods. Representative organisation: an organisation which acts to advance the interests of a specific group, such as a trade union or a consumer rights body. Aso referred to as a membership organisation (see aso BMO). Right-sizing: ensuring that the scae and intensity of a faciitator s interventions and the outcomes they promote are consistent with the norms and context of a market system. RMA: rapid market assessment. Rues: forma (aws, reguations and standards) and informa (vaues, reationships and socia norms) contros that provide a key input in defining incentives and behaviour in market systems. SLA: sustainabe iveihoods approach. Strategic framework: a hierarchy of objectives inking an M4P programme s fina goa of poverty reduction with an intervention focus on sustainabe market system change. Supporting functions: a range of functions supporting the core exchange heping the market to deveop, earn, adapt and grow incuding, for exampe, product deveopment, skis enhancement, R&D, coordination and advocacy. Sustainabiity (M4P definition): the market capabiity to ensure that reevant, differentiated goods and services continue to be offered to and consumed by the poor beyond the period of an intervention. SWOT: a technique for situationa anaysis that takes into account strengths, weaknesses, opportunities and threats. Systemic change: change in the underying causes of market system performance typicay in the rues and supporting functions that can bring about more effective, sustainabe and incusive functioning of the market system. Toos/instruments: reativey standardised methodoogies for market anaysis (eg vaue chain anaysis or usage, attitude and image surveys) or for intervention (eg vouchers or chaenge funds). Trianguation: ooking at a specific market system from mutipe perspectives and using mutipe sources to deveop a more rounded view, testing preconceptions and assumptions and the natura biases of individua toos and information sources. VCA: vaue chain anaysis. 5. GOOD PRACTICE NOTES 4. MANAGING AND GOVERNING 3. M4P INTERVENTION PROCESS 2. GETTING STARTED 1. INTRODUCTION

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9 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 1. INTRODUCTION 1.1 What is the M4P Operationa Guide about? The Guide is intended to provide an accessibe operationa resource to hep put the M4P approach into practice. The Guide is the third in a trio of documents about the Making Markets Work for the Poor (M4P) Approach. The first the Synthesis introduces the approach. The second the Perspectives expores the appication of M4P in a number of different fieds. The emphasis of the Guide is on how to impement M4P, but it buids on the first and second documents and assumes that the reader has some famiiarity with them. 1.2 Who is the Guide aimed at? The Guide is aimed at organisations sharing the pubic aim of making market systems work more effectivey for poor peope: Practitioners: organisations impementing the M4P approach faciitators and their funders. Organisations that wish to incorporate M4P thinking and practice into their existing work, rather than set up a separate M4P programme. Organisations that pay a more strategic roe within markets, for instance government agencies and industry associations assuming eadership and coordination roes or think-tanks and consutants paying innovation and advisory roes. 1. INTRODUCTION The Guide has four objectives: To identify key start up considerations for organisations wishing to design, commission or impement M4P programmes. To expain the frameworks and principes which guide the process of M4P impementation, setting out common chaenges and how they can be deat with. To identify important management and governance considerations associated with M4P programmes. To provide an overview of good practices that can be used in impementing M4P, incuding essons from their appication and references to more detaied resources. 1.3 The Guide and how to use it The Guide is not intended to be read exhaustivey from cover to cover. Readers can go directy to the section that is most reevant to their needs without having to read every preceding section. The Guide introduces key M4P frameworks and principes, expains how to put them into practice, identifies common intervention chaenges and expains how to dea with them. Throughout the Guide key sections of text are identified using the foowing symbos: Tips Definitions Risks Appication exampes Practitioners experiences 1

10 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 1. INTRODUCTION The Guide contains three types of exampes: (a) brief iustrations or emphases within the main text; (b) fuer exampes; and (c) appication exampes which aim to wak the reader through key M4P principes or frameworks. Exampes are anonymous, but are a based on rea cases or amagamations of severa rea cases. The Guide is structured in five parts: Section 1. Introduction 2. Getting started Go here for: Overview of objectives and structure of the Guide and how to use it Basic requirements of effective M4P and impications for programme design and commission 3. Components of the M4P intervention process 4. managing and governing m4p programmes Core M4P principes and frameworks and how to put them into practice Important considerations for the management and governance of M4P programmes 5. Good practice notes Specific toos and good practices used in M4P programmes 1.4 Notes of caution about the Guide The Guide is not a step-by-step manua. It aims to be a usefu reference upon which practitioners can draw, but recognises that M4P impementation cannot be reduced to bueprints or formuae. Intervention in compex market systems is not about thoughtessy foowing checkists: fexibiity and creativity are essentia. That said, successfu interventions are not deivered in an ad hoc manner; they are guided by strategy and underpinned by practica frameworks and principes based on experience. When exporing how to impement M4P over the foowing pages, this (potentia) tension needs to be remembered. On the one hand M4P is a strategicay coherent and rigorous approach. On the other within this overarching strategic framework fexibiity and creativity are required. The different components of the M4P approach reate to a typica project cyce and Section 3 is structured to refect the chronoogy of such a cyce. However, whie this expanation may give the impression of M4P as an ordery inear progression, in practice there is a requirement for continua earning and adaptation in interventions taking steps backward in order to go forward. 2

11 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 2. GETTING STARTED 2.1 Introduction: basic considerations Organisations wanting to design, commission or impement programmes which foow an M4P approach (see Box 1) need to recognise some basic considerations if they are to be successfu: M4P programmes need to be capabe of deaing with diversity, dynamism and risk; they need to be opportunistic and responsive; and they need to be cataytic. Faciitators need to be cose to markets; they need to possess good knowedge and insight; they need to be abe to behave entrepreneuriay; and they need to be independent. This section (a) outines the characteristics of effective M4P programmes; (b) estabishes the basic requirements for programme design and impementation which feed into the rest of the Guide and (c) identifies the immediate impications of these criteria for programme design, positioning, funding mechanisms, intervention portfoio and timeine. Whist the Guide is aimed mainy at programmes designed specificay as M4P interventions, the considerations described beow are important for any pubic-funded initiative trying to deveop markets in a systemic way. The Guide is therefore aso reevant to: Programmes aready up-and running which were not specificay designed as M4P but wish to adopt a more market-oriented approach. Governments considering their roe in different situations and seeking guidance from M4P. Equay, some organisations might want to ascertain whether they are suited to pursuing a market deveopment approach at a. The basic considerations set out beow can hep organisations gauge their existing practices, peope and structures to see how they can become more oriented to stimuating systemic change. Box 1 What is M4P? M4P is an approach aimed at effectivey and sustainaby improving the ives of poor peope by understanding and infuencing market systems. Appicabe to deveopment agencies and governments working in economic and socia fieds, it is defined by severa characteristics: An approach that provides guidance on understanding the poor in market systems (anaysis) and how to bring about effective change (action). A focus on deveoping market systems, by addressing underying causes (rather than symptoms) of weak performance. An ambition to uneash arge-scae and systemic change. A commitment to sustainabiity. This means considering not just the existing aignment of market functions and payers but how they can work more effectivey in the future, based on the incentives and capacities of payers to pay different roes. A faciitating roe for externa agencies; seeking to catayse others in the market system (whie not becoming part of it themseves). A means to compement and strengthen estabished deveopment methodoogies. 2.2 Why are these basic considerations important? For funders: these basic considerations shape preiminary decision-making about programme, design and the contracting of faciitators. For faciitators: these basic considerations refect the operationa reaities of market deveopment which they have to dea with if they are to be successfu. Frequenty these can be sources of tension between funders and impementers and need to be addressed from the outset during negotiations and the contracting process. 2. GETTING STARTED 2.3 Characteristics and requirements of successfu M4P programmes What are the critica ingredients of a successfu M4P programme? Experience shows that M4P programmes are context-dependent and therefore need to be strongy process-oriented. To catayse sustainabe systemic change M4P programmes shoud be: Capabe of deaing with diversity and dynamism: a focus on improving market systems requires sufficient fexibiity to dea with compex and changing situations. Opportunistic and responsive: achieving sustainabiity means promoting oca ownership. Programmes must be abe to understand the capacity and incentives of diverse market payers and respond to them in a way which is consistent with programme strategy. Abe to manage risk: programmes try to promote change in 3

12 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 2. GETTING STARTED uncertain situations, often working through oca payers. Some degree of faiure is to be expected; therefore programmes need to be abe to spread their activities to avoid putting a their eggs in one basket. Cataytic: programmes try to everage wider change through reativey sma, focused and finite actions. They must therefore be abe to start sma and then buid on successes to achieve scae and sustainabiity by crowding-in market functions and payers. What does this mean for faciitators? To be effective they shoud be characterised by: Coseness to markets: their reationships with market payers shoud be based on understanding and informed empathy, but they shoud not be captured by them. Faciitation can be seen as acting as a bridge between the pubic objectives of funders and the narrower aims of individua market payers. Good knowedge and insight: sufficienty informed to be abe to anayse market systems and assess opportunities to stimuate change. Entrepreneuria instincts: an orientation that aows faciitators to spot opportunities and rapidy convey an offer to different payers in the market that not ony responds to their situation but aso addresses systemic constraints. Independence: a status that aows faciitators to be regarded as impartia in the eyes of market payers so that the faciitation roe is understood and accepted. 2.4 Impications of these basic considerations The characteristics and requirements described above have impications for practitioners, particuary funders, in terms of the fexibiity of: programme design; programme positioning; funding mechanisms; mix of intervention activities; and timeine (see Box 2). Funders: need to ensure that these basic considerations have been incorporated adequatey into programme design, contracting and oversight. Faciitators: need to assess whether potentia contracts from funders refect these basic considerations and respond accordingy in their proposas to and negotiations with funders. Box 2 Basic M4P programme design considerations Is the programme design sufficienty fexibe? Is the programme correcty positioned in a country s organisationa andscape? Wi the programme fit within agency funding mechanisms? Does the programme design incorporate a portfoio approach? Is the programme timeine and funding appropriate? Is the programme design sufficienty fexibe? Achieving change is an unpredictabe process, especiay in compex, dynamic socio-economic systems. The abiity to monitor and periodicay adjust the direction of programmes to respond to changes within markets is essentia for success. M4P programmes need operationa fexibiity; therefore mechanisms for feedback and change shoud be integra to design. In practice agencies have deat with this through: Programme designs which provide a cear framework, main objectives and indicators to guide the overa focus and direction of a programme (ie strategic) and which avoid being too prescriptive or detaied about specific programme outputs (ie not too operationa). This is covered in more detai in Sections 3A and 3E and in Good Practice Notes 5.4 and Management contracts (and budgets) which emphasise outcomes and avoid overy specifying skis and inputs that contracted faciitators are expected to provide. This is covered in more detai in Section 4. Is the programme correcty positioned in a country s organisationa andscape? Where an M4P programme is ocated within a country s organisationa andscape has important impications with respect to the desired characteristics of fexibiity, coseness and independence. If a programme is too cose to a specific payer (eg if it is based within a specific government department) it might become captured and ose its perceived impartiaity, undermining its abiity to infuence other pubic and private sector payers. Conversey, a programme might ony be successfu if it has expicit endorsement from a high-profie champion for reform within government, the private sector or civi society. The positioning of an M4P programme depends on context and on three factors in particuar: The prevaiing poitica economy, ie infuentia poitica, ega and socia factors. The nature of targeted markets and the source of their underperformance. The capacity of key payers. For exampe: How far to invove government in M4P programmes wi depend on the extent to which government is or has the potentia to be infuentia in a specific sector, the extent to which it is pursuing pro-poor reform and its eve of capacity to improve its roe. Locating an M4P programme focusing on rura markets within a department for agricuture may make sense intuitivey. However, doing this may constrain a programme from addressing rura distribution probems which fa under the purview of the department of transport or pubic works. Or, key decision-makers within the department may be unabe or unwiing to contempate necessary changes to government s roe with respect to (poiticay convenient) input subsidies or (traditiona) extension services. These factors may prevent the department from being a positive force for change. 4

13 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 2. GETTING STARTED It is essentia to distinguish between a programme s poitica partnership or ownership (eg as part of a biatera agreement) and the variety of partnerships a programme may have for intervention purposes (ie co-faciitators or market payers). This is discussed in more detai in Section 4. It might not be possibe during programme design to get a definitive understanding of these positioning factors. In such cases, caution needs to be exercised. Rather than partnering with an operationa organisation that has a narrowy defined remit say a specific government agency a higher-eve and more neutra body, such as a ministry, is preferabe. Or, try to define government s ownership over programme outcomes rather than programme structures. Wi the programme fit within agency funding mechanisms? M4P programmes can take time to achieve impact and their expenditure tends to rise ony after programmes have become credibe in the market. Experience suggests that programmatic aid may be the most appropriate funding mechanism as it offers fexibiity in disbursement. M4P is aso reevant to other donor funding mechanisms such as budget support and sector-wide approaches (SWAps), both of which are channeed through domestic (ie host) governments. Whie these may offer imited scope to set up stand-aone M4P programmes, M4P frameworks can be usefu to review and define government s roe in different markets. Basket funding of programmes is appropriate for pooing and harmonising donor assistance but experience indicates that it is vita for the donors invoved to deveop a common vision of outcomes and a shared commitment to the M4P approach as the means of achieving those outcomes (see aso Section 4). Does programme design incorporate a portfoio approach? Programme design shoud incorporate a portfoio approach to manage risk and to ensure that programmes are fexibe enough to be opportunistic and responsive to a dynamic environment. In a portfoio approach a programme maintains a fexibe mix of markets, entry points, partners and types of intervention activity. In such an approach, a programme is ess concerned with the performance of individua eements of the portfoio than with the overa performance of the portfoio. Unsuccessfu eements can be dropped, new eements added and successfu eements buit upon or scaed up. This drop-add-buid approach is harder to achieve with a strategy based on a singe partner, entry point or type of activity. Such an approach has severa benefits: It avoids the risk of programmes putting a eggs in one basket. It permits fexibiity to incorporate new partners and activities according to opportunity and changing circumstances. It permits programmes to maintain a momentum of activity without reying on pushing a singe partner. Promoting oca ownership often means working at the pace of oca partners, whose abiity to engage is not determined by the programme timeine but by poitica or budgetary cyces, a change in senior management or seasonaity of production. A portfoio approach permits programmes to pursue mutipe ines of activity with different partners, with some advancing rapidy, others on hod pending resumption and others dropped. It is generay easier for arge programmes to incorporate a portfoio approach across mutipe markets. However sma programmes face the same uncertainties as arge programmes and can use a portfoio approach within a singe market to spread their risk and reduce their dependency on a singe partner, entry point or ine of activity. The esson from experience is that overy rigid specification of partners, entry points or activities at the design stage can undermine a programme s abiity to adopt a portfoio approach and therefore its abiity to manage risk. Is the programme timeine appropriate? Programme design shoud anticipate that the timeine (and trajectory of expenditure) of an M4P programme wi not necessariy ook ike a conventiona project. A typica timeframe for a M4P programme is approximatey five to seven years. Programmes tend to start sma, taking time to buid momentum, absorb resources and achieve resuts. Consequenty programme expenditure usuay ramps up after the first two years. It is important to emphasise that programmes aways retain their ight touch approach to intervention: their eve of expenditure increases as they move beyond initia interventions to expand the scae and scope of their interventions, not because they become more heavy-handed in their approach. 2. GETTING STARTED 5

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15 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3. COMPONENTS OF THE M4P INTERVENTION PROCESS 3.1 Introduction In simpe terms the M4P approach comprises (a) a strategic rationae for achieving poverty reduction objectives through market systems deveopment; (b) a framework for understanding market systems and defining a reaistic picture of sustainabiity; and (c) guidance for intervention action. The Guide addresses the chaenge of how to put the approach into practice how to operationaise it. In operationa terms the M4P intervention process is broken down into five components which correspond to the main stages of a typica project cyce (see Figure 1): a setting the strategic framework. B understanding market systems. C Defining sustainabe outcomes. d faciitating systemic change. e assessing change. Figure 1 Components of M4P intervention process and the project cyce As noted previousy, whist these components are presented in a sequentia fashion for the purposes of this guide, in practice impementation of M4P is rarey a inear progression. This section is divided into sub-sections A-E refecting the five components of the M4P intervention process. Each sub-section foows the same structure: Summary sheet: provides an at a gance overview of a subsection s content. Introduction: highights key points. Why important?: indicates the reevance to practitioners. Key M4P principes and framework: expains the essentias. Putting it into practice: examines in more detai how to operationaise the principes and frameworks. Key chaenges and how to dea with them: discusses key probems ikey to be encountered. Each sub-section contains appication exampes which iustrate the appication of key M4P principes and frameworks within a mini-case experience. 3. M4P INTERVENTION PROCESS m4p component e Assessing change Monitoring & evauation Vision & rationae Information & feedback Identification & research m4p component a setting the strategic framework m4p component b understanding market systems m4p component D faciitating systemic change Impementation & adaptation Panning & design m4p component c defining sustainabe outcomes 7

16 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3. COMPONENTS OF THE M4P INTERVENTION PROCESS 3.2 The M4P ens M4P is concerned with changing the way market systems work so that they offer more opportunities and benefits to poor peope. Programmes therefore have to make sense of market systems so that they can shape market deveopment in the interests of the poor. In order to do this, as outined in more detai in the Synthesis, M4P uses a simpe mode of market systems that represents their muti-function and muti-payer nature (Figure 2). Impementing M4P effectivey means appying this ens. It forms a continua reference point in a components of the M4P intervention process. Figure 2 Styised view of the market system: the M4P ens market payers (deivering and resourcing different functions) supporting functions Government R&D Information Skis & capacity Private sector Coordination Infrastructure Informing and communicating Reated services Informa networks suppy core function demand Membership organisations Reguations Setting and enforcing rues Informa rues & norms Not-for-profit sector Standards Laws Representative bodies rues 8

17 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3A 3. COMPONENTS OF THE M4P INTERVENTION PROCESS 3A: SETTING THE STRATEGIC FRAMEWORK Key points A strategic framework is a hierarchy of objectives inking the fina goa of poverty reduction with a focus on sustainabe market system change Faciitators and funders shoud set a strategic framework which provides a cear, overarching direction and estabishes the basis for monitoring and evauation Key M4P principes and framework: strategic framework Poverty reduction Improved access and growth Reducing poverty as the basic rationae for any M4P programme Enhancing the poor s access to opportunities and their capacity to respond to opportunities either as entrepreneurs, workers or consumers as the route through which poverty is reduced Market system change Stimuating sustainabe change in market systems that are important for the poor Systemic intervention Changing market systems through interventions that are faciitative or cataytic in nature Putting it into practice: main steps Step 1: Define poverty reduction objectives - profie of target group; nature of market excusion or inequaity; anticipated fina impact Step 2: Define growth and access objectives - pro-poor opportunity; potentia to improve the target group s position in the market system Step 3: Define systemic change objectives - change needed in the market system so that it better serves the poor Step 4: Define broad thrusts of intervention strategy and approach - avoid rigidy defining operationa detai and inputs Key chaenges and how to dea with them To what extent can the strategic framework be estabished in detai at the design stage? Which target group and which markets? How many markets? Good Practice Notes (Section 5) Logica framework (og frame) (Note 5.4) Impact ogic (Note 5.14) 9

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19 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3A 3A: SETTING THE STRATEGIC FRAMEWORK 3A.1 Introduction M4P programmes need a cear strategic framework a hierarchy of objectives which coherenty inks the goa of arge-scae poverty reduction with a focus on sustainabe market system change. The direct objective of M4P interventions is to stimuate market systems to work better for the poor: an objective of systemic change therefore shoud be made expicit in a strategic framework. A strategic framework estabishes the overarching direction and rationae of a programme and shoudn t go into specific operationa detais. 3A.2 Why important? A strategic framework provides faciitators with a cear, overarching direction for intervention and estabishes the basis for monitoring and evauating the effects of intervention. It provides funders with the basis to oversee M4P programmes. It aso sets the parameters for assessment of specific markets and prospects for sustainabiity and provides the basis for more detaied market and intervention impact ogics (see Box 3 and Section 3E). 3A.3 Key M4P principes and framework The strategic framework is a simpe ogic mode (eg contained in a ogica framework, see Box 3): it ays out the fow of cause and effect of how a programme wi achieve its objectives and the chain of different achievements necessary if interventions are to resut utimatey in the reaisation of a programme s fina goa (see Figure 3). Figure 3 Strategic framework for M4P Poverty reduction Improved access and growth Market system change Define poverty reduction objectives: Which target group is being targeted and what is their economic profie? What is the anticipated fina impact on the target group? Define growth and access objectives: What is the pro-poor opportunity? How might the target group s position in the market system be improved? Define systemic change objectives: In what way does the market system need to change so that it better serves the poor? Define broad thrusts of intervention strategy and approach: avoid rigidy defining operationa detai and inputs Systemic intervention 11

20 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3A: SETTING THE STRATEGIC FRAMEWORK 3A.4 Putting it into practice Setting the strategic framework foows a top-to-bottom fow of ogic. This means defining a programme s fina poverty reduction objectives first, before defining intermediate objectives for improved growth and access and direct objectives for market system change. The strategic framework shoud not be defined in a tighty specific, operationa way it is about setting out a programme s strategy for poverty reduction (hence the term strategic!). It shoud outine the rationae of the programme, its key objectives and genera approach to intervention. In practice this means: Recognise the practica reaity. Typicay there is insufficient information avaiabe at the design stage to set detais in stone. Use the strategic framework to estabish the main objectives of the programme. Once set these shoudn t change (if they do, the entire rationae for the programme changes). Ensure that the strategic framework has an objective of market system change. But don t try to specify precisey what changes might be required uness detaied market diagnosis has aready been competed. Start with ends and not means. At the design stage it is generay not possibe to be prescriptive about which intervention approaches (eg a voucher scheme) a programme might use again, uness detaied diagnosis has aready been competed. Refine indicators associated with each eve of objectives throughout the course of a programme s ife. As a programme s market understanding deveops, constant reaity checks are need to ensure that indicators (contained in a programme s ogica framework) remain reevant and up-to-date. For exampe: A market deveopment programme was designed to stimuate more appropriate financia services for 100,000 poor consumers over 5 years, providing direct financia and non-financia support to non-bank providers. During intervention it became cear that wider industry change was both needed and feasibe. Consequenty the programme shifted its focus to arge mainstream private and pubic payers and to information services, reguatory reform and wider infuencing. The programme s means changed and indicators were redefined more broady with impact targets of 2m consumers. However, its overa objectives remained the same because the strategic framework remained vaid: market system change (more appropriate financia services) improved access (to financia services) poverty reduction (benefits to poor consumers). Box 3 Strategic frameworks, impact ogics and ogica frameworks Because they are a forms of ogic modes, there are obvious simiarities between strategic frameworks, impact ogics (see Section 3E) and ogica frameworks. How are they different? A strategic framework estabishes the overa rationae and direction for a programme the programme s strategy for achieving poverty reduction. It doesn t contain detaied operationa considerations (ike an impact ogic) or indicators and assumptions (ike a og frame). An impact ogic is more operationa. It expands the number of boxes in the strategic framework, which aows for a more detaied fow of cause and effect towards impact on poverty reduction. An impact ogic is used to map out the intended and actua effects of individua interventions for panning and measurement purposes. A ogica framework or og frame is a generic (often forma) panning and management too used widey by deveopment agencies to design and impement projects and to aow oversight and accountabiity. The objectives in a og frame wi refect those of the strategic framework, but it aso incudes indicators for those objectives, means of verification and key assumptions. This is not just an exercise in fiing boxes! The strategic framework is about thinking through the overarching rationae and direction of a programme. It is not just a formaity to be competed at the design stage. It provides a programme with a coherent strategy and the discipine to assess the consistency of its actions with its objectives throughout its ife. Each step in the strategic framework is expored in turn beow, iustrated by an exampe from an M4P programme. At the end of the section, each step from the exampe is brought together in a compete strategic framework (see page 14). Context: An agricuture deveopment programme is focused on improving the iveihoods of rura househods, whose main source of income is the raising of ivestock. Their incomes are constrained by ow output and productivity; uness these are addressed ivestock producers incomes cannot rise. Poor output and productivity resut from inappropriate knowedge and practices and imited access to urban markets. These producers are currenty poory served by private and pubic providers of services such as market information, anima heath, production advice and transportation 12

21 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3A 3A: SETTING THE STRATEGIC FRAMEWORK Step 1 Define poverty reduction objectives The first step is to define specific poverty reduction objectives. Generay M4P interventions wi have a fina objective reated to improving the socio-economic wefare of disadvantaged peope, regions or countries. This needs to be defined specificay, based on context and programme type. This means defining a target group and an objective for improvement in their poverty condition more of something positive (eg income or assets) or ess of something negative (eg deprivation, excusion or inequaity). Key questions are: Which group of poor peope is being targeted and what is their economic profie? What is the anticipated fina impact on the target group? Poverty reduction objective: Improvement in the househod incomes of sma-scae ivestock producers and those working with them, often famiy members. Step 2 Define growth and access objectives The next step is to define how the poor s position might be improved. This entais understanding how obstaces to the poor s access to opportunities or their capacity to respond to those opportunities can be overcome, represented as objectives for either growth or access. The poor might be producers and entrepreneurs (ie businesses or farmers), workers (ie empoyees) or consumers, depending on context. Key questions are: What is the pro-poor market opportunity? How might the target group s position in the market system be improved? This entais defining where pro-poor opportunities ie (see aso Figure 5 on page 16), in terms of: Stepping up: potentia improvements in the poor s positioning within existing market systems (eg by increasing their productivity as producers, improving their eve or quaity of empoyment and/or gaining access to more appropriate goods and services). Stepping out: potentia shifts of the poor into new market systems (eg by gaining access to new markets, new empoyment or new goods and services). Hanging in: for extremey disadvantaged groups opportunity can often mean the potentia to reduce vunerabiity to risk. Growth and access objective: Improved and sustained access to (and use of) a range of forma and informa pubic and private services is needed to enabe sma-scae ivestock producers to step up their output and productivity. Step 3 Define systemic change objectives The direct focus of interventions is to stimuate sustainabe change in market systems. The next step is to identify specific dimensions of those systems that need to be changed. The two key questions therefore are: Why isn t the market working? In what way does the market system need to change so that it better serves the poor? Systemic change objectives obviousy vary according to context. Generay it is not possibe to define these in detai at the design stage. Market system change might incude: Improved deivery of the market s core function a better dea for the poor (eg increase in access or participation rates, improved quaity or eves of satisfaction). Changed attitudes, perceptions or reationships of payers. Changes in capacity and practices (eg investment, roes or performance) of payers and functions in the system. Demonstrated incentives and ownership of payers (eg responsiveness to changed conditions in the system). Independent and continuing activity in the system (ie the extent to which changes are maintained after direct intervention support has ceased). System change objectives: On the suppy-side, the awareness of service providers (eg vets, input suppiers and trading companies) about opportunities to serve rura producers is ow and must increase. On the basis of changed understanding and incentives, their services need to be adapted to suit the target group. On the demand-side, sma-scae ivestock producers understanding of the potentia benefits of services and knowedge about how to access them must be enhanced. These changes shoud continue in the absence of programme intervention. Step 4 Define broad thrusts of intervention strategy and approach M4P programmes are characterised by responsive and muti-faceted interventions. This makes it difficut in fact undesirabe to ock down detaied intervention outputs and activities at the design stage. The strategic framework shoud estabish the primary focus and overa direction of a programme in a way which is sufficienty cear to guide decision-making, monitoring and evauation in a dynamic context. 13

22 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3A: SETTING THE STRATEGIC FRAMEWORK Typicay, this means estabishing a programme s strategy and genera approach to intervention, within which muti-faceted intervention activities that are responsive to prevaiing conditions can be pursued. Intervention strategy: Interventions shoud be concentrated on a number of potentia areas. These incude improving producer and service provider awareness by better avaiabiity of information about market scae and opportunities; inking demand- and suppy-sides through faciitated meetings and visits; buiding the capacity of producers representative bodies to secure services coectivey in order to reduce deivery costs; and deveoping service providers capacities to deiver services by inking them to sources of training. The strategic framework in practice: A programme focused on improving the ivestock-based iveihoods of rura househods. Incomes are constrained by ow output and productivity in turn caused by poor practices. Producers are currenty i-served by providers of services such as market information and anima heath. Poverty reduction Improved growth and access Market system change Improvement in the househod incomes of sma-scae ivestock producers and those working with them, often famiy members. Improved access to a range of forma and informa services aimed at increasing producers output and productivity. Suppy-side: Increase awareness of providers of potentia opportunities. Change incentives and capacities. Demand-side: Increase producers understanding about benefits of services. Improve knowedge about how to access them. Systemic intervention Interventions concentrated on: Better information on market scae and opportunities. Faciitated meetings/visits to ink suppy- and demand-sides. Buid capacity of producers organisations. Linking providers to sources of training to deveop capacity. Fexibiity at the intervention eve does not mean anything goes. Individua interventions need to be guided by a cear and rigorous ogic, which is consistent with the programme s overarching strategic framework. This need not be defined at the design stage but as part of individua intervention formuation throughout the course of the programme. 3A.5 Key chaenges and how to dea with them To what extent can the strategic framework be estabished in detai at the design stage? There is an obvious tension which needs to be deat with. Funders wi want to ock down as much detai as possibe in advance for accountabiity purposes (contracting, panning and budgeting). Faciitators aso want certainty for contracting purposes and to provide carity and direction for their work. However faciitators wi face an ever-shifting reaity on the ground, which wi require considerabe fexibiity to respond effectivey. So, what can be done to manage this tension? Baance accountabiity and fexibiity requirements. At a minimum funders need to set the basic programme design parameters. 14

23 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3A 3A: SETTING THE STRATEGIC FRAMEWORK This means taking some key decisions, such as: - Defining target group and usuay some combination of geographic area or sector seection and ensuring consistency with wider country strategy or poicy. - Setting the big picture objectives in terms of poverty reduction and improved growth and access, usuay entaiing comparison of poverty, growth or access dynamics and overa intervention feasibiity. - Emphasising systemic change and sustainabiity in programme design. Funders shoud be cear about what is reay needed to satisfy their accountabiity requirements. It is common for initia programme designs to be excessivey detaied, when usuay ony key objectives and main budget ine items are required. Such detai is often insufficienty accurate for accountabiity purposes and unnecessariy restrictive for faciitators. It serves itte purpose. Carify who defines what. Beyond these basic requirements it is a question of who is best paced to do what. How far are funders abe to undertake detaied diagnostic work as a pre-cursor to project or programme design? How far shoud the detaied diagnosis be eft to faciitators? (ie how far shoud funders try and go through the diagnostic process, outined in Section 3B?) For programmes which focus on a singe, we-estabished sector (eg finance) more extensive pre-design diagnosis is possibe. For arger, muti-sector programmes such detaied diagnosis is more difficut to do upfront. There are a number of advantages and disadvantages of doing detaied diagnosis as a precursor to programme design (see Figure 4). Once design is up and running, managing the accountabiityfexibiity tension requires good communication between funders and faciitators. Funders need to maintain an active invovement in programme oversight: they can t just contract and withdraw. Faciitators need to activey ensure that their funders are informed about programme deveopment and do not simpy rey on routine reporting. Figure 4 Advantages and disadvantages of detaied diagnosis prior to programme design Accountabiity Detaied diagnosis by funder prior to design Fexibiity Detaied diagnosis by faciitator post design Advantages Tighter framing of objectives and budget Ensures consistency with wider funder or government country strategy Cearer guidance to bidders Permits stronger faciitator ownership; aows oca payers to be brought into assessment process Inteigence and insight is vita for intervention so faciitators must have a roe in assessment Reduces time deay between anaysis and action Disadvantages Separates anaysis from intervention; time eapsed between getting information and taking action Detaied panning creates unreaistic rigidity Tight specification to bidders encourages overy narrow response (eg skis and soutions) Less specific panning and budgeting More time-consuming to ensure accountabiity Funders become distant from what s going on 15

24 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3A: SETTING THE STRATEGIC FRAMEWORK Even if funders are abe to undertake detaied diagnosis as part of initia design, things inevitaby change during the course of impementation. It is impractica to regard programme design as fixed in stone. The need for fexibiity is aways there; design and pan for it. For many funders revising og frames after contracts have been awarded is probematic (particuary the upper eves, ie goa and purpose). In these situations the important thing is to concentrate on getting the overa ogic right (so that it doesn t need to be revised once impementation has begun) and avoid being overy prescriptive about operationa detais at the output and activity eves. This may mean eaving identification of specific market constraints, intervention focus and methodoogy to faciitators. Which target group and which markets? To achieve arge-scae pro-poor impact funders and faciitators must identify market systems which are reevant to and have the potentia to work we for significant groups of poor peope and where there is a reasonabe prospect of bringing about durabe pro-poor change. Seection of target group and markets is usuay determined by three factors (Figure 5): Potentia for achieving arge-scae impact (arge numbers of poor peope). Markets with potentia for achieving improved growth and access. Feasibiity of achieving systemic change within the short to medium term (three to five years). Figure 5 Key factors for target group and market seection Poverty reduction potentia Significant numbers of poor peope? M4P intervention potentia Feasibiity of stimuating systemic change? Pro-poor access or growth potentia Stepping up? Stepping out? Hanging in? Key questions for market seection are therefore: Are there reasonabe prospects of affecting significant numbers of poor peope? How do poor peope engage in those systems (as producers, abourers, consumers)? In what ways might improving the market system(s) enhance growth and access? Is intervention ikey to be feasibe given the resources avaiabe? The presence of triggers or drivers for change which might be everaged by intervention is aso an important consideration in market seection. There are few markets which present a perfect storm of circumstances for intervention but there may be particuar deveopments which make them more amenabe to change for exampe, new reguations, technoogies, competitive or poitica pressures or the presence of potentia aies for a programme. When choosing a target group it is important not to rush to where the poor are without first understanding whether there is reaistic potentia for change. It is essentia that target groups are seected which have some measure of potentia to engage within the economic mainstream, where popuation numbers are sufficienty high in terms of potentia outreach and where intervention appears reaistic. There is often a tendency to focus on the most extreme circumstances and ignore the ower of the three circes in Figure 5, with itte consideration of how asting change wi be achieved. Equay, when choosing a market, practitioners can t just define a market focus without having a cear view of why that market is reevant to the poor. Programmes need to have transparent criteria for market seection. There is often a tendency to focus on obvious markets for commodities or goods that the poor produce directy (eg agricutura vaue chains) and ignore other markets for goods and services which support those vaue chains (eg seeds or transportation) or which are important to the poor as consumers or citizens (eg media). Programmes need to reconcie these factors when seecting markets and be prepared for some tough trade-offs and painfu decisions. For exampe: A programme identified the broier sector within the poutry industry as a potentia focus for intervention. It was initiay chosen because arge numbers of poor househods were invoved in rearing broiers and, because the industry was growing, it appeared to offer good prospects for raising their incomes. Coser anaysis reveaed that the medium-term (5 year) prospects did not favour sma-scae producers because of an increasing trend towards industry consoidation around centraised arge-scae producers with networks of we-estabished outgrowers. The programme decided not to pursue intervention because outgrowing opportunities for poor househods woud be few. 16

25 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3A 3A: SETTING THE STRATEGIC FRAMEWORK How many markets? A reated chaenge is the breadth of coverage a programme shoud have (ie how many markets shoud it aim to work in?). This is determined by consideration of severa factors: The potentia for significant outreach. In particuary weak or thin market situations a singe market focus might not offer prospects for significant outreach, necessitating work in severa markets. The nature of specific markets. Certain types of market may be highy speciaised and have itte commonaity with other markets (eg and or finance) that require speciaised expertise or credibiity, in contrast to other types of market where there might be greater economies of scae from working in mutipe markets (eg agricuture or manufacturing). Mitigation of risk. A singe market focus exposes programmes to an a eggs in one basket probem. There is aso a danger for arger programmes in particuar that in focusing on too few markets there is bureaucratic pressure to push excessive resources through market systems without propery considering what is required. There are rea dangers of saturating markets with externa resources and stifing initiative in the process. Span of management contro. A muti-market focus can impose heavy management burdens on a programme, particuary if those markets are widey dispersed. Spreading efforts too thiny. Operating in many markets and being seen to be busy doing many sma things within them can present an image of superficia achievement. The risk is that programmes spread themseves too thiny and don t deveop the knowedge and coseness they need to reay understand markets. Those concerned with everaging more substantia change are more ikey to focus on a smaer number of markets. For exampe: A financia services market deveopment programme aimed at improving financia services for the poor (principa market: transaction banking) focused on strengthening market research services for the banking industry (supporting market: business services), as ack of market information about ow-income consumers was identified as a critica obstace to pro-poor product deveopment. For smaer programmes it may make sense to have a singe market or sector focus. In these cases it is critica that programme design is not defined too narrowy (eg by product type or market segment). Faciitators need to be abe to operate a portfoio approach within a singe market focus, examining different combinations of market segments, product types, entry points and partners to maximise impact and minimise risk. Criteria for market seection and coverage wi vary from agency to agency in terms of ambitions for scae and scope of market coverage, type of markets chosen and their reevance to agency objectives and priorities. To some extent, agency capacity and competence wi aso dictate scae, scope and market choice. Muti-market programmes can be successfu, but impact is enhanced when working in groupings of reated markets; where markets are cosey reated or share simiar geographic concentration or where the constraints and/or soutions are somewhat simiar. This enabes cross-fertiisation of ideas and impact. Where the portfoio is made up of isoated and unreated markets and interventions, substantia impact is harder to achieve. It is important to note that even when a programme has a singe market focus it is ikey to end up working in mutipe markets, as it addresses constraints in markets which support its principa market of focus. 17

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27 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3. COMPONENTS OF THE M4P INTERVENTION PROCESS 3B: UNDERSTANDING MARKET SYSTEMS Key points Programmes need to be shaped by a good understanding of the operations of market systems and how they affect poor peope Programmes shoud go through a diagnostic process that narrows down to identify specific market system constraints to be addressed by intervention The process shoud distinguish symptoms of underperformance from their root causes 3B Key M4P principes and framework: diagnostic process Symptoms The poor and their context Specific market system(s) Systemic constraints Market assessment is a process which starts by understanding the wider socio-economic context of the poor and then narrows down the focus of assessment to identify specific constraints affecting a market important to the target group, which might be addressed by intervention: going from identifying symptoms to understanding root causes Causes Focus of intervention(s) Putting it into practice: main eves The diagnostic process invoves deveoping a good understanding across three eves: Leve 1: Understand the profie of the poor and their wider context - incuding overa economic opportunities and key drivers of change Leve 2: Map out the specific market system, its dynamics and the position of the poor - specificay how the market is faiing to serve the poor currenty Leve 3: Identify specific systemic constraints - the underying causes of underperformance and opportunities and obstaces for achieving change Key chaenges and how to dea with them How much assessment is enough? When shoud you do assessment? Shoud market assessment be outsourced or done in-house? How do you decide which too to use for market assessment? How many markets shoud be assessed? Good Practice Notes (Section 5) Impementing demand-side surveys (Note 5.2) Access frontier (Note 5.3) Promoting vaue chain deveopment (Note 5.8) Understanding incentives (Note 5.9) Guiding participation processes (Note 5.11) Liveihoods anaysis (Note 5.12) Understanding interconnected markets (Note 5.15) Understanding transactions (Note 5.17) Rapid market assessment (Note 5.18) 19

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29 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS 3B.1 Introduction M4P programmes need to be guided by a good understanding of specific market systems. Poor peope are affected by the market systems in which they operate, which in turn are affected by other market systems and the broader socioeconomic context. Programmes therefore need to understand how specific market systems work (or don t work) and maintain an awareness of the wider socio-economic context. This requires a diagnostic process which enabes programmes to move from broad awareness to sharper understanding of specific systemic constraints to be addressed by their intervention. This process seeks to distinguish the symptoms of underperformance from their root causes. 3B.2 Why important? Appropriate information and its effective interpretation shapes intervention design, enabes programmes to ascertain prospects for sustainabiity and guides interventions throughout the ife of a programme. Market assessment shoud: Hep programmes understand the capacity and incentives of market payers to determine prospects for change and sustainabiity. Identify potentia drivers of change and partners for intervention. Generate inteigence and insight which can be used to infuence market payers. Provide information for baseine and measurement purposes. 3B 3B.3 Key M4P principes and framework The diagnostic process is ike a fiter, which starts with understanding the wider socio-economic context and then narrows down the focus of assessment to identify specific constraints affecting a market important to the target group. The process is about moving beyond a superficia description of the symptoms of a market s underperformance to understand the root causes of this underperformance which can be addressed by programme intervention (see Figures 6 and 7). The diagnostic process focuses on the types of information required for decision-making and action, not on the use of specific toos to coect information. Once practitioners are cearer about the types of information they need, choices can then be made about where to get information, what toos to use and who shoud do what. Try to write a paragraph or two describing the market, its reevance to poverty and the systemic constraints. Then see what information you require to come up with the intervention focus. Ony then determine the market research toos to be used. Experience indicates that, rather than a specific too or methodoogy, the most usefu quaity faciitators can bring to bear is the spirit of curiosity: not to take market underperformance at face vaue, but to continuay ask why?. In other words, faciitators need to keep digging down to identify the rea causes of market underperformance rather than stopping at the superficia symptoms. 21

30 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS Figure 6 The diagnostic process Symptoms The poor and their context Specific market system(s) Causes Systemic constraints Focus of intervention(s) Figure 7 Information required from the diagnostic process 1 Key information types Need to know what...? In order to...? The poor and their context (Target group, area etc) Specific market system (Where the poor conduct their economic activity and who they engage with) Systemic constraints (Supporting functions and rues around the core of the market) Socio-economic, demographic, geographic picture Growth, competitiveness potentia and chaenges Key trends, prospects, drivers and barriers to poor s participation in economic mainstream The structure of the market system The dynamics of the market system and dimensions of its performance The poor s position within the market system Key market functions and payers Who does what and pays for what Incentives, capacity and reationships Interconnected markets Identify specific markets which offer propoor opportunities which might feasiby be unocked by intervention Identify where the market isn t working for the poor: symptoms Identify underying reasons for market underperformance and possibe intervention points to stimuate systemic change: causes (There may be mutipe causes in more than one market!) 1 Note that the eves shown are indicative of a process of fitering down; they shoud not be regarded as absoutey fixed. 22

31 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS As discussed in Section 2, programme design wi not necessariy identify specific market constraints at the outset. Funders must ensure provision is made in programme panning and budgeting for this kind of diagnostic process throughout the period of intervention. It is an integra part of what M4P programmes do. 3B.4 Putting it into practice The diagnostic process is about starting with the big picture and narrowing down assessment unti underying market constraints which can be addressed feasiby by intervention have been identified. For the sake of carity, this diagnostic process is presented in a inear manner, with distinct eves of market assessment. In practice, the process is not entirey inear and the various eves are ikey to overap. Programmes wi find that they move up and down through the various eves of the diagnostic process as their understanding deveops and they are forced to reappraise their initia assessment (see Figure 9 on page 29). The eves of the diagnostic process are presented in more detai beow and iustrated by an appication exampe from an M4P programme. This exampe is then summarised on page 27. Capacity of impementing agency: ie what the agency can do, its experience and competence in certain types of intervention (eg chaenge funds) or with specific sub-sectors (agricutura technoogy). Whie it is sensibe to consider faciitators competence when seecting markets, there is a risk of shaping the view of the market probem (and thus intervention) by what faciitators can do, not what the probem reay is in other words a soution in search of a probem! This means that most programmes do not start with a bank sheet of paper when deciding on their overa focus. This stage in the diagnostic process corresponds to the Strategic Framework described in Section 3A, particuary the three market seection factors: (a) overa pro-poor potentia, (b) growth potentia and (c) feasibiity of bringing about change (described in Figure 5 on page 16). As discussed in Section 3A, depending on how much pre-design diagnostic work has been conducted this can be an opportunity for faciitators to examine more rigorousy the basics of programme design and adjust programme focus as appropriate (for instance during the course of a piot or orientation phase). 3B Context: A major M4P programme is mandated by its funders to work in seected rura regions and to promote the competitiveness and growth of seected vaue chains. Its goa is to achieve arge-scae pro-poor change in these regions. The faciitator has considerabe experience and competence in deveoping rura vaue chains. Leve 1 Understand the profie of the poor and their wider context The assessment process starts by estabishing an understanding of the profie of the poor and their wider context. To some extent this may aready be given by programme design, usuay based on a combination of: Geographic focus: eg a neighbourhood, town, province, country. Product focus: eg a specific type of goods or service such as financia services or insecticide-treated mosquito nets. Target group focus: eg garment sector workers or femae business owners. Sector focus: eg agro-processing or sma-scae manufacturing. Initia programme focus wi aso be shaped by the characteristics of the funding or impementing agency in question: Strategic focus of funder: eg a priority target group or environmenta protection. Programmes need to ensure that they have a reasonabe understanding of: How the targeted popuation participates economicay as producers, consumers or empoyees? This means deveoping a cear profie of the poor and the nature of their iveihoods. An indication of potentia outreach is aso necessary. Overa economic opportunities and prospects. Sources of growth, important trends and, if possibe, the dynamics of key sectors which are reevant to the poor. Drivers. The triggers for change within the wider context, for exampe poicy reform, institutiona or technoogica innovation, a critica incident or crisis or powerfu potentia aies, which shape the momentum for change in a market. This can hep practitioners determine the feasibiity of stimuating more specific changes. For exampe: An M4P programme was abe to buid successfuy on a high-profie muti-party pedge between industry, government and civi society to improve the poor s access to good quaity, affordabe services. Another programme used industry eadership potentia as a seection criterion for markets. As a resut of this first eve of assessment, faciitators shoud have a cearer idea of specific markets that offer pro-poor opportunities which may be unocked by intervention and some of the wider drivers of change. 23

32 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS Profie of poor: The main source of income for most househods is agricuture but incomes are ow with a high proportion of househods beow the poverty ine. Vegetabe cutivation is an increasingy important crop and income source. Vegetabes are reativey easy to grow, can be cutivated on sma areas of and and are empoyment-intensive (with a high proportion of women abourers). Consumer demand for vegetabes is growing fast, prices are rising and, as consumer tastes change, this trend is set to continue. Since average consumption is we beow recommended eves, increased production is good for the poor as consumers. In this context, it is recognised that the biggest probem for the sector is ow productivity ess than haf the eve of internationa competitors. The potentia of the vegetabe sector to generate more growth and incomes wi not be reaised unti productivity is increased. How the parameters of market assessment are deineated determines the nature of assessment and its outputs. Generay speaking, for a given set of resources, if the market is deineated narrowy (eg sma farm users of eaf testing services in the pam oi sector in region X) anaysis can be much more specific, detaied and manageabe but might negect the bigger picture. Conversey, with the same resources a broader market deineation (eg the entire pam oi sector nationwide) wi generay yied an overview eve of anaysis and not be abe to get into detai. It is important to be cear about what information is required and what resources are avaiabe for assessment when deineating the market. There is a risk that programmes draw market system boundaries too narrowy around the core transactions of the market and ignore supporting functions and rues or interconnected markets. The risk of narrow deineation is that interventions often focus on symptoms rather than the root causes of underperformance. Leve 2 Map out the specific market system, its dynamics and the position of the poor Once a picture of the poor s context and a preiminary market focus is estabished, programmes need to deveop a sound understanding of the structure and performance of the specific market system(s). More specificay: How does the market system work, what are its key functions and who are its key payers (private, pubic, forma and informa)? What are the dynamics of the market in terms of its overa effectiveness, for exampe its competitiveness, productivity or eve of coverage or access? More specificay, in what ways is the market faiing to serve the poor (ie what are the symptoms of underperformance) or where are potentia opportunities for the poor? The starting point is to map out the basic structure of the market system: Identify the functions payed by different payers and map the reationships between payers (for exampe in a vaue chain, between consumers, retaiers, processors, producers, input suppiers). Where possibe identify aternative or competing structures, channes and reationships. Don t negect the possibiity of embedded or hidden transactions and other forms of informaity. Next, programmes shoud try to understand the dynamics of the system (ie where the system has come from and where it might be heading in future). This can incude: Changes in the fow and nature of goods or services over time (eg vaue, voume, type, profie of suppiers and consumers). Performance reative to competing, compementary or simiar sectors and regions (eg productivity, vaue-added, customer satisfaction, eve of competition). Major events and changes (eg new entrants, new egisation or technoogica innovation). Then, programmes shoud understand the poor s position within the market system and ascertain how the market is currenty serving them or not serving them. Assessment shoud focus on the core of the market initiay: transactions (see Box 4). In what ways are the poor not getting what they need from this market and what are the potentia opportunities for the poor? Assessing transactions requires quantitative and quaitative information 2 from actua or potentia market payers on the demand-side or suppy-side. Note that the poor may be on either side of the transaction, depending on how they participate or potentiay participate in the market, eg on the demand-side as consumer of a good or service, ike vocationa training or a oan, or on the suppy-side as a worker or producer, seing their abour or rice. As a resut of assessment at this eve programmes shoud have a cearer idea of where the dea or transaction invoving the poor is breaking down but not necessariy a cear idea of why it is breaking down. 2 Quantitative information is vita to describe the market as it is currenty working, eg in terms of its scae or eves of participation. Quaitative information is important to hep understand why the market is working the way it is. 24

33 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS Market system: A number of factors contribute to the productivity probem, incuding market structure and farm size. But the most prominent factor is inappropriate use of inputs (seeds, fertiisers, pesticides) and poor practices by farmers. Vegetabe cutivation is reativey new for farmers and there is widespread ack of understanding about best practices and input use. Farmers buy inputs from oca retaiers. Their sources of information are varied: sma numbers of (usuay arger) farmers have access to government extension workers and NGOs. However, retaiers and other farmers are the most widespread source of information. There is genera dissatisfaction with the quaity and usefuness of information avaiabe. The productivity probem is, to a arge degree, an information probem. Key questions are: What are the underying causes of a market system s underperformance? What are the primary obstaces and opportunities to overcoming these probems? To answer these questions, programmes usuay need to expore the range of other functions which support and govern the core of the market ie rues and supporting functions. This may ead programmes to expore an interconnected market system (see Section 3C). Remember that underperformance in the core of the market is often caused by underying probems with supporting functions and rues. So, programmes need to go beyond the symptom of the probem (eg transactions are not happening) to understand the causes from the what to the why. 3B Box 4 Factors that determine or inhibit transactions When assessing transactions incuding those which are embedded it is vita to expore beyond current participation or non-participation (ie the dea the poor are getting currenty) to understand the factors that ead up to or inhibit the dea:* Consumers awareness and understanding of their requirements. Consumers awareness and understanding of a good or service that coud meet their requirements. Consumers vauation of and satisfaction with the good or service. The nature of the good or service and its appropriateness to the requirements of consumers. Sources of suppy and their acceptabiity to consumers/users. Suppiers awareness and understanding of consumers. Affordabiity is often identified as a barrier to transactions. It is important to identify whether there are genuine affordabiity probems or whether price is a symptom of an underying constraint. * The factors appy to actua or potentia consumers, suppiers and goods or services. Leve 3 Identify specific systemic constraints Once an understanding of the structure and dynamics of the specific market system has been estabished and the poor s position within that assessment needs to focus on identifying the specific causes of market underperformance. At this eve programmes shoud avoid simpy describing specific market functions and the payers that are currenty performing those functions. It is essentia to go deeper than that: to get an insight into payers capabiity and motivations for performing specific market functions and how we they are performing them. This means understanding: Incentives of payers. Capacity of payers. Reationships between payers. For exampe: In a vaue chain where sma producers suffer from ow working capita, a programme might need to expore the nature of reationships between various payers and identify and understand reasons for differences between, say, one arge buyer that pays sma producers cash on deivery whereas the industry norm is to pay after 30 days. What expains the difference? Is that buyer particuary atruistic? Is the dea ony extended to certain sma producers with socia ties to the buyer? Is there a commercia benefit to offering preferentia payment terms? If so, why don t other buyers do the same? Incentives and capacity are critica. Programmes need to expore the reasons why payers are acting they way they are and their motivations and abiity to change. Assessment must hep programmes to understand the poitica economy of change, which is grounded in the incentives and capacities of market payers in the private and pubic sector, be they forma or informa, arge or sma, oca, nationa or internationa. In order to understand incentives programmes often need to understand poitica, ega and socia and cutura factors ie the poitica economy as we as economic factors: what is vaued and why; how vaues are shaped by prevaiing norms and behaviour; and how these socia factors encourage or inhibit change. 25

34 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS Systemic constraints: The accessibiity of retaiers makes them the most common source of information for farmers. Farmers seek advice from retaiers but often are suspicious of the vaue of information received retaiers push products rather than sove probems. Retaiers in the main don t recognise the vaue of the information service they provide. The retaiers in turn are reiant on arge input suppy companies for their information but currenty this information is narrowy focused on products not on vegetabe cutivation practices per se. It is in the interests of input suppiers and retaiers that farmers are more successfu; for that to happen more and better information needs to be provided by the input suppier to retaiers and from retaiers to farmers. The information probem is a business mode probem. The ogica intervention focus is to work with input suppy companies with the capacity and incentive to change to improve the quaity of information and advice avaiabe through retaiers to farmers. For input suppiers and their retaiers this can enhance their reputation, strengthen customer oyaty and increase saes. Don t forget the end-purpose of market assessment: to identify the underying causes of market underperformance and potentia entry points for intervention. Information gathering can draw from a variety of sources but, whatever the source, M4P paces a premium on inteigence and depoying it effectivey. Programmes don t do market assessment out of academic interest. Information shapes intervention strategy and guides actions to change the nature of the core of the market a better dea for the poor usuay by atering the way in which supporting functions and rues work. Market assessment toos and sources of information At the first two eves of the diagnostic process the poor and their context and specific market systems a range of reativey assessment standard toos can be used (see Figure 8) with greater or esser degrees of adaptation. As faciitators get further through the diagnostic process, to expore the systemic constraints affecting performance, they rey ess on standard toos and more on focused interaction with a imited number of seected informants, which have emerged from the preceding assessment. This interaction might take the form of one-to-one meetings, focus group discussions or brainstorming workshops, depending on the nature of the payers invoved. 3B.5 Key chaenges and how to dea with them How much assessment is enough? A programme s understanding of market systems wi never be perfect. Understanding has to be sufficienty strong to provide the basis for informed action, but paraysis by anaysis must be avoided. It is not the case that before any action takes pace, exhaustive, forma market assessment needs to be conducted. In reaity the extent and nature of market assessment is a function of knowedge gaps (ie a consideration of what we aready know and what we sti need to know) and the resources avaiabe to bridge these gaps. The means by which programmes acquire information need not be forma or comprehensive. It is aso often possibe to draw on secondary sources of information which are aready avaiabe or to participate in the ongoing research activities of other organisations. As a rue of thumb, the more distant an organisation is from a market in question, and the arger its scae, the more forma, extensive and periodic market assessment needs to be (eg funders). However, scae and distance from markets make it harder for such organisations to get and use information prompty. Smaer organisations, which have shorter feedback oops and which are coser to the market, are more immediatey responsive and are abe to acquire and rey on informa and reguar assessment, earning-by-doing and piots (eg faciitators). Practitioners sometimes ose sight of why they re doing market assessment in the first pace. They get carried away with the process, generating ots of information of imited practica vaue, but at considerabe time and expense. They fai to consider how assessment is going to shape potentia intervention strategy and actions, so tend to be too broad and descriptive and miss the dynamics and systemic dimension. The diagnostic process is not a fixed, sequentia market assessment but a way of thinking through information needs (what do we reay need to know?) and organising information (what is information teing us?) to guide programme strategy and action in a practica way. When shoud you do assessment? There is a tendency to regard assessment in a rigid manner, something that is done at the start of a programme. In practice, information is required throughout the ife of a programme. 26

35 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS The diagnostic process in practice: 3B The poor and their context Faciitator s objectives are for arge-scae pro-poor growth in rura regions Rura area; hundreds of thousands of sma farmers beow poverty ine; agricuture is main source of househod income Rice is principa crop but some vegetabe cutivation aso: demand for vegetabes significanty outstrips suppy Decining crop yieds recognised as key probem within the sector Specific market system Vegetabe vaue chain serves oca or regiona markets Farmers use a variety of inputs bought from oca retaiers Income from vegetabe production is ow due to ow productivity Farmers ack knowedge about appropriate inputs and cutivation techniques Farmers get information from a variety of sources: other farmers, government extension workers, agricutura suppy retaiers and NGOs Farmers are dissatisfied with information they receive from a these sources SYSTEMIC CONSTRAINTS Farmers are most ikey to turn to retaiers for information as they are most widespread and accessibe Retaiers tend to push products to maximise their own modest income; they do not see themseves as a source of information Retaiers buy their suppies from arge input suppiers, who aso provide them with information and support but ony about their own products Input suppiers have the capacity and incentive to support retaiers to become more effective sources of information: satisfied farmers are good for business Intervention focus Changing the distribution channe deveopment practices of arge input suppiers Market assessment needs to be an iterative and affordabe process not just a arge, one-off forma study. Acquiring and using reevant information is a centra part of the M4P intervention process, not just for design, panning and measurement but to guide a programme s actions. It is something that continues throughout the period of intervention and adequate resources need to be made avaiabe for it. Intervening in dynamic socio-economic contexts requires constant feedback and adaptation (see Figure 9). environments and serve as a powerfu too for changing the perceptions or behaviour of market payers, often more effectivey than financia support. This continuing need for information has impications for how it is coected and by whom (see beow). Deveoping greater market understanding through piot intervention is aso critica to achieving wider and sustainabe market change (see Section 3D). Information is aso vauabe to faciitators as a way of deveoping credibiity and infuencing others. An intervention s new insights deveoped through assessment can enrich weak information 27

36 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS Figure 8 Toos and information sources for the diagnostic process Potentia toos and sources Symptoms The poor and their context Specific market system(s) Systemic constraints Causes Focus of intervention(s) Socio-economic studies, census data, poverty assessments, iveihoods anaysis, investment cimate surveys, competitiveness anaysis, drivers of change Access frontier, vaue chain anaysis, consumer research, productivity studies, reguatory reviews, organisationa appraisa toos, stakehoder anaysis, participatory and consutative toos Focused interaction with reevant informants: interviews, focus group discussion, brainstorming Use market assessment to identify market payers and their interests and so their appropriateness for engagement. This heps reduce the tendency of many programmes to engage with as broad a range of stakehoders as possibe in the interests of ensuring participation and buiding consensus, and sometimes therefore wasting resources on the wrong peope. Market assessment can hep faciitators approach stakehoder engagement and participation in a more targeted and efficient manner. Shoud market assessment be outsourced or done in-house? Information is the stock-in-trade of effective faciitators, so it is a mistake for faciitators to outsource market assessment competey. Externa speciaists or secondary sources can be important sources of technica expertise and can be used to undertake some of the anaysis feeding into decision-making. But the process of market assessment shoud aways invove programme personne to a considerabe extent. Externa speciaists can ony give a imited perspective in their reports and presentations. As far as possibe, programme staff shoud undertake reguar assessment themseves. If externa speciaists are used, staff shoud work cosey with them so that no barrier is created between staff and market reaities. Doing assessment in-house is especiay important to identify (and respond quicky to) opportunities and estabish reationships with market payers in other words, market assessment shoud be regarded as part of a programme s process of engagement in the market. Recognise that a paucity of information in weak market situations is often an indication that information gathering and anaytica capacity within market systems is imited. It can be usefu for faciitators to draw in seected market payers into assessment processes to buid ownership and deveop the anaytica capacity of market payers for exampe by working hand-in-hand to conduct anaysis so that the information function (gathering, interpretation and distribution) might continue in the future. How do you decide which too to use for market assessment? The range of toos and sources of information avaiabe for market assessment is extensive (see Good Practice Notes, Section 5). A toos have their advantages and disadvantages, depending on context and type of information required. The key point for practitioners to remember is that sedom wi a singe too, assessment approach or source of information be sufficient to deveop good understanding of a market. Programmes can easiy become too-ed rather than information-driven. Choice of toos needs to be determined by the context and objectives of assessment (ie the information required) not the other way around! Recognise that some toos are better suited to certain contexts, such as: Geographic, poitica or pubic administration focus. In situations where key market payers define themseves by geopoitica boundaries (eg a district or province) certain kinds of participatory or stakehoder-based assessment toos, which have emerged in the fied of Loca Economic Deveopment (LED), are we suited for information gathering. Pubic sector stakehoders often have expicit geographic boundaries and remits and tend to be comfortabe with the openness and time required for participatory discussions. Conversey, geo- 28

37 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS graphicay defined approaches are ess usefu in situations where key payers operate across defined boundaries (eg a vaue chain). Popuation density. Certain kinds of toos, such as forma surveys, are easier and cheaper to conduct in ocations with high popuation densities. In more remote areas, the costs of achieving appropriate eves of coverage can be prohibitive. Nature of payers. Assessment approaches which are formaised and require direct interrogation, such as arge-scae surveys, can be intimidating for micro- or informa enterprises or marginaised groups, who often fear they are a form of scrutiny by the authorities. Informaity aso presents a chaenge for accurate samping and identification of potentia respondents because, by definition, these groups are sedom incuded in forma pubic records. Large commercia payers tend to be uncomfortabe with open participatory approaches (eg PRA) and find them overy time-consuming. Nature of activity. Certain toos are better suited to assessing specific kinds of activity. For instance, vaue chain anaysis tends to be easier to appy to sectors where there are cear stages of production or transformation. It is more difficut to map out sectors which are ess inear or transformationa in nature, for instance service industries. Moreover such toos uness modified consideraby tend not to assess the operation of supporting functions and rues. Toos for assessing reguatory conditions are we suited to forma poicies and reguations, but ess abe to expore non-statutory or informa rues. Figure 9 Understanding markets in reaity an iterative process Specific toos generate specific types of information. Over-reiance on a singe too tends to restrict understanding and bias potentia soutions. The diagnostic process heps programmes decide what information is needed and what kind of too might hep get that information. Whist programmes may start with a dominant too they shoud recognise that they need to use other toos from time to time according to context and information requirements. Faciitators need to be smart about their use of toos. Recognise that a combination of toos and sources of information are ikey to be more effective than a singe too or source. Trianguation is a usefu concept to appy in market assessment: aways ooking at a specific market from mutipe perspectives to deveop a more rounded view, testing preconceptions and assumptions and the natura biases of individua toos and information sources. Trianguation is a technique used by navigators when unsure of their position. One identifies a number of distinctive andmarks (ideay three) and then derives a compass bearing from each. The intersection of the three sets of bearings resuts in a triange, within which the navigator is ocated. In a simiar way, market assessment using mutipe toos and sources for exampe, project-commissioned or secondary anaysis, information from key informants and action research or piots is a good way of cross-checking the veracity of information and narrowing down more accuratey on the information that is reay required. 3B THE PLAN THE REALITY Subsector seection Subsector seection Subsector mapping & constraints anaysis Strategy formuation Seection of services and service assessments Intervention design Intervention Monitoring and evauation Monitoring and evauation Subsector mapping & constraints anaysis Service assessments Initia intervention ideas & designs Piot engagements / opportunities Interventions and revision Strategy formuation & monitoring 29

38 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3B: UNDERSTANDING MARKET SYSTEMS It is important to emphasise again that what matters for effective intervention is good, up-to-date knowedge of the market system in question, however it may have been acquired. Whie programmes can aways earn from the information gained by these toos, peope with experience and a practica fee for a market situation may not need such extensive investigation of the market through these techniques. How many markets shoud be assessed? The underying causes of one market s underperformance may ie in the weaknesses of another market system (ie markets are interconnected). This raises a practica chaenge. Market assessment is ike peeing an onion how many ayers (ie market systems) do programmes need to pee back to understand root causes? How many market systems shoud be assessed? My rue of thumb is that one target group eads to two to three markets, which ead to five to eight main interventions, each of which may have two or three phases of activity. Programmes need to continue to ask why the market isn t working and avoid eaping into a market system and deivering a soution themseves. However, asking why coud become an endess quest. The point is to arrive at an anaysis of constraints that aows effective action to be taken; this is a key judgement for faciitators to make. In practice, how far programmes need to keep peeing the onion depends on the identification of critica everage points ie key market functions which, if introduced or strengthened, offer a programme the best prospects of arge-scae and sustainabe impact (see Good Practice Note 5.15 in Section 5). For exampe: To improve the productivity of sma farms (Market 1) farmers needed access to better information. A programme coud not achieve sufficient scae, or sustainabiity, if it provided this information directy: its everage was imited. It recognised that improving the fow of information to farmers through the input suppy chain offered better prospects for scae and sustainabiity (Market 2). This entaied improving the suppy chain management practices of arge agricuture input suppiers: the programme coud achieve better everage by working through a few arge suppiers to reach many farmers, sustainaby. To achieve greater everage sti, the programme might focus on a third market: research, information and speciaised services in suppy chain management for arge firms provided by business schoos or management consutants. By doing this the programme coud stimuate wider diffusion and continued upgrading of more pro-poor business practices across industry as a whoe. 30

39 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3. COMPONENTS OF THE M4P INTERVENTION PROCESS 3C: DEFINING SUSTAINABLE OUTCOMES Key points Sustainabiity is centra to the M4P approach In parae with an anaysis of market constraints, it is important to deveop a cear view of how the market system wi operate sustainaby in reation to market functions and the roes of market payers Sustainabiity shapes intervention actions; it ensures consistency between actions and ambitions Key M4P principes and framework: sustainabiity matrix Definition of sustainabiity: the market system capabiity to ensure that reevant, differentiated goods and services continue to be produced and/or consumed by poor peope beyond the period of intervention 3C current situation future vision Payers Functions Who does? Who pays? core rues supporting functions Determined by: Capacity Incentives Nature of market system History Innovation andscape Payers Functions Who wi do? Who wi pay? core rues supporting functions Putting it into practice: key steps Step 1: Recognise sustainabiity as part of market assessment - as faciitators understanding of a market system deveops they need to think through how the market might work more effectivey in the future Step 2: Understand the current picture of the market - what functions core, rues and supporting functions are being performed by different payers and who is paying for them? Step 3: Identify and anayse interconnected markets - understanding the current market picture often eads to the identification of an interconnected market as a supporting function Step 4: Take account of the given factors infuencing a future view of market systems - the nature of the market, its historica context and the innovation andscape beyond the market in question Step 5: Take account of the open factors shaping a future view of market systems - capacity and incentives, which can be shaped directy by interventions Key chaenges and how to dea with them When to consider sustainabiity? What is a reaistic timeframe for achieving sustainabiity? Observing and measuring sustainabiity Winning partners over to a view of the future Good Practice Notes (Section 5) Vision buiding (Note 5.1) Deveoping BMOs (Note 5.6) Understanding incentives (Note 5.9) Guiding participation processes (Note 5.11) Interconnected markets (Note 5.15) 31

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41 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3C: DEFINING SUSTAINABLE OUTCOMES 3C.1 Introduction 3C.2 Why important? Sustainabiity is centra to the M4P approach. The focus of interventions is determined by understanding the constraints that inhibit pro-poor market deveopment. In parae with this anaysis, programmes need to deveop a cear view of where an intervention is going: an exit strategy which transparenty envisages how the market system wi operate in a sustainabe manner in the onger term. For this view of the future to provide coherent direction to interventions, sustainabiity in market systems needs to be defined. In practica terms, this means defining market capabiity in detai, inking specific market payers with specific market functions by addressing two key questions: who does (and, in the future, who wi do) and who pays (and who wi pay)? Sustainabiity is the essence of deveopment and of M4P: addressing underying causes of underdeveopment through short-term interventions, to achieve ong-term, asting change. Functioning market systems are never static; they have within them the capacity and incentives to be dynamic, to grow and to change. Determining how growth and change wi take pace in the future without further aid intervention is a centra sustainabiity chaenge. A cear view of sustainabiity imposes discipine and direction on interventions. If this onger-term picture is not cear there can be inconsistency between a programme s actions and what it is trying to achieve. Sustainabiity needs to be operationaised into a components of M4P intervention. Market assessment initiay identifies which payers are currenty performing and paying for different market functions. To define sustainabiity transparenty, programmes need to consider who wi do and who wi pay for these functions in the future. 3C 3C.3 Key M4P principes and framework Sustainabiity in M4P can be defined as: The capabiity of the market system to ensure that reevant, differentiated goods and services continue to be produced and/or consumed by the poor beyond the period of an intervention. A transparent view of sustainabiity is one that defines market capabiity in depth, inking market payers with market functions by addressing two key questions: Who does (and in the future who wi do)? Who pays (and who wi pay)? These two questions, together with the basic market system concept, can be used to form a simpe sustainabiity matrix which can be used to examine the specific combinations of market functions and payers which are necessary for a market system to work better in the future (Figure 10). The consequences of not considering sustainabiity are cear. Not to deveop a vision of market system sustainabiity is to tacity concur with the status quo and endorse the continuation of market systems in paths of under-performance. This bunt truth has to be accepted by faciitators and funders who sometimes fret over suggesting a different roe for market payers (such as government or membership organisations). Intervention brings with it inescapabe responsibiities one of which is to have a considered view of what the future shoud be. 33

42 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3C: DEFINING SUSTAINABLE OUTCOMES Figure 10 From market systems to a view of sustainabiity The existing market system supporting functions Private sector Government core Membership organisations Not-for-profits rues Networks Reinterpreted in a matrix format As a basis for deveoping a view of the future current situation future situation Functions Payers Who does? Who pays? Functions Payers Who wi do? Who wi pay? core core rues rues supporting functions supporting functions 3C.4 Putting it into practice Most market deveopment faciitators have a strong intuitive sense of sustainabiity M4P s emphasis on stimuating oca ownership and ight touch faciitation stems from a concern with sustainabiity. The matrix is a more forma way of operationaising this concern. The purpose of the sustainabiity matrix is to ink functions and payers. This first invoves identifying potentia functions and payers which are important for the market in question (Figure 11). 34

43 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3C: DEFINING SUSTAINABLE OUTCOMES Figure 11 Functions and payers in market systems core The suppy and consumption of goods and services; the core set of exchanges or transactions between suppy- and demand-sides. This might incude the poor as consumers, producers or workers and incudes non-monetary exchange as we as cash-based transactions. RULES 3C Forma and informa rues (and their enforcement) act to shape market outcomes and govern payers participation and behaviour. Rues can be of severa types: Generay appicabe rues such as contract, property, consumer and environmenta protection, weights and measures, heath and safety, competition and tax aws. Sector-specific rues such as banking codes, teecommunications acts and and use and ownership aws. Non-statutory reguations such as industry codes of good conduct and quaity standards. The enforcement of rues depends on the functioning of various organisations incuding the judiciary, systems of reguation, inspection and icensing, revenue authorities, company and and registries, industry reguators, oca tax offices, and sef-reguation mechanisms. How rues are interpreted and appied is often shaped by socia, cutura and poitica norms and practices as much as by the etter of the aw. Where forma rues and their appication are weak, the environment is governed by the informa. SUPPORTING FUNCTIONS A range of other functions support the core exchange, incuding: Product innovation and deveopment: ranging from adaptation of products in existing markets to new products for new markets. Skis and capacity enhancement: to ensure that market-specific skis and knowedge of different market payers are updated and refreshed. Research and deveopment (R&D): the essentia knowedge base that wi aow specific products to be deveoped, new insights into market mechanisms, underying market trends. Poicy formuation and review: the mechanisms by which government sets and assesses the impact of poicy, aws, reguations and other interventions which affect markets. Basic information provision that, for exampe, supports the deveopment of markets generay rather than specific products. Advocacy: to ensure that the interests of different market payers are appropriatey represented. Coordination: to foster cooperation and mutua interests above and beyond those of any singe market payer. Payers 3 in the market system can be of severa types: PLAYERS Government and government organisations: this can be broken down further (eg nationa and oca) but is essentiay the pubic sector. For-profit businesses, of any size or ownership form, ranging from informa to forma and sef-empoyed to substantia corporations. Networks: forma or informa, business networks can be a powerfu source of services advice, contacts, skis etc. Membership or representative organisations: industry associations, chambers of commerce, empoyers organisations, trades unions and consumer groups, whose principa roe is advocacy. Not-for-profit organisations: this coud incude NGOs and community groups but aso universities and educationa institutions that have some autonomy from government. 3 The matrix focuses on the main suppy-side functions in the market and the payers that perform them. It doesn t consider the demand-side (ie the function of consumption and consumers) expicity. However these are captured by who pays for the core function. 35

44 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3C: DEFINING SUSTAINABLE OUTCOMES Deveopment agencies shoud not be incuded in a view of the future. Their roe is regarded as faciitative and short-term without a vaid onger-term rationae. Of course, foreign-funded aid agencies may continue to be active in deveoping countries but buiding them into a picture of sustainabiity as ong-term payers runs the risk of cementing deveoping countries into debiitating dependence. To use the framework a number of steps are required. Step 1 Recognise sustainabiity as part of market assessment The sustainabiity matrix heps programmes take an understanding of specific systemic constraints in the existing market system and deveop it into a reaistic vision of change of how the market can work better in the future. In practice, therefore, defining sustainabe outcomes is inseparabe from the ongoing process of understanding specific market systems and the constraints that affect them. Assessment of market systems shoud: Not be static: it needs to be anaytica and capture the dynamics of the market system. Identify constraints, but aso the potentia and feasibiity of change. Hep programmes understand different payers, functions and reationships both as a source of market weakness and as a source of potentia soutions to improve market performance. The matrix is not an exercise in box-fiing. It has to be used hand-in-hand with deveoping understanding of a specific market system, as faciitators engage with an emerging array of functions and payers and need to think through how they might work more effectivey in the future. There is aways a risk of just describing an existing market system and not identifying priorities or pathways to change. Context: Water suppy is a major concern for peope in a warand famine-afficted country. Urbanisation is increasing but the pubic organisations that administer pubic services in urban areas are in a state of near-coapse. Water suppy is intermittent and of a poor quaity. Aid organisations are active in a number of ways but their activities are scattered and focused primariy on reief they are short-term. In this context, a severe water shortage is causing mounting pubic concern. A oca university takes the initiative to bring organisations from government, civi society and the private sector together to consider what can be done. It is cear that short-term fixes are not wanted. Peope want a asting soution; this is centra to their discussions and to their request for assistance from a deveopment agency. Step 2 Understand the current picture of the market The main question here is: who s doing what? That is to say: what functions core, rues and supporting functions are being performed by different payers? It is important to identify not just the forma providers of functions but especiay in weak markets informa or embedded provision between different payers. Faciitators need to be wary of the there s nothing there reaction to market assessment. For exampe: Most sma-scae businesses wi not have forma feepaid advisors yet they have informa sources of information that they draw upon. In such cases, it is wrong to think of services as free. Payment wi be incuded within the cost of another product or through the quid pro quo nature of the reationship. Informa rues are often more important than forma ones in understanding markets. For exampe, egay binding targets for ending to disadvantaged groups in many countries have argey faied; the informa (and forma) rues impinging on bank staff management pressure on risk and cient portfoio inked to individuas career prospects have been more important than government targets. Current picture: The existing situation is on paper simpe to understand. The suppy of water is the responsibiity of the oca municipaity operating under rues set by the Ministry of Water. Various parts of government are aso responsibe for other supporting functions, incuding maintenance and monitoring quaity. Government, in one form or other, is supposed to provide everything to consumers. In reaity, due to the intermittent suppy and poor quaity of mains water, consumers are forced to rey on aternative, informa mechanisms of water provision. Step 3 Identify and anayse interconnected markets Understanding the current market picture often eads to the identification of an interconnected market as a supporting function. Sustained better performance in the initia market is dependent on sustained better performance in the interconnected market. For instance, business services are commony arrived at by faciitators through another initia market focus, such as a commodity sector (see Box 5). 36

45 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3C: DEFINING SUSTAINABLE OUTCOMES Interconnected markets: Interconnected markets such as human resource deveopment, maintenance and security are a supposed to be taken care of by government. But these, as with the core function of water suppy, are by common consent not working. Box 5 Interconnected markets the exampe of business services For economies to move beyond competing soey on the basis of price they need to find other means of adding vaue. This requires the deveopment of a range of business services, eg design, ogistics, training, process consuting, etc. Improved competitiveness requires that market systems for business services deveop and function effectivey. to work effectivey too. So, in considering who does what in the future, a programme must aso consider the respective roes of private, government and civi society payers for the range of functions required in a market system. A number of factors infuence the view of the future. Some of these factors are open to infuence through interventions (see Step 5, beow); others are given. This atter group incudes three main sets of factors: (a) the nature of the market system(s) in question; (b) the historica context of the market system(s); and, (c) the prevaiing innovation andscape which may have impications for the aignment of payers and functions that make up the market system. The nature of markets. Certain markets have inherent characteristics, such as the degree of information asymmetry or externaities (the extent to which the actions of one party impact on others in the market). These characteristics vary between different types of market. 3C A faciitator may start with anaysis of the initia market system texties, furniture, agricuture, finance etc and undertake a who does/who pays anaysis of it. However, if the competitiveness issue ies with the services which are supporting functions to the market system in question, then these services shoud aso be examined through the same anaytica ens. If faciitators don t do this the risk is that they: Intervene inappropriatey by performing supporting functions themseves. Do not address sustainabiity in an effective manner. Interconnected markets such as business services are features of a market systems, often providing the means for earning, change and growth. Step 4 Take account of the given factors infuencing a future view of market systems For faciitators considering the future the main question is: what shoud the aignment of key functions and payers ook ike in a market system which is working more effectivey and incusivey? You ve got to ook beyond the obvious. Examine who your target group is interacting with and who they coud interact with so that they get a better dea. It is usua to start with the core function of the market the dea the poor are currenty getting: the vision of change starts here. However, for the core to deveop to meet the changing needs of consumers a variety of rues and supporting functions need For exampe: Pubic heath issues pertaining to agricuture and food demand a pubic concern beyond individua consumers. Other markets such as finance and and aso have externaities associated with them which require significant pubic roes. Conversey, there are other types of markets such as texties or advertising where pubic roes are more imited. These differences mean that there is no singe specific government roe in market systems but there are some markets where government (or other payers acting in the wider pubic interest) has a cear, egitimate roe. The historica context. The evoution of market systems varies between countries, with different traditions associated with, for instance, government, representative organisations or businessto-business cooperation. The past is aways a factor in shaping the roes of payers in the future; in some cases opening up new possibiities, in others acting as a barrier to change. The innovation andscape. The arrangements the combination of pubic and private roes by which market systems work change over time. Most obviousy, as technoogies have become more compex, the reguatory arrangements required for markets have become more demanding, and the appropriateness of a direct provision roe by government in market systems more open to question. Faciitators need to be aware of the nature of the wider changes in the innovation andscape around markets. These are regarded as given, in the sense that they emerge from outside the market system in question. The chaenge for faciitators is to recognise that the nature of innovations in one market can hep provide an impetus for change in another market. 37

46 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3C: DEFINING SUSTAINABLE OUTCOMES In considering the roes of different payers in the future, faciitators have to be aware of these factors and ensure that their vision of the future takes cognisance of them. Given factors: In considering the possibe future picture of the water system, the deveopment agency and a the stakehoders are aware of a number of factors. The faiure of government to pay an a-encompassing provision roe is obvious no one beieves that this can work in the future. So history does not restrict future options. It is equay cear that heath, poution and right to access concerns make some form of pubic roe vita. If private providers are to be invoved, this coud ony be on a reguated basis with detaied agreements on prices and quaity and suppy targets. In other words, if, after a competitive process, a private firm was awarded a time-defined contract to suppy water on a monopoy basis, stronger rues and enforcement woud be required to shape the firm s behaviour. Fortunatey, there is wider awareness of the many institutiona innovations in water internationay as we as in other markets where government once payed a dominant roe (eg teecoms). Use the sustainabiity matrix to think through the difficut issues in considering the future. The matrix does not provide answers for faciitators but, because it eaves nowhere to hide, forces programmes to openy take a view on where market systems shoud go in the future. Step 5 Take account of the open factors capacity and incentives shaping a future view of market systems The given factors above are beyond the scope of faciitators to infuence directy. Capacity and incentives, on the other hand, can be shaped directy by interventions and are therefore critica in shaping a reaistic future view of market systems. A future view of the market, therefore, needs to consider how faciitators can bring about change in these factors. Incentives for change. Interventions must strike a baance between striving for change that is ambitious and change that has a reaistic chance of success. The process of change therefore is as important as the vision of the future. For this reason, the incentives of different payers are centra to any consideration of the roes they pay now and might pay in the future. Understanding these incentives is important so that interventions can be aigned to them to pursue a vaid and reaistic vision of the future (see Box 6). Understanding incentives is centra to any process of change. A key entry point for intervention has to be to identify and everage the principa drivers of change in any market system to stimuate a momentum for change. This means understanding different groups and key individuas within organisations and considering how to take advantage of emerging circumstances (eg crises, eections) to engage with them. Capacities for change. A payer s roe has to fit with its capacity. Interventions need to be guided by a reaistic assessment of the distinctive core competence of market payers of what they can do. This is a function of both technica and organisationa capabiity know-how and know-who and is reated to organisationa structure and cuture. Beware of exporting organisationa roes from high- to ow-income economies there are two probems. In high-income contexts: (a) organisation performance is often not expored in depth, so the mode being promoted often acks efficacy even in its country of origin; and (b) vasty more resources are usuay avaiabe so organisations can do more. In ow-income contexts, more imited capacities make it more important to focus on priority roes for organisations especiay government and to guard against encouraging them to do too much. Open factors: Consideration of the capacities and incentives of key payers confirms the genera direction of change required for the future. The private sector is competent to deiver water services and given the right agreement with reguators on connections, prices, production and quaity, and appropriate accountabiity arrangements is motivated to deiver. A 10-year agreement gives them appropriate incentives to invest and to reap the return on that investment. To baance this private sector monopoy tight reguations are required which ony government is in a position to impose and enforce. Supporting functions around water suppy security of pipeines, monitoring water quaity and environmenta contro are aso pubic roes best performed by government. The natura monopoy given to the private utiity aso requires arbitration between consumers and the firm and this wi be provided by an independent committee from civi society. The university wi be avaiabe to offer business and management advice. This future picture provides the basis for technica support and capacity buiding from the deveopment agency. 38

47 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3C: DEFINING SUSTAINABLE OUTCOMES Box 6 Making incentives rea For change processes to be effective, they need to be understood in reation to the individuas and groups who make up organisations and who contribute to decision-making. The nomina, forma incentive of organisations may differ from the rea-word incentives of their stakehoders: Business membership organisations (BMOs): are supposed to be concerned with advancing their industry but in practice are aso driven by the power, socia esteem and persona business interests of office bearers. Departments of Agricuture: are supposed to be concerned with an effective roe for government but in practice are often driven strongy by staff (eg extension officers) concerns over maintaining their existing roes and positions. Businesses: are supposed to be profit-maximising but, in reaity, are often happy to pursue ow-risk and moderate return options, especiay when the downside to innovation faiure and individua bame are penaised in corporate cutures. 3C Deveoping sustainabe outcomes in practice: In this war- and famine-afficted country, water services deivered by the government are near coapse and there is an emerging consensus that short-term reief interventions are not appropriate. Recognise sustainabiity as part of market assessment Understand the current picture Identify interconnected markets Take account of the given factors Short-term fixes have not worked; a sustainabe soution is needed requiring a onger-term perspective. The oca municipaity deivers water under rues set by the ministry. A supporting functions potentia interconnected markets are government-deivered. The faiures of past government-ed approaches mean that history does not restrict options for change. Heath, environment, rights and monopoy issues make pubic roes important. Exampes of new pubic-private arrangements are widespread. Capacity and incentives shaping a view of the future The private sector has the capacity to pay the deivery roe. Government must shape appropriate incentives through rues on prices, connections, production and quaity. Security and quaity checking are aso pubic roes. Civi society is best paced to provide an accountabiity and arbitration function. 39

48 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3C: DEFINING SUSTAINABLE OUTCOMES 3C.5 Key chaenges and how to dea with them When to consider sustainabiity? There is a tendency for programmes to consider sustainabiity towards the end of their ife. Consequenty it is reegated to an afterthought. Successfu M4P programmes, rather than ony considering sustainabiity at a point in time, see sustainabiity as an intrinsic part of their faciitation approach, enabing others to do rather than doing directy by themseves. Utimatey, the rea benefit of deveoping a view of the future is the impact this can have on faciitators orientation and approach. What is a reaistic timeframe for achieving sustainabiity? There is no stock answer here: it is highy context dependent and determined by the scope and difficuty of the intervention chaenge. The bottom ine is that programmes shoud be concerned with what they eave behind after the period of intervention. Most market deveopment programmes have a timeframe of three to seven years. The key consideration is: what change is feasibe within a given period? Winning partners over to a view of the future A view of a sustainabe, incusive and effective market system is important not just for faciitators; it can aso be important for other market payers if they have a strategic, coordination roe usuay governments, representative organisations or think tanks. How to work with market payers to deveop a coherent and justifiabe view of the future is a key chaenge. Scenario buiding approaches (and other toos) can be used in this process. However, it is important that faciitators are not passive partners; informed by anaysis and research they must be abe to engage knowedgeaby to infuence the shape of a future vision. If timeframes are short, the vision of change needs to be adjusted accordingy. Where the proposed programme duration is very short, there may be no reaistic possibiity of achieving sustainabe impact in which case the rationae for intervention needs to be revisited. The sustainabiity matrix can be used for any point in the future. Indeed, it is possibe to use the matrix in an iterative manner to deveop a mid-point as we as a fina picture. Observing and measuring sustainabiity A centra premise of sustainabiity is that functions and payers continue to survive, thrive and adapt after the period of intervention. The probem is that after the period of intervention means that nobody is around to observe and measure such activity! Funders need to ensure that programme design and mechanisms for oversight estabish cear objectives for achieving independent activity and provide sufficient space and resources during the programme term to observe and measure whether independent activity has actuay occurred. Two impications fow from this: Make sure that programme objectives expicity incude sustainabiity, meaning indicators reated to, for instance, new products and reationships or independent activity. Focus in particuar on market depth on supporting functions and rues. The capabiity that market systems require to adapt, earn and grow is usuay ocated here. Increased depth provides the basis for wider breadth of access. 40

49 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3. COMPONENTS OF THE M4P INTERVENTION PROCESS 3D: FACILITATING SYSTEMIC CHANGE Key points M4P programmes are faciitative or cataytic: they try to bring about change which aters the way in which a market system operates into the onger term so that it better serves the poor They do so by stimuating market payers to perform market functions that they are either currenty not performing or performing inappropriatey The strategy of M4P intervention is to determine a pathway which eads to crowding-in of market functions and payers, using their resources to everage a response from market payers Key M4P principes and framework: pathway to crowding-in Pathway to crowding-in Market not working for the poor Period of temporary intervention Market working better for the poor Entry Tria and piot Crowding-in Exit 3D Muti-faceted intervention actions to promote system change The strategy for M4P intervention is to determine a pathway which eads to the crowding-in of market functions and payers to increase the breadth and depth of a market system Putting it into practice: main steps and factors There are three main steps to pursuing a pathway to crowding-in : Step 1: Assess and identify the key achievements from initia interventions - what is there to buid on? Step 2: Define the size and nature of the market system in the future, given initia intervention experience Step 3: Design and impement suppementary interventions to stimuate wider market deveopment In pursuing a pathway to crowding-in faciitators shoud be guided by five factors: Where a faciitator intervenes in reation to functions in a market system Who a faciitator engages with in the market system How faciitators conduct their reationships when they engage with the market system How much support faciitators shoud provide in seeking to stimuate market change (right-sizing) The consistency of actions with the pathway to crowding-in Key chaenges and how to dea with them When is it ok for a faciitator to subsidise? How to find and seect appropriate partners? Good Practice Notes (Section 5) Deveoping the offer (Note 5.5) Making a dea with ead firms (Note 5.7) What if there s nothing there or no one to work with? How can faciitators demonstrate the quick resuts that many funders demand? Giving grants to business (Note 5.10) Stimuating demand (Note 5.16) 41

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51 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE 3D.1 Introduction M4P programmes are faciitative or cataytic: they try to bring about change which aters the way in which a market system operates into the onger term. They do so by stimuating market payers to perform market functions that they are either currenty not performing or performing inappropriatey. The strategy of M4P intervention is to determine a pathway which eads to crowding-in of market functions and payers. Faciitators use their resources to everage a response from payers within a specific market system. 3D.2 Why important? Any form of intervention is, by definition, active: it is about doing something. Consequenty M4P interventions aways have the potentia to infuence market functions and payers in either positive or negative ways, ie they can deveop or they can distort market systems. It is vita that faciitators continuay assess the potentia and actua infuence of their actions on the market system and ensure they are consistent with their objectives for market deveopment. 3D.3 Key M4P principes and frameworks To impement this strategy successfuy a faciitator s actions need to be guided by consideration of five guiding factors: Where a faciitator intervenes in reation to functions in a market system. Who a faciitator engages with in the market system. How faciitators conduct their reationships when they engage with the market system. How much support faciitators shoud provide in seeking to stimuate market change. Consistency of their actions with a pathway to crowding-in. A faciitator is an action or agent that is externa to a market system but seeks to bring about change within a market system in order to achieve the pubic benefit objective of systemic change. A faciitator is a catayst that stimuates the market but does not become part of it. A faciitator shoud have a cear, reaistic view of the future functioning of a market system. Intervention strategy: a pathway to crowding-in The strategy for any M4P intervention is to determine a pathway which eads to the crowding-in of appropriate market functions and payers into the market system. Faciitators use their resources to everage a response changes in behaviour, practices, investment, reationships from payers within a specific market system. 3D This pathway to crowding-in recognises: That interventions are finite in terms of time and resources. Genuiney sustainabe outcomes can ony be achieved if market functions are undertaken by payers who are actuay part of the market system in question. The importance of indigenous ownership within the market system. Market systems need to survive and thrive based on the capacity and incentives of payers within the system. Therefore new market soutions need to be sufficienty innovative to change the status quo but in a way which is consistent with oca norms and conditions. That arge-scae and sustainabe impact depends both on the breadth of the market (ie voume of transactions in the core) and on its depth (ie diversity of supporting functions and rues). 43

52 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE A pathway to crowding-in requires that faciitators think through and make expicit how their initia interventions wi induce changes that resut in widespread, arge-scae and sustainabe change in the market system (see Figure 12). Crowding-in is the centra process in and purpose of faciitation through which interventions catayse or bring in other payers and functions into the market system so that it works better for the poor. Crowdingin can resut in enhanced breadth (more transactions in the core of a market), depth (supporting functions) or reach (new areas or markets). Key factors to guide faciitation actions Whist faciitation is often ight touch compared to conventiona intervention approaches, it is not passive: it is an active roe. However, given the diversity of market contexts in which faciitators operate and the array of potentia market probems that they face, a bueprint for what a faciitator shoud actuay do (or not do) is unreaistic. Faciitators wi aways face choices on how best to structure their interventions so that they deveop rather than distort market systems. To impement a strategy for crowding-in effectivey they shoud be guided by the considerations contained in Box 7. Box 7 Factors to guide faciitation actions Where a faciitator intervenes in reation to functions in a market system: are intervention activities ikey to be a market function in the future or are they purey temporary? Who a faciitator engages with in the market system: is there someone appropriate to work with? How faciitators conduct their reationships when they engage with the market system: is there potentia for an effective reationship? How much support faciitators shoud provide in seeking to stimuate market change: is there potentia for right-sizing support to market norms? Consistency of actions with a pathway to crowding-in: is there potentia to pu others in? These considerations represent the guiding factors against which faciitators need to continuay check the infuence of their actions. It is possibe to frame key intervention decisions with regard to these factors, with the purpose of transparenty thinking through, appraising and if necessary revising, actions in reation to the pathway to crowding-in. Figure 12 The pathway to crowding-in Market not working for the poor Market working better for the poor Period of temporary intervention Entry Tria and piot Crowding-in Exit Attitudes Capacity & practices Reationships & aignment Incentives & ownership Muti-faceted intervention actions to promote system change 44

53 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE 3D.4 Putting it into practice Pathway to crowding-in: buiding on initia interventions M4P interventions typicay start with an initia, reativey sma intervention, such as research or some form of piot, as programmes try to find their footing to initiate a change process. Some of these wi work and some won t. The chaenge is how to buid on successfu initia interventions to induce wider and sustained change. Research that changes government s awareness of the impact of existing reguations on the poor s access to a product. Vision-buiding that encourages an association to reappraise its roe in response to emerging trends. Constructive coaboration with a ead firm on new pro-poor product ideas in a particuar sector. We-received piot testing of a new product directy by a project. To do this three steps are required (see Figure 13): Step 1 Assess and identify the key achievements from initia interventions: what is there to buid on? There are two main criteria for assessing an initia intervention s resuts: Are initia outcomes substantia and new? Are initia outcomes consistent with incentives and the capacity of market payers to change behaviour, practices, investment or reationships? The extent to which these criteria are fufied determines the vaidity of initia interventions and therefore the potentia for crowding-in and the nature of further interventions required. If the quaity or reevance of initia interventions is weak, crowdingin measures wi not be successfu. Initia outcomes that might be the basis for further change coud incude: Context: Research conducted by a programme focused on improving rura iveihoods reveaed that sma farmers are unaware of the potentia of mechanised rice threshing, despite the fact that research aso indicated that significant numbers of farmers compain about the inefficiency of manua threshing. Most threshing machines currenty avaiabe are imported, arge and expensive. The objective of intervention is to stimuate a more vibrant market for sma, ow-tech threshing machines, in terms of oca manufacture, affordabe and sustainabe avaiabiity and increased and sustained use by sma farmers. A faciitator decides to coaborate with a oca manufacturer to adapt an existing simpe design from another country and piot a new ow-cost threshing machine. 3D Figure 13 Operationa steps aong the pathway to crowding-in Market not working for the poor Market working better for the poor Period of temporary intervention Step 1: Initia interventions Step 2: Overa market vision Step 3: Interventions to crowd-in 45

54 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE To demonstrate the effectiveness of the new machine the faciitator provides 100 machines to farmers on a subsidised basis, in the beief that once a few farmers have benefited from the new machine, a demonstration effect wi encourage others to buy and use them without programme support, eading to a functioning market. The faciitator s initia thinking is: piot machines deveoped and deivered to farms machines used by farms benefit of machines assessed by farmers. However, whie direct deivery may demonstrate benefits for the user of the machines, it is necessary to ask: how wi these initia interventions achieve the faciitator s market deveopment objectives? Step 2 Define the size and nature of the market system in the future, given initia intervention experience The next step is to deveop a picture of how the market shoud operate in the future. This is driven by the ambition of a faciitator with respect to different features of market change: Breadth: wi more transactions take pace in the core of the market? Depth: wi supporting functions around an initia change deveop? Reach: wi an initia change in one area, sector or target group spread to others? Step 2 is a natura point after initia interventions at which programmes can revisit some of the gaps in their strategic framework (Section 3A) and preiminary market assessment (Section 3B) to gauge the potentia scae and scope of intervention and more tighty define indicators (Section 3E). Size and nature: So far the piot has ony been conducted in one district with one manufacturer and the programme has distributed 100 machines directy. How wi threshing machines reach the 45,000 other rice farmers who are the feasibe target market? What about a further 100,000 farmers in other grain sectors that require threshing technoogy too? It is not heathy or feasibe for one manufacturer to suppy the whoe market how wi the 4 other manufacturing companies take advantage of this new market opportunity? How wi machines be distributed, financed and maintained in the future? Different farmers have different and evoving requirements wi the same threshing machine work for a? In reaity, the pathway to crowding-in for a demonstrationbased intervention is more compex, requiring other faciitation actions to encourage take-up of manufacture, distribution and consumption. Step 3 Design and impement suppementary interventions to stimuate wider market deveopment and progress The market system needs to be encouraged to move towards the future picture deveoped in Step 2. In doing so, faciitators need to consider: The processes through which natura crowding-in coud happen and, in particuar, the incentives, capacities and reationships required for this to happen. The constraints that might prevent this process from taking pace, eg information about potentia benefits from change, how to knowedge and perception of risk. Suppementary interventions to support crowding-in might typicay incude: Demand-side stimuation. Targeted measures to overcome consumers resistance to trying new products or engaging with new suppiers. This might incude actions to famiiarise consumers with a new product (eg demonstrations of new equipment or socia marketing) or imited financia subsidies (eg vouchers) to induce tria. Socia marketing. Used to promote widespread awareness of an issue and stimuate behaviour change. Unike product marketing, which commercia payers use to promote their own specific (branded) products, socia marketing focuses on more generic issues in the wider pubic or coective interest. It has been widey used, for instance, to raise awareness of the need for use of condoms or insecticide-treated mosquito nets. Consumer education in financia services is another exampe. Individua firms producing these products might then advertise their own branded products at their own cost. Newsetters. Requires a common focus for readers ideay a specific market niche that buids on other faciitator activities, events and networks (ie they are not an isoated event). Successfu newsetters can be news- or research-focused each requiring a different writing stye and content but ony succeeding when presented in a professiona manner that fits the newsetter audience. Stakehoder forums. Simiar to newsetters but a more active measure requiring considerabe organisation. As with newsetters, attracting interest requires a strong message either coming from direct programme experiences or from other innovation. More ikey to be successfu when focused on a specific market (finance, agricuture, water) rather than mutipe markets. Suppy-side engagement. Direct technica (and financia) support for one or more market payers to take advantage of new opportunities reveaed by a programme (ie to deepen the market system). Partners here are ikey to be consutants, researchers, think tanks, speciaist service providers, representative organisations or government, depending on the nature of the market and specific functions in question. One-to-one repication. Repeating a successfu experience with other partners, say from one ead firm to other competitors. 46

55 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE This may appear reativey straightforward but, in practice, reationships with partners are rarey the same. Interventions here may encourage more critica mass to deveop but aso (a) strengthen the precedent for direct subsidy and (b) do not address how the market wi earn without subsidy. Suppementary interventions: The network of agricutura equipment suppy through which natura crowding-in might occur is risk-averse and prone to poor information fows. The programme might need to pursue a range of other actions to promote crowding-in: Signpost success stories so that other farmers understand the benefits of the new machines. Encourage other manufacturers,distribution agents and equipment easing companies to produce and se simiar technoogy to ensure competition and maximise outreach. Improve information fows between suppiers and potentia consumers. Stimuate further transactions between suppiers and consumers using demand incentives (eg vouchers), rather than direct deivery. Strengthen suppy-side capacity for further research and product deveopment of equipment. Persuade the Department of Agricuture to endorse the new equipment and pay a roe in coordinating wider market take-up. In practice, successfu crowding-in interventions take a number of forms, with varying degrees of resource intensity. In each case, these are concerned with deveoping the market system s capacity to earn and to act on the basis of earning. Faciitators have to address the difficut question: in future, who s going to do what we have done? Faciitators shoud recognise that a do nothing option based on the beief that an initia spark wi resut in a arge-scae demonstration effect is usuay over-optimistic. Other than in the most innovative and resource-rich environments, change does not happen in this manner. Faciitator guidance factors For an intervention strategy to be successfu faciitators need to ensure that their actions are consistent with that strategy the pathway to crowding-in. In practice there are a number of guiding factors that can provide discipine to faciitators as they confront the inevitabe diemmas which emerge during their interventions. These factors questions are a menta checkist for faciitators (see Figure 14). Once again, these factors are presented sequentiay in the Guide. In reaity, faciitators wi find themseves asking these questions in a different order, at different times. The first question where is probaby the most significant, as it triggers the subsequent questions. Each question wi now be considered in turn. Where - Are intervention activities ikey to be a market function in the future? Where faciitators focus their interventions in reation to key market functions and payers can positivey or negativey affect progress aong the pathway to crowding-in and the attainment of market deveopment objectives. The critica consideration here is whether or not the actions performed by a faciitator are (potentiay) ikey to be part of the market in the onger term (see Figure 15). If the activities are genuiney of a one-off nature, there is more scope for a faciitator to undertake these directy. If it is envisaged that activities (or those cosey reated to them) are ikey to be needed in the future, faciitators need to proceed with more caution and, if possibe, ook to engage with appropriate market payers who have the potentia to assume such functions in the future. It can sometimes be difficut to ascertain definitivey whether an activity might be a market function or not. That being the case, faciitators shoud err on the side of caution and try and eave the door open for market payers to assume activities in the future. That means subjecting a intervention activities to scrutiny against the guidance factors. 3D 47

56 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE Figure 14 Faciitator guidance factors Where? Are intervention activities ikey to be a market system function in the future? Who? Is there a market system payer appropriate to work with or through? reationship? Is there potentia for an effective reationship with market system payer? intensity? Is there potentia for effective right-sized support to market system payer? Assess whether current intervention actions are ikey to be required in the market in the future... Are they reay temporary? If action is a market function, identify market payers with incentives and capacity to pay this roe (or seek to eave the door open for this to happen in the future) Interactions between interventions and market payers shoud encourage them into roes and practices consistent with the market system, buiding on indigenous incentives and ownership Actions must be consistent with oca norms not deveopment norms: otherwise faciitators distort functions, dispace ownership, disorient payers crowding-out not crowding-in Crowding-in? Are actions consistent with pathway to crowding-in? Keep asking shoud we be doing this? : aways ook for opportunities to crowd-in market functions and payers that better serve the poor Where? The faciitator might undertake a nationwide socia marketing campaign to raise awareness about smascae threshing mechanisation. Unike specific product marketing, socia marketing is unikey to be a reguar activity in the market. It might be justified for the faciitator to do this on its own. However, other payers with a strategic interest in the market say the Department of Agricuture or the Association of Manufacturers might have an interest in the profie the campaign generates and their endorsement of the new equipment may be vauabe. Therefore, whist the faciitator covers the buk of the costs it might be pragmatic to invove these payers and ensure they aso engage with the socia marketing speciaist keeping the door open. Conversey, product design and deveopment are recurrent requirements: existing designs wi need to be updated, new machines wi be needed. The faciitator must take care not simpy to give the technoogy to other manufacturers but try to ink them to sources of design or expertise who can hep them deveop their own products, whether that is a freeance designer or engineer, a university technica design department or a source of information from overseas. It is important that manufacturers and other reevant payers are crowded-in to take ownership and invest in the product deveopment function. 48

57 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE Figure 15 Key decision is intervention activity ikey to be a market function in the future? Where? Is the intervention activity ikey to be a market function in the future: is it recurrent or one-off? recurrent one-off How wi crowding-in or scaing up happen? No Does one-off produce sustainabe change? Yes 3D Faciitator shoud consider other guidance factors Faciitator might intervene more directy Who - Is there someone appropriate to work with? If a programme is focused on stimuating a market function, inevitaby it means thinking about who can perform that market function ( who does? and who pays? see Section 3C). A shift in the focus of intervention towards the deveopment of market systems cas for a shift in thinking regarding who interventions work with. In a muti-function and muti-payer market system there tends to be a greater range and diversity of market payers with which faciitators might need to engage in order to pursue market deveopment objectives. In practice, that means that faciitators are faced with a much messier and ess rigid picture of partner 4 choice than in conventiona programmes, within which the foowing trends are emerging: The need to work with mutipe partners, with ess focus on any singe specific partner organisation or individua. The need to work with a greater diversity of types of payer, incuding: - Private and pubic sector payers - Increasingy speciaised and differentiated payers - Smaer, informa and non-organised payers (eg informa networks or individuas), especiay reevant in weaker markets Such diversity has positive and negative impications for faciitators: it offers greater fexibiity, but aso increases uncertainty about the appropriateness of potentia partners. In conventiona programmes partners are often given as part of biatera agreements or on the basis of a historica reationship. In such cases a key consideration is for a partner which serves as a safe pair of hands in which a project impementation unit can be housed. In M4P, whist recognising that faciitators wi often have poitica partners, the main concern is to engage with partners that are appropriate for the prevaiing market norms and in reation to the specific functions upon which the programme is focusing. Specificay: Which market functions is the programme focusing on? Does the partner(s) have the actua or potentia incentives and capacity to perform that function appropriatey? (see Box 8) 4 Here partner is used to refer to market payers. Of course faciitators have other partners: their funders, co-faciitators and speciaists who hep them impement interventions (see Box 9 on page 51 and Section 4). 49

58 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE Box 8 Considerations for partner seection Given the diversity and dynamism of market systems, there is no foo-proof approach to partner seection. Persona factors (such as the character and motivation of individuas running organisations) wi pay an important roe, but are difficut to capture in a ist of criteria. However there are a number of considerations that faciitators shoud bear in mind: Appropriate capacity to perform and continue performing specific market functions. Cear incentives (eg to reform, to improve practice or perform a new market function). Demonstrated ownership or initiative over a reform process or market function. Existing momentum upon which engagement can be buit (assuming that it is in a direction consistent with faciitators objectives and strategy). Potentia for viabiity to continue to perform and adapt market functions. Responsiveness to faciitators overtures, vision and way of working. Start with an open and pragmatic view about partners; recognise the need for mutipe and changing partners over time; avoid getting ocked into ong-term partnerships. Who? The Department of Agricuture (DoA), with an officia mandate to deveop sma-scae agricuture, seems the obvious candidate to coordinate wider take-up of smascae threshing technoogy. However the DoA operates schemes to subsidise distribution of agricutura equipment (usuay imported) in regiona centres. These tend to be captured by we-connected individuas and rarey resut in improved access for sma farmers, contradicting the DoA s officia objectives. Given its vested interests in the existing schemes it is unikey that DoA woud be an appropriate partner in this case. The Association of Manufacturers has new energetic eadership, agricutura equipment manufacturers are active in the Association and they (together with the Department of Industry) are concerned by rising eves of manufacturing imports (impicity supported by the DoA scheme). The Association may be a more fruitfu partner for activities focused on coordination. Reationship - Is there potentia for an effective reationship? Faciitators work with partners as a means to an end: to stimuate wider and sustained market system change. Therefore the reationships faciitators have with partners shoud foster appropriate behaviour in partners to accompish objectives of market system change. In practice an effective reationship typicay has to baance two considerations: Providing the right incentives to a market payer partner to ensure their engagement and commitment and sustainabiity. Achieving wider market system change and avoiding unfair competition or disproportionate capture of benefit in other words keeping the door open for others. Working with industry innovators or roe modes is an important part of a strategy for crowding-in. However there are aso risks to picking winners and raising entry barriers for competitors this has to be carefuy managed. When negotiating with partners, faciitators need to make it cear that the dea on offer isn t excusive and that they intend to work with others in the future. To do this faciitators need to ensure (a) that their support to partners is transactiona and (b) that their offer to partners is cear and credibe. Ensuring support to partners is transactiona If programme support is to crowd-in market functions and payers, it is important that it shoud be structured in such a way as to stimuate commitment and ownership (ie it gets market payers to invest in the market system). This typicay means making support transactiona, ie it shoud invove a quid pro quo something in return for something. This might mean matching financia contributions, some form of inkind contribution ike personne or premises or a significant eve of effort ( sweat equity ). Support that is transactiona has a number of benefits: It requires reciprocity and therefore has the potentia to everage partner resources and commitment. It fosters more reaistic incentives and behaviour. It inks support to performance and attaches a vaue to support, encouraging prudent and effective utiisation and ensures appropriate intensity of support (see beow). It mimics and reinforces reationships in a manner that is consistent with market norms. Conversey, unconditiona or soft support can send the wrong messages to partners and the wider market system; it undermines market signas or incentives and is more ikey to distort rather than deveop markets. 50

59 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE Transactiona support. The core of a market system is about exchange or transactions between two parties. Transactions are the means by which consumers signa their demand, preferences and vauation to suppiers and the way in which suppiers are made responsive and accountabe to consumers. The reationship between a faciitator and a market payer is not in the market system per se, but the effectiveness of the reationship between them can be enhanced if it is aso transactiona in nature, ie there is a reciproca dea which fosters commitment and responsiveness in both parties. A cear and credibe offer to partners What s our offer? is a critica question for faciitators in market deveopment. Because M4P programmes rey ess on providing direct financia support, their offer what they provide, what they expect in return and how that dea is presented to partners needs to be cear, we-understood, credibe and vaued, if it is to resut in productive engagement. Turning up without a chequebook forces faciitators to think more creativey and tangiby about the vaue they can add. Note that faciitators tend to have more than one offer (see Box 9). Faciitators need to take care when entering the market. It is easy to be seen as an arrogant outsider if you approach an experienced market payer and say I understand your market better than you do or I can hep improve your organisation. This needs to be handed sensitivey and smarty. For exampe, your offer is much more credibe if you work with respected industry experts or insiders as consutants to your programme. Box 9 Mutipe reationships in the market and outside it One important esson from experience is that faciitators have to dea with mutipe reationships. On the one hand a faciitator might need to engage (and have different offers to) a range of market payers during the course of an intervention. At the same time faciitators aso have a contractua reationship with their funders, in the word of deveopment (see Section 4). The key point to understand here is that the deveopment word often has different objectives, norms, structures, capacities and resources from those of the oca market system. Arguaby, the raison d être of a faciitator is to act as a bridge between these two words, ensuring that their requirements are met in a manner consistent with their own norms, but aso ensuring that inappropriate infuences, signas and practices are not transmitted from one to the other. For instance, a funder may require a faciitator to report on the gender dimensions of a programme s interventions. It is entirey appropriate that the faciitator monitors this kind of impact. It woud not be appropriate to transfer the burden of assessment to a market payer (eg a private firm) for whom gender objectives are not a concern. Reationship: If the faciitator chooses to work with the Association of Manufacturers it shoud ook carefuy at how it structures that reationship. BMOs often have the potentia to pay important and typicay absent coordination functions in market systems. However their capacity is usuay imited. Programmes often form substantia reationships with BMOs at the heart of their intervention strategies. Many BMOs have been encouraged to expand, assuming inappropriate roes beyond their capacity and the interests of their members. As a resut their orientation shifts away from their members and towards deveopment agencies, and their new roes can ony continue with aid funding. 3D In this case the faciitator shoud ensure its support to the Association is carefuy targeted on specific technica assistance to boster the Association s abiity to coordinate. For instance, organising meetings of key industry stakehoders or briefing the media activities that are consistent with its ikey future roe. The faciitator shoud not try to channe other intervention activities aimed at other market payers through the Association (eg technica support to other manufacturers to produce new equipment, arranging ease financing or operating a voucher scheme to stimuate consumption) as these woud be inappropriate and potentiay distorting. 51

60 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE Intensity of support - Is there potentia for effective rightsized support? An important factor determining the extent to which an intervention deveops or distorts a market system is the intensity of interventions by a faciitator towards either market functions, payers or the market as a whoe ie how much support is provided. Too much (or the wrong kind of) support can overoad market payers and functions in ways that are inconsistent with market deveopment objectives (see Box 10). Box 10 Overoading market payers and functions Overoading payers: Faciitators need to find ways to operate which are consistent with the mandate and practices required by their funders (eg in terms of objectives, resource aocation and reporting requirements) and at the same time operate sensitivey in weak market situations. Experience suggests that by transferring the norms of the deveopment word to market systems faciitators can overoad market payers in a number of different ways: Transferring deveopment objectives to partners that are inconsistent with market norms, diuting their focus, adding to costs and undermining their sustainabiity by moving them away from their natura roes and competencies. Excessivey infuencing partners, reducing the reative vaue of ownership. Unreaistic reporting requirements requiring partners to deveop burdensome systems and procedures. Excessivey support for equipment, staff, products or systems, resuting in costy structures and recurrent financing requirements that undermine partners sustainabiity. Overoading functions: By the same token, faciitators can overoad market functions by pursuing standards or processes which are inappropriate for oca conditions, resuting in functions that are overy comprehensive, unwiedy, expensive and unsuited to ongoing maintenance and adaptation through oca capacity. Such overoading can aso crowd-out more appropriate initiative and investment. Exampes of overoading incude: agricutura market information systems using sophisticated data compiation and dissemination technoogies, which coapse on withdrawa of internationa funding; or the introduction of reguatory impact assessment methodoogies which require a eve of technica competence, resources and bureaucratic coordination that is far beyond the capacity of domestic government. It is essentia that faciitators right-size their support so that it is consistent with the norms and context of a market system. Right-sizing support requires: Assessment of prevaiing market norms. Such as comparabe products and organisations, common institutions and prevaiing eves of capacity, costs and prices. This knowedge aows interventions to be geared towards supporting appropriate and viabe products, organisations, peope and mechanisms. A portfoio approach. This entais working with mutipe partners and interventions, rather than just one (see Section 2). As with an investment or ending portfoio, the performance of the entire portfoio is more critica than any singe constituent part. The benefits of such an approach are that: - It reduces pressure to achieve resuts through a singe partner or intervention, hence support can be ess intensive, and it reduces a programme s dependency on a singe payer or course of action. - A portfoio of partners or interventions means that overa programme objectives (eg gender outcomes) can be assigned and assessed on the portfoio in aggregate, rather than on the basis of a singe partner or intervention. Intensity of support: The faciitator might wish to introduce a system of certification either of the manufacturers production processes or of the fina product to ensure quaity. The faciitator woud have to ensure that the burden of compiance for manufacturers was reaistic given their resources, and beneficia to sma farmers. It is common for standards to be introduced which are beyond the eves needed in weak market situations because they are modeed on internationa norms. Such standards can drive up costs and affect affordabiity. The faciitator woud aso need to assess how the standard coud continue to operate in the future: who can set the standard, who can enforce the standard, who can hep firms to compy with it? If resources are insufficient to permit such a sophisticated system, it woud be better if the faciitator considered a more right-sized soution, perhaps promoting an information-based approach where consumers are informed about what to ook for in a good rice thresher and use demand-side pressure to assert quaity contro. 52

61 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE Crowding-in - Are actions consistent with the pathway to crowding-in? Cutting across a the factors discussed above is consideration of the potentia for crowding-in. A pathway to crowding-in requires that faciitators think through how their actions today wi stimuate positive market changes in the future. This means expicit and active consideration and actions to crowd-in from the outset. Faciitators shoud continuay assess the consistency of a actions with the pathway to crowding-in and keep asking: shoud we be doing this?... or is there potentia to bring others in? In simpe terms, faciitators shoud be concerned with stimuating new or improved take-up of market functions by market payers. This is most easiy defined in terms of sustainabe activity, independent of deveopment assistance. In practice crowdingin might mean both breadth and depth of the market (see aso Section 3C). Breadth of crowding-in is concerned with increasing the eve and diversity of transactions in the core of the market which resuts in greater access and participation for the poor. The key point is that programmes shoud aways start by identifying the market functions required the where question. Thinking through sustainabiity then eads to the who question and the other factors to guide intervention. 3D.5 Key chaenges and how to dea with them When is it ok for a faciitator to subsidise? The point for faciitators to remember is that subsidies are not a the same. It is crucia to differentiate between two forms of subsidy: Pubic finance from pubic bodies which are part of the market system for ongoing functions required by the system (eg recurrent government expenditure on a customs authority or funding for pubic infrastructure). This can be regarded as a egitimate feature of a market system and needs to be sustainabe from within the capacity and resources of domestic government revenues. Temporary, stimuating finance of an externa agent such as a deveopment agency, which is time-bound and not sustainabe and therefore not part of the market system. 3D It is aso usefu to think in terms of crowding-in payers, not just activity eves. For instance, in very weak market situations crowding-in may entai stimuating new entrants (eg from more deveoped areas). Another consideration regarding crowdingin payers is competition: more activity is not necessariy a good thing per se, if it comes about as a resut of increased market dominance by one payer. We use pathways as a management too to assess the progress and impact of our interventions. Besides outreach and saes, we monitor the adoption and ownership of desired changes in behaviour over time. We have found that significant changes in firm behaviour (eg outsourcing services, better interna systems and operations, etc) have been more reiabe predictors of sustainabiity firms readiness to continuousy upgrade as a strategy for growth than just outreach or saes. Depth of crowding-in recognises that competition is often not enough to make markets work better for the poor. For instance, in weak or thin markets or in the case of many pubic functions, strong competition may not be feasibe or desirabe. In these cases crowding-in may mean the take-up of other market rues or supporting functions which can ensure transparency, scrutiny and means of redress, and compensate for a ack of competition. This distinction is important when thinking about what a faciitator does. It is generay recognised that direct financia intervention in the core of the market transactions of goods and services has a high potentia for distortion and is best avoided (see Box 11). However, it is important to recognise that any form of direct injection of cash into market systems is potentiay distorting. Subsidies for transactions in the core of market systems carry the highest risk, but there are aso considerabe risks if faciitators directy finance or perform rues and supporting functions. These too can be distorted, ownership crowded-out and sustainabiity undermined (be those private or pubic functions). For exampe: It is generay accepted that agencies shoud not subsidise the provision of financia services. However, if agencies conduct consumer research or product deveopment in the pace of banks or assume scrutiny functions in the pace of reguatory authorities, the integrity and sustainabiity of the market system is aso ikey be impaired. A number of genera essons can be drawn for faciitators considering subsidising any market function or payer: Justified openy in reation to market constraints. As mentioned above, support has to have cear justification and objectives for overcoming market constraints and deveoping sustainabe access to goods or services. 5 Finite period of support. There has to be a cear end point to support reated to measurabe and achievabe objectives. For instance this might focus on voume of transactions taking pace between consumers and suppiers without any subsidy. 5 For further consideration of subsidies and private firms see Good Practice Notes 5.7 and 5.10 in Section 5. 53

62 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE Box 11 Why are direct subsidies for transactions risky? The more directy an intervention becomes invoved in transactions between consumers and suppiers, the more it infuences incentives and signas in the core of the market, where the potentia for distortion is greatest. This does not mean that subsidies for deivery of goods and services cannot be justified. However, it does mean that faciitators need to be aware of the risk and act with caution. Such subsidies are typicay justified for the foowing reasons: Typica justifications Provide tangibe incentives to change behaviour. Overcome risk and demonstrate benefits of change. Can reinforce market forces and stimuate further market deveopment. Peope are poor they can t afford to pay and therefore need subsidy! Comment Where resistance is entrenched or an idea is new, imited deivery subsidies to test ideas or demonstrate vaue may be effective. However there is a danger that imited can become onger-term and that subsidies undermine the connection between price and vaue, and crowd-out initiative and ownership. Possiby, if used sparingy, to reinforce transactiona reationships and address specific constraints. Many dangers here: Is this emergency reief? Is this socia protection? How wi activity continue in the ong term? Potentia for endess subsidy. Limited outreach and potentia for scae-up. Undermines poor consumers sovereignty. Direct support is highy visibe. We need to find a way to spend our money! Subsidised deivery does have higher visibiity and permits greater disbursements, but this is a bureaucratic rationae, not a deveopmenta one. Limited in scae. There are rea dangers of fooding a market system with funds causing ong-term distortion. How deivered is important. Carefu consideration needs to be given to the structure of the support, what incentives it creates, and how support is expected to achieve objectives. Consistent poicies and approaches - need to be deveoped with other faciitators and funders. For instance, as the essons from microfinance demonstrate, widey differing approaches and poicies on subsidy among agencies can hinder progress towards market system deveopment. There is a need for openness and coordination between agencies to deveop consensus and avoid damaging undercutting between agencies. How to find and seect appropriate partners? As noted above, there is no idea organisationa form for a partner in market deveopment, so finding and seecting partners inevitaby invoves tria and error and needs to be grounded on the basis of what works in any given context. Typicay faciitators use a combination of the foowing types of identification and seection processes: Reationship-based seection. Tender-based seection. Market assessment-based seection. Reationship-based seection Partners can be identified through the persona knowedge, existing networks and acquaintances of funders and faciitators. This approach has much to commend it: it is cheap, working reations may aready exist, and uncertainty can be reduced. It does have a number of drawbacks: It imits the fied of seection you ony work with those known to you. There is some risk of continuing estabished reationships and expectations: this is particuary probematic if a funder or faciitator has a high profie or a history of more conventiona intervention approaches. 54

63 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE A reationship-based approach to partner seection underines the importance of faciitators being business-ike themseves; deveoping inkages and maintaining networks in the marketpace, and not operating from the confines of a deveopmenta vacuum. Tender-based seection A tender-based approach invites appications to bid for faciitator support. In an open or competitive tender, opportunities to appy are advertised, tender documents are drawn up and made avaiabe for a fee payabe on appication, seection criteria and processes estabished, and seections are made on the basis of information provided and quaitative assessments. The advantages of this kind of seection process are that it: is transparent (which may be important to compy with funder accountabiity); aows a wider range of appicants to be considered, which may be usefu when a faciitator s networks are imited; permits a faciitator to project a business-ike, focused image towards potentia partners. The disadvantages of tender-based seection incude: If done propery it can be expensive and time consuming. It often requires sifting through a arge number of inappropriate appicants to identify a few good ones. If criteria seection and assessment are not rigorous, the success of the process is jeopardised. It creates a big spash which may be unwecome when a programme is sti trying to find its footing. Utimatey, successfu partner identification and engagement is based on a combination of informed market understanding, opportunism and tria and error (hence the vaue of mutipe partners!). There is simpy no substitute for faciitators being cose to and engaged in a market situation, with their finger on the puse. No amount of forma research and seection processes can overcome the isoation of a distant and desk-based faciitator. What if there s nothing there or no one to work with? M4P is about making market systems work better for peope who are currenty disadvantaged by the current market situation: it is aways about markets which are weak in some way or another. However some faciitators may ask what about reay weak markets what shoud we do if there is nothing or no one there? In these circumstances faciitators need to: Look again or rethink how the market reay works. In very weak markets what initiay appears to be competey absent is often hidden or works in a ess-than-obvious way. For instance, services are more ikey to be embedded within other types of transactions or provided informay rather than sod on a stand-aone fee-paying basis. Key drivers may be ocated outside the area in question (eg a ead firm, a trader or an infuentia poitician). Peope may trave to the market rather than the market coming to them (eg nomadic ivestock herders visiting regiona markets periodicay). In very weak markets a faciitator s approach to market assessment has to be adjusted to capture informaity and invisibiity. 3D A cosed tender strikes a baance between the two approaches, where invitations to bid are extended to a number of potentia partners, most or a of which are reativey we known to the faciitator. Forma seection criteria and approaches are often unsuitabe and difficut to compy with for the sma and informa partners with which faciitators often have to engage in weak markets. Market assessment-based seection As a resut of market assessment, information on appropriate partners often comes to ight. Indeed, market assessment and sustainabiity anaysis (see Sections 3B and 3C) shoud activey consider the potentia for partner engagement as an integra part of their processes. Reconsider the feasibiity of change and the rationae for intervention. If a context is genuiney so weak that there is nothing going on ie a viabiity void exists then faciitators need to be honest with themseves and their funders: what can intervention reaisticay achieve? There is a risk that intervention ends up being about providing emergency reief. Whist such reief is vita to saving ives, it is about coping with symptoms rather than addressing underying causes. This is not the ream of the M4P approach or indeed any form of deveopment which seeks to promote asting change. In such situations if M4P intervention is warranted, it is more ikey to focus on improving government s redistributive poicies and mechanisms or other forms of merit goods. However, weakness typicay extends to the government: it wi often be absent or dysfunctiona as we. In these circumstances interventions might focus on improving the poor s access to information about migration opportunities and enhancing their mobiity, eg by increasing the avaiabiity of identity cards, 55

64 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE Figure 16 Spectrum of economic weakness SPECTRUM OF ECONOMIC WEAKNESS EXTREME DYSFUNCTION Geographic isoation Paucity of natura resources Disaster & confict prone Governance & pubic services vacuum Varying degrees of: Resource aocation & mobiity Economic, socia, poitica integration Institutiona strength & diversity Access to goods & services Demand for goods & services VIBRANT, RESILIENT ECONOMIC SYSTEM Equitabe, effective governance Investment in peope Stabe macroeconomy Competitive microeconomy Goba inkages Increasing eves of cash-based exchange: Own-account production Participation in abour markets Consumption of goods & services Concentration of human settement patterns and economic activity access to trave and accommodation services or mechanisms for remittance of income. Such interventions wi require considerabe time and effort from a faciitator. Weigh up the eve of effort required to bring about change. Assuming that there is not a compete viabiity void, faciitators wi face a spectrum of weakness which might affect how they intervene or indeed whether they intervene at a (see Figure 16). Towards the right end of the spectrum, market deveopment becomes ess chaenging. Here the roe of the faciitator is ikey to be more ight touch in nature, focusing on improving information and awareness, inking payers, stimuating new kinds of reationship and promoting competition. The eve of effort required from a faciitator might be reativey ow and the duration of intervention short. Sef-evidenty, in we-functioning markets intervention is not justified at a! At the eft end of the spectrum, the market deveopment chaenge is more pronounced and ikey to require greater effort from the faciitator, in terms of time, resources and nature of activities. The faciitator s roe wi necessariy be more direct and intensive and entai interventions aimed at, for instance: Infuencing the underying cuture or attitudes of the potentia demand- and suppy-sides. Informing basic understanding about the market, how it works, its opportunities and constraints. Encouraging market entry by new payers from other estabished markets. Deveoping and testing new products, payers or deivery mechanisms. Deveoping supporting functions and rues. 56

65 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3D: FACILITATING SYSTEMIC CHANGE For exampe: Two market deveopment programmes stimuated the integration of thousands of poor, sma-scae producers into the economic mainstream on more favourabe terms, resuting in improved quaity, productivity and saes. One programme operated in a sparsey popuated and geographicay inaccessibe area, in a sector historicay characterised by high barriers to participation. Its cost of intervention was approximatey US$ per producer affected, refecting this compex intervention chaenge. The cost of intervention for the second programme was ess than US$1 per producer affected. It operated in a more densey popuated and accessibe area and in a sector with fewer barriers to the poor s participation. Both interventions were vaid and both were successfu in their own contexts, but they required very different activities and eves of resources to respond to different market deveopment chaenges. How can faciitators demonstrate the quick resuts that many funders demand? It is common for faciitators to find themseves under pressure from their funders to demonstrate resuts (and disburse funds) quicky. The chaenge for faciitators is to demonstrate progress sufficienty quicky without intervening in a heavy-handed, potentiay distorting way. Step 2 Foowing initia interventions faciitators are in a position to start adding more detai to the strategic framework in terms of targets for both market system eve and higher-eve impact. If propery communicated, this detaied framework can be the first opportunity for a funder to get a concrete sense of what to expect from a programme. Step 3 Pursuing a variety of interventions to stimuate crowdingin usuay sees a programme ramping up its activities and consequenty its impact. Note, however, that this increase does not occur because interventions become more resourceintensive during the course of programme impementation. It happens because the scope and diversity of interventions tends to increase as faciitators pursue a strategy of broadening and deepening market deveopment. 3D To overcome this diemma it is essentia that faciitators are smart about sequencing. They need to think through what is ikey to happen and when during the course of a programme, and signa and expain this ceary to funders. The pathway to crowding-in heps faciitators do this: Step 1 At this stage of intervention considerabe effort is directed towards research, identifying and engaging with partners and undertaking initia interventions to test the market and create quick wins which might generate interest and credibiity. Such activities wi absorb resources from a disbursement perspective. More importanty, eements of the intervention process can quite egitimatey be measured and presented as short-term resuts. For exampe: Research-reated activities can be framed in terms of raised awareness and buy-in of important market payers; joint activities with partners as strengthening capacity; stakehoder consutation processes as estabishing new mechanisms for advocacy and representation. Mini-case studies can be deveoped from successfu initia activities and quick wins to give an indication of types of impact the programme wi achieve. 57

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67 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3. COMPONENTS OF THE M4P INTERVENTION PROCESS 3E: ASSESSING CHANGE Key points M4P programmes must rigorousy assess their direct impact on market systems: it is critica to capture their contribution to market system change as the basis for assessing wider impact M4P programmes need to crediby and practicay attribute changes across the chain of causaity to their intervention, based on a cear strategic framework: they must estabish pausibe attribution Key M4P principes and framework: measuring across the strategic framework to estabish pausibe attribution It is not feasibe to measure with compete certainty a programme s impact at higher eves. Assessment shoud aim to baance credibiity with practicaity to achieve pausibe attribution of programme impact Attribution of programme impact ess certain as strength of externa infuences increases Attribution of programme impact more certain coser to point of intervention Dea with attribution probem reaisticay Poverty reduction Improved access and growth Market system change Systemic intervention Vaidate transparenty Demonstrate rigorousy PLAUSIBLE ATTRIBUTION Baancing credibiity and practicaity Putting it into practice: main steps 3e Step 1: Deveop impact ogics for each market system and reated interventions in that market system, based on the overa programme strategic framework Step 2: Use the impact ogics to identify appropriate indicators to monitor the outcomes of specific interventions and their impact on the market system Step 3: Estabish a baseine for key indicators Step 4: Predict at the beginning of intervention the amount of change in each indicator that may be expected to resut from each intervention Step 5: Design and impement a pan for coecting data to monitor and measure performance Step 6: Anayse the information generated and feed into reguar decision-making (interna) and report the appropriate outputs of anaysis (externa) Key chaenges and how to dea with them Can sma programmes measure rigorousy? Shoud M&E be outsourced? Good Practice Notes (Section 5) Logica framework (og frames) (Note 5.4) Knowedge management system (Note 5.13) Intervention impact ogics (Note 5.14) 59

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69 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE 3E.1 Introduction 3E.2 Why important? M4P programmes have severa characteristics which infuence the way in which they assess change. Assessment needs to: Rigorousy assess the direct impact of programmes on market systems. M4P programmes focus on deveoping market systems that surround and affect the poor, but they do not directy interact with each beneficiary. It is critica to capture definitivey a programme s contribution to market system change as the basis for assessing wider impact. Estabish pausibe attribution of programme impact. M4P programmes address the causes of market underperformance, which means that the chain of causaity inking their interventions to poverty reduction can be engthy and subject to many infuences. Programmes need to crediby and practicay attribute changes across the chain of causaity to programme intervention, based on a cear strategic framework. 6 Assessing change serves two main objectives 7 : To prove. So that programmes can be transparent and accountabe to their funders and other stakehoders. To improve. To provide programmes with feedback on impementation so that they can improve their performance and contribute to wider earning. 3E.3 Key M4P principes and frameworks Assessment or monitoring and evauation (M&E) of M4P programmes needs to compy with the same genera principes of M&E as for any other deveopment programme. It is not possibe for the Guide to expore these principes in depth, but they are summarised in Box 12. Measuring across the strategic framework to achieve pausibe attribution The starting point is to accept that it is not feasibe to measure with compete certainty a programme s impact at higher eves (ie growth, access and poverty). M&E therefore shoud aim to baance credibiity with practicaity to achieve pausibe attribution of programme impact (see Figure 17). That is to say: Crediby demonstrate a programme s contribution to market system changes and vaidate the reationship between those changes and improvements in growth, access and poverty reduction. Generate usefu information for programme decision-making within the practica imits of a programme s resources. 3e The foundation for M&E in M4P is the strategic framework (See Section 3A). This sets the overarching assessment ogic for a programme. The strategic framework estabishes a hierarchy of objectives or eves of achievement assessment at each of these eves requires different approaches and eves of resources. M&E shoud rigorousy assess the programme s contribution to changes in market systems the eves at which it engages most directy. M&E shoud generate robust information on changes resuting from intervention in specific markets systems. Based on this information, reasonabe estimates rather than definitive proof shoud be made of the contribution of market-eve changes to overa changes in access, growth and poverty reduction. 6 See GTZ reference in Good Practice Note 5.4 on og frames in Section 5. 7 Terminoogy derived from David Hume s paper Impact Assessment Methodoogies for Microfinance: Theory, Experience and Better Practice; Institute for Deveopment Poicy and Management, University of Manchester. 61

70 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE Figure 17 Measuring across the strategic framework to achieve pausibe attribution Attribution of programme impact ess certain as strength of externa infuences increases Attribution of programme impact more certain coser to point of intervention Dea with attribution probem reaisticay Poverty reduction Improved access and growth Market system change Systemic intervention Vaidate transparenty Demonstrate rigorousy PLAUSIBLE ATTRIBUTION Baancing credibiity and practicaity Box 12 Genera principes of M&E Carity about the rationae and requirements of M&E: - Who needs to know? - What do they need to know? - When do they need to know it? - How wi information be coected and anaysed? - Who wi be responsibe? Baanced assessment: M&E shoud assess the overa baance of programme performance outreach, efficiency, effectiveness and sustainabiity. Adherence to the basic rues of M&E, especiay with regard to the deveopment of indicators: - Reevant? M&E shoud throw ight on the right areas. - By when? M&E shoud define the timescae for measurement. - How much? M&E must contain targets and assess change. - How we? M&E shoud offer insight into the quaity of the change that intervention achieves. - Feasibiity? M&E needs to be appropriate given the practica imitations of resources avaiabe. - Intermediate dimensions of change? M&E shoud measure changes coser to the point of intervention and not just fina impact (which may be infuenced by many other factors). - Precise? M&E needs to be specific without this assessment is impossibe. - Context-specific? M&E needs to refect the reaities of the specific context of intervention. Provision of guidance to impementers: M&E shoud set appropriate incentives for the impementers of interventions (ie faciitators). As M4P programmes tend to make mutipe interventions in one or more markets, the strategic framework needs to be further broken down so that change can be tracked against a series of chains of causaity or impact ogics deveoped for specific markets and specific interventions within those markets. Impact ogics are, in effect, mini-strategic frameworks (see Box 13). In M&E for M4P it is essentia to frame objectives in terms of achievements at the market system eve, not just at the eves of growth, access and poverty reduction. If these higher eves take precedence, faciitators are encouraged not to foow the systemic rationae of a market deveopment approach and may negect the underying causes of underperformance. Faciitators may then pursue higher-eve objectives and negect the systemic changes necessary to secure sustainabe and arge-scae impact. If funders want sustainabe outcomes these have to be framed and prioritised in programme objectives and M&E 3E.4 Putting it into practice The process The process of M&E for M4P can be broken down into six basic steps (see Box 13): 62

71 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE Box 13 The main steps in M&E for M4P Step 1: Deveop impact ogics for each market system and reated interventions in that market system, based on the overa programme strategic framework. Step 2: Use the impact ogics to identify appropriate indicators to monitor the outcomes of specific interventions and their impact on the market system. Step 3: Estabish a baseine for key indicators. Step 4: Predict at the beginning of intervention the amount of change in each indicator that may be expected to resut from each intervention. Step 5: Design and impement a pan for coecting data to monitor and measure performance. Step 6: Anayse the information generated and feed into reguar decision-making (interna) and report the appropriate outputs of anaysis (externa). Each step is considered in more detai beow and is accompanied by an Appication Exampe from a market deveopment intervention in the freshwater pond fishery sector. 8 Step 1 Deveop impact ogics for each market system and reated interventions in that market system, based on the overa programme strategic framework Programmes need to have impact ogics for individua interventions in a market ( intervention impact ogic ). Typicay, programmes wi make mutipe interventions in a market, so they wi aso have an impact ogic to capture the changes expected from a interventions in a market ( market impact ogic ). Impact ogics shoud be consistent with the programme s strategic framework (see Box 14). Impact ogics ask expicity: What are the series of expected changes eading from intervention to impact on growth, access and poverty reduction? Context: pond fish vaue chain Consumer Tabe fish Freshwater fish are a key source of protein and the sector is important for poor farmers who raise fish in ponds as additiona source of income. Changing diets mean that demand outstrips suppy consideraby, despite sector growth of 15% per year. Fish rearing is compicated, invoving many different stages of rearing (see simpified vaue chain on eft). 3e Traders (>500) The sector is faiing to meet demand because of ow productivity, in terms of sow growth of fish and high mortaity rates. Low productivity is the resut of pervasive probems across the sector: Farmers ack knowedge about pond preparation, stocking practices, disease identification and use of inputs. Transportation methods are unsuitabe. Fingerings (which farmers buy to rear into fish for sae) are of poor quaity. Hatching techniques (for fry which grow into fingerings) are inappropriate. Brood stock is imited and of imited quaity. Fish farmer (22,000) Input retaiers (9,000) Hawkers (5,000) Nurseries (800) Hatcheries (20) Brood bank (1) Brood fish An M4P programme pursues a muti-faceted intervention strategy across the sector, working with a range of partners. This exampe focuses on a singe intervention, to address a singe constraint: poor practices at the farmer eve. The programme targeted nurseries who are critica payers in the sector. Working in partnership with the Fisheries Association the programme trained nurseries in better pond management practices. It was anticipated that, in turn, nurseries woud serve as source of information and support to farmers (and hawkers). 8 This exampe has been simpified consideraby. In practice, the M&E system described is highy specific and extensive, requiring a eve of detaied expanation that cannot be accommodated in the Guide. 63

72 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE Box 14 Impact ogics Impact ogics show the chain of causaity through which a programme s activities ead to poverty-reducing benefits. The ogic describes key changes that are expected at each eve of the strategic framework as a resut of these activities. Each ogic shoud be taiored to a specific intervention or market and consequenty has a more detaied chain of causaity ie more inks in the chain than a strategic framework (or ogica framework). Each market has a set of impact ogics; one market impact ogic and within that severa intervention impact ogics (see beow). Whie both market impact ogics and intervention impact ogics map out changes expected or achieved, intervention impact ogics provide greater detai on a programme s activities, their immediate outputs, as we as expected changes in markets and expected changes in growth and access. (See aso Section 3A and Good Practice Notes 5.4 and 5.14 in Section 5.) Intervention impact ogics Provide basis for understanding extent to which specific intervention activities are resuting in specific changes in market systems and affecting growth and access Used to coect basic information and steer intervention strategy and actions Intervention impact ogics Aggregation Compie key information from a series of intervention impact ogics to assess overa impact on market system Market impact ogic Poverty reduction Growth and access Market system change Market impact ogics Provide basis for gauging progress of overa market system change and estimating programme s contribution to changes in growth, access and poverty reduction in a particuar market system Uses aggregated information from intervention impact ogics to assess overa impact on a market as a resut of a series of interventions to steer programme s strategy for a market and to report to funders Market and intervention impact ogics do not need to be estabished at the start of a programme; they wi need to be estabished throughout the course of a programme s ife, as market focus and interventions are refined or new markets are entered and new interventions initiated. Impact ogics map out and measure the changes in the market system aong the pathway to crowding-in (see Section 3D) and assess how these changes resut in impact on growth, access and poverty reduction. Step 2 Use the impact ogics to identify appropriate indicators to monitor the outcomes of specific interventions and their impact on the market system By definition impact ogics are a series of inks (see Figure 18). This means that indicators shoud cover both intermediate and fina change. Intermediate indicators: Indicators that measure change aong the chain of causaity from intervention to fina impact (eg new product introduced consumer awareness of a new product consumption of new product satisfaction with new product demonstrated benefit of new product). Proxy indicators: Indicators of one dimension of change that te us something usefu about another dimension of change that may be difficut to measure (eg housing improvements as a proxy for increased househod income). Inteigent seection of proxy indicators is important in M4P. Some dimensions of change are inherenty difficut to assess, so programmes have to find more readiy identifiabe and measurabe substitutes. Markets are about interdependence: what one payer does affects another; one market function reates to another. This inter-dependence means that proxy indicators have extra significance in assessing market systems. 64

73 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE Figure 18 Impact ogic and typica types of indicators Poverty reduction Indicators reating to the change in the target group s specific poverty condition (eg income, empoyment, assets). Growth and access change Indicators reating to the target group s position within a specific market system, reating to stepping up, stepping out or hanging in (eg productivity, saes, access to goods or services, usage and satisfaction, vunerabiity to risk). Market system change Indicators reating to progress aong the pathway to crowding-in in terms of changes in core market transactions, supporting functions and rues: Core - quantity and quaity of transactions and outreach to target groups. Supporting functions and rues - their effectiveness in supporting more pro-poor market performance (eg appropriateness of rues, the avaiabiity of anciary services or processes or structures for innovation and representation). Crowding-in of independent activity and investment. Deveopment of market payers shoud be assessed in terms of: Attitudes - awareness, understanding and behaviour in reation to desired changes. Capacity and practices - abiity to perform and continue to perform appropriate market functions. Reationships and aignment - the nature and quaity of reationships, mechanisms and underpinning institutions. Incentives and ownership - recognition and reaisation of incentives to change in reation to different market functions. 3e One of the most important considerations in M&E for M4P is an assessment of sustainabiity appied to a areas of change. Sustainabiity might be assessed in a variety of ways, but essentiay it is about ascertaining the extent to which market activities continue independenty without programme support. Step 3 Estabish a baseine for key indicators This is something that is frequenty omitted by programmes. Without a baseine, programmes can ony count outputs deivered; they cannot assess the eve of change they have caused. Baseine data on key indicators shoud be obtained from market assessment (see Section 3B) or as a resut of initia interventions (eg Step 2 of pathway to crowding-in, see Section 3D). If additiona data is required, baseine studies may need to be commissioned specificay. Step 4 Predict at the beginning of intervention the amount of change in each indicator that may be expected to resut from each intervention Predictions ony need to be reaistic best estimates based on current information. Athough such estimates can never be precise, they are important to give programmes a sense of something to aim for and to gauge whether interventions are ikey to resut in sufficient impact to justify expending resources. Such estimates are required during the deveopment of strategies for crowding-in (see Section 3D). Step 5 Design and impement a pan for coecting data to monitor and measure performance This means thinking pragmaticay about how information can be coected and by whom. It aso means thinking about how information can be gathered to assess the reationship between the observed changes and programme interventions. Quantitative information needs to be compemented by quaitative information. Quaitative information heps programmes to understand the reasons behind changes in quantitative indicators, to assess the sustainabiity of change and to estimate attribution. Combining quantitative and quaitative information can hep programmes to understand: Are expected changes happening? To what extent are expected changes occurring? How and why are changes taking pace? To what extent are changes sustainabe? To what extent are changes attributabe to the programme? (see Box 15). 65

74 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE Impact ogics, indicators, baseine and prediction (Steps 1-4): Reduce farmer poverty Increase in farmers income or empoyment eves [by target date] Baseine: Income or empoyment eves not captured Assumption: Productivity and output increases are proxies for income and empoyment Increase farmer productivity Farmers productivity increases [by target date] Baseine: Productivity = 100 for target & contro group Prediction: 5,000 farmers increase productivity by at east 20% (& above any change in contro group) Strengthen farmer practices Better information fow between nurseries & farmers Improve nursery knowedge Farmers appy better pond management practices [by target date] Farmers seek & get information on pond management from nurseries [by target date] Nurseries are more aware of importance of providing pond management information to farmers [by target date] Baseine: Investment in inputs pond management = 100 for target & contro group; 48% of farmers abe to recognise & remove unwanted fish Prediction: 5000 target farmers improve pond management practices above baseine & contro group Baseine: 90% of farmers fee nurseries shoud provide information to farmers, but are currenty dissatisfied Prediction: At east 50% of targeted farmers receive more satisfactory information than 12 months ago Baseine: Less than 50% of nurseries fee it is important to provide information on pond management practices Prediction: 65% of trained nurseries provide improved knowedge to 14,000 farmers Programme intervention Step 1: Conceptuaise impact ogic Nurseries trained on pond management & providing service [by target date] Step 2: Identify key indicators 400 nurseries to be trained out of tota of 800 Step 3: Estabish baseine Step 4: Predict expected change Box 15 Measuring attribution Changes at higher eves of impact ogics are a resut of many factors and compex inter-reationships beyond a programme s contro. Programmes not ony need to know what changes have taken pace over time, but aso to what extent changes are a resut of programme interventions as opposed to other factors, ie they must be abe to attribute changes to intervention. This is never straightforward to achieve (see Toos for M&E ), but in simpe terms programmes shoud: Assess the situation before the programme intervention. Assess changes after the programme intervention. Estimate the amount of change that woud have occurred anyway without intervention. Compare actua changes that did happen with the estimate of what woud have happened without intervention in order to isoate the resuts of intervention. 66

75 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE Coecting data to monitor and measure performance (Step 5): Preiminary baseine data is compied through initia market assessment, a combination of vaue chain anaysis, secondary sources of industry data, surveys and focus group discussions and interviews with key informants. Initia interventions add to this information. Information derived aso enabes the programme to make assumptions for predicting outcomes (eg average outreach of a nursery is 60 farmers and 30 hawkers). At this stage possibe contro groups or areas can be identified. During intervention, staff maintain fied diaries to record their observations and compete routine intervention reports. As we as maintaining records of their activities and interactions with stakehoders, these capture information about intermediate and quaitative changes and significant changes in the sector and its environment. This information heps shape the design of more substantia quantitative assessments. Towards the end of the estimated target date for the end of intervention, and once there have been concrete indications of change, forma surveys of a statisticay vaid sampe of the target group and contro group are conducted, using externa speciaists. The survey covers over 500 individuas (nurseries, hawkers and farmers) spit eveny between contro group and target group, and assesses changes in practices, vaues and voumes, investments, reationships, information and productivity or output. Step 6 Anayse the information generated and feed into reguar decisionmaking (interna) and report the appropriate outputs of anaysis (externa) Programmes are ikey to generate a diversity of data from a host of sources. Individuay, none of these are ikey to be compete and some data may appear to contradict other data. Therefore it is important that programmes use trianguation (see Section 3B) to cross-check individua data and derive best estimates. The nature of anaysis and reporting wi depend on intended use: For interna programme management purposes, key questions are: Have existing interventions worked and is the intervention strategy working? Programmes need to be abe to use information to update their understanding of market dynamics, adjust the programme s vision of market deveopment and review and revise interventions accordingy. For arger programmes, managers need to review the overa portfoio of markets in which the programme is operating and whether the current market mix is generating sufficient impact to achieve programme objectives. For externa reporting purposes, programmes need to extract and present data which is reevant and accessibe to funders and externa stakehoders. Reporting shoud be taiored to the specific requirements of different users. To do this, data from individua interventions and markets must be aggregated across the whoe programme: bringing together key market changes and estimating their contribution to improved growth, access and poverty reduction (see Box 14). Cross-cutting dimensions of programme impact (eg g ender baance) shoud be presented as part of this overa picture of programme impact. Aggregation requires that there is commonaity across high-eve indicators across a markets and interventions the strategic framework heps ensure this commonaity. There is a tendency in deveopment to share a information with everybody in the interests of that eusive term participation. In reaity this scattered approach is unhepfu and can even be damaging. It eads to information overoad which can undermine the credibiity of data generated, put inappropriate information in the hands of peope who are not in a position to interpret it correcty and adversey affect perceptions and expectations. Programmes need to be sophisticated in their treatment of information, taking rea care to think through who needs to know what, understanding the specific requirements of prospective users of information and package information accordingy (see Section 4). Anayse and use information generated (Step 6): The routine information generated is used for intervention steering and adjustment (eg aterations to nursery training and new measures with the BMO to increase farmers awareness and demands towards nurseries). The programme uses headine impact data and quaitative information for its routine reporting to donors. It prepares mini-cases (which give the basic story-ine of intervention) aimed at time-constrained funders. It commissions externa speciaists to prepare a more comprehensive case study for wider pubic consumption. 3e 67

76 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE Impact data generated incudes: 89% of trained nurseries state that providing information to farmers is important for their business. 80% of target group farmers state they receive more information than they did 12 months ago. 72% of these report being satisfied or very satisfied with the service they receive from nurseries. 68% of target group farmers are abe to recognise and remove unwanted fish. Target farmers investment in pond management inputs increased by 20%, compared to 10% in contro group. Target farmer s productivity increased by 25%, compared to 5% in contro group (and mortaity reduced by 15% compared to 3% in contro group). Figure 19 Types of too for measuring attribution Toos for M&E As in market assessment (see Section 3B) the range of toos that can be used for M&E is diverse and cannot be covered in the Guide. Choice of toos for M&E is party dependent on the nature of specific markets and target groups, but shoud aso be guided by two considerations: Consistency between toos used for market assessment and intervention and those used for M&E For reasons of coherence and efficiency, market assessment and M&E need to be cosey inked. Toos used for market assessment can aso be used to provide evidence of overa market change and, in particuar, of the specific dimensions of the market changed by intervention. Toos might have to be seected and adapted to suit different dimensions of the market system. This is the priority focus for M&E in market systems and reativey more rigour and resources are justified here. Whether information is needed for prove and improve purposes The issue of attribution is important in market deveopment when trying to prove impact, particuary in terms of poverty reduction. There is no magica fix for this issue. Methodoogies for proving fina impact need to be abe to determine strong: Causaity. Where the ink between an intervention and market eve (cause) and consequent higher-eve change (effect) is pausibe. Generaisabiity. 9 Where it is reasonabe to draw wider concusions on the basis of anaysis of an observed change (ie to extrapoate). Detaied anaysis of particuar cases to assess specific causes of change and test intervention hypotheses Strength of causa reationship Case Studies Rapid techniques Experimenta Quasi-experimenta Comparisons made between two groups: one targeted and one unaffected (eg sampe surveys, open to statistica anaysis) Techniques such as Focus Group Discussions or semi-structured interviews, what if questions, secondary sources Participant judgement Asking participants directy to estimate change without taking wider effects into account Generaisabiity 9 A term coined by Eric Odsman. 68

77 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE As can be seen from Figure 19 there are very few measurement methods that are abe to ascertain both causaity and generaisabiity. Experimenta and quasi-experimenta approaches are difficut, requiring expertise and resources. Yet, if programmes are serious about proving fina impact, there is no rea aternative to these approaches. A mix of methodoogies is therefore usuay required to estimate attribution: Quasi-experimenta methods Comparative assessments (eg surveys) of affected and contro groups shoud be used when practica and when the scae of intervention justifies the cost of assessment. Quasi-experimenta methods aow for the comparison of changes between a target group affected by programme intervention and a group that has not been targeted. Differences in the eve of change between these two groups can be used to estimate the degree of change resuting from programme intervention. Quasi-experimenta methods are not vaid when the targeted group is unique and does not have a suitabe comparison group or when interventions can infuence the contro group as we as the targeted group. Methodoogies using contro groups work best for specific interventions and we-defined target groups within a homogenous popuation rather than across entire markets or areas. Trend anaysis Programmes shoud compare change in areas where the programme is active with changes in other areas as we as nationa and historica trends. Again, any differences between the changes identified in programme areas and non-programme areas (or nationa and historica trends) can be used to estimate the change attributabe to programme intervention. Programmes shoud aso track other critica incidents that might cause changes such as macroeconomic factors, new infrastructure or reguations or cimatic events. The effects of other aid programmes shoud aso be taken into account. If such factors might aso have infuenced change, programmes shoud adjust their estimates of the degree of change which can be attributed justifiaby to programme intervention. Quaitative methods Quaitative methods are usefu to investigate change processes (eg intermediate changes in terms of behaviour or practices). Quaitative assessment can hep understand the roe of programme interventions in contributing to observed changes and identify other contributing factors unreated to the programme. For instance: Fied diaries of observations during staff fied visits can be used to document what changes are reay happening and why. In-depth interviews or focus group discussions can be used to capture the opinions of reevant market payers in order to expore why changes have occurred and the factors that contributed to change, incuding the roe of programme intervention in any change. Leve of effort required Pausibe attribution is about baancing credibiity with practicaity. Programmes typicay ony have imited resources with which to conduct M&E. Therefore programmes shoud focus their effort on measuring some eves of the strategic framework and indicators with more rigour than others. The starting point is to recognise that if change is happening at one eve of impact ogic, but not at the next, then the chain of causaity is broken. Before a programme can estimate its higher eves of impact in terms of growth, access and poverty reduction, it is vita to estabish that change has occurred at ower or intermediate eves, ie market system change; ony then is it possibe to estabish that change has occurred at each subsequent, higher eve. The emphasis of measurement changes as focus shifts up the strategic framework, from attributing change definitivey to programme intervention at the ower or intermediate eves to transparenty testing the vaidity of the inks in the chain of causaity or impact ogic at the higher eves: Changes at the market eve as a resut of interventions shoud be measured rigorousy. At these eves, programmes shoud aim to assess the intervention s impact be that direct or indirect with certainty. Changes at the growth and access eve shoud be measured to estimate the extent to which they have resuted from identified changes in the market system. Measurement shoud not try to prove definitivey the programme s contribution to improved growth and access but gauge whether the ink in the causa chain between market systems and growth and access is vaid. Changes at the poverty reduction eve shoud be measured to estimate whether they have resuted from improved growth and access amongst the targeted popuation. Measurement shoud aim to gauge whether the ink in the causa chain between growth and access and poverty reduction is vaid. 3e 69

78 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 3E: ASSESSING CHANGE 3E.5 Key chaenges and how to dea with them Can sma programmes measure rigorousy? Rigorous measurement undoubtedy requires resources and this has to be accommodated within programme design. However, it is not the case that a rigorous approach is something that ony arge M4P programmes can do. If programmes are genuiney so sma that they ack the resources to measure what they do appropriatey, then more fundamenta questions shoud be asked of programme design. On the one hand, such imited resources are unikey to resut in meaningfu impact. On the other hand, programmes wi be starved of the information necessary for effective intervention and assessing and demonstrating impact to funders. That said, programmes can often use the resources at their disposa more smarty: Make sure that the prove and improve objectives of M&E don t get burred Many programmes tend to focus on accountabiity requirements and aocate the buk of their scarce resources to this. This tendency often causes them to focus disproportionatey on measurement at the higher eves of the strategic framework, because that s what funders want to hear about. However, as this section has made cear, definitivey attributing higher-eve impact to programme intervention is extremey difficut, irrespective of the eve of resources avaiabe. Consequenty M&E may fai to achieve both its objectives: it does not generate the information that programmes need for decision-making (improving) nor does it generate credibe information for accountabiity purposes (prove). The concept of pausibe attribution is expicity about trying to taior M&E to the eve of resources avaiabe to a programme. The emphasis is on generating a credibe impact story-ine for funders rather than providing scientific proof. In this way programmes need not sacrifice the coection and anaysis of information for their own intervention-steering purposes, which is vita for effective intervention. Be smart, be seective Programmes aso have a tendency to try and coect as much information as possibe, which is expensive and unproductive. A cear strategic framework and impact ogics can hep programmes to focus on information that is essentia rather than nice to have. A distinction between improve and prove uses can aso hep efficiency. Information for routine interna consumption does not need to be 100% accurate, comprehensive and poished. Information for externa consumption tends to focus on a sma seection of indicators or success stories captured and presented periodicay. Information has to be good enough for now to aow you to make timey decisions and estimate and report progress. Otherwise you run around endessy coecting and measuring, trying to get it perfect by the time you re finished it is usuay too ate! Our experience has been that reguar reaity checks using mutipe sources of information are more usefu. Buid M&E into reguar work Finay, M&E need not be eft to arge-scae, periodic assessments conducted by (expensive) externa speciaists. Most of the information can be coected routiney by programme staff invoved in programme intervention it shoud be something that everybody can do. Cear impact ogics can hep staff do this. Shoud M&E be outsourced? M&E does require some eve of technica expertise. If that does not exist within the programme team then this may need to be outsourced. However the routine nature of M&E in M4P means that some form of in-house capacity is desirabe, to estabish impact ogics, support staff in basic monitoring and information coection (see above), interpret and aggregate information for reporting purpose and maintain appropriate rigour. However, some aspects of M&E can be usefuy conducted by externa parties, if resources permit. This provides programmes with access to a arger poo of technica expertise, frees up programme staff time and can ensure a measure of independence in M&E which may be important to ensure information has credibiity in the eyes of funders (eg externa evauations). One of the most common areas to outsource is arge-scae data coection (eg surveys), which require speciaised methodoogies and considerabe human resources. Another area might be where a programme needs to hide its invovement in assessment processes, perhaps for cutura reasons or due to poitica sensitivities, and so uses a third party which is regarded as more impartia or acceptabe. As with market assessment, the key point is that outsourcing does not mean handing over a eements of the M&E process. Programmes need to set the overa framework for M&E, supervise data coection and, in particuar, ensure that they are invoved in the interpretation of data. Experience indicates that the more cosey programme staff are invoved in the process the more usefu the resuts are. 70

79 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 4. MANAGING AND GOVERNING M4P PROGRAMMES 4.1 Introduction The management and governance of deveopment programmes is a broad and important topic that cannot be codified into hard-and-fast rues which are common across a agencies and contexts. This Section focuses ony on saient impications that arise from operationaising the M4P process as outined in the Guide. For the sake of simpicity these impications are grouped under three headings: Personne and capacity requirements: skis sets and orientation, eadership, baance between in-house and outsourcing and buiding faciitation capacity. Externa reations: differentiating types of partner, reationship management, and credibiity and branding. Systems and structures: budgeting and financia management, contracting, programme structure and programme steering. Some of the impications covered in this section reate cosey to the Getting Started considerations covered in Section Personne and capacity requirements As an approach that requires insight, innovation and infuence rather than financia firepower, M4P is especiay dependent on good peope. Finding, training and motivating the right peope is therefore critica. There are four issues in particuar that programmes need to get right: (a) skis mix; (b) eadership; (c) baance between in-house and outsourcing; and (d) buiding faciitation capacity. Skis mix Faciitating market system change requires a bend of skis sets or personaity types: generaists and speciaists, innovators and strategists, panners and searchers. The genera experience is that the M4P approach can be earned and does not need specific technica expertise. Some programmes have successfuy hired non-speciaist, bright and dynamic peope and then deveoped their capacity to pursue an M4P approach in specific markets. They haven t reied soey on speciaists with engthy CVs (who can sometimes be resistant to new ways of working). A baance of skis sets is ikey to be needed in a typica M4P programme: Management skis. Particuary in arger programmes, with mutipe interventions in a range of markets. Some abiity in M&E is aso important for a staff. Poitica economy skis. The status quo often represents a poitica settement which favours vested interests. Pro-poor change tends not to favour entrenched vested interests, which may resist change. M4P programmes therefore need a sound understanding of the poitica economy of change and to be skied in overcoming resistance to change. Anaytica skis. The abiity to stand above individua market payers perspectives and ook at the wider sector context (an economist s perspective). Programmes need to be abe to anayse and identify constraints and opportunities at a systemic eve. Business knowedge and skis. It is essentia for programmes to understand the private sector. Many interventions are through or with the private sector, so having peope with the right skis and credibiity with private sector is important. Technica skis. Peope who possess a strong interest in a target sector or speciaised function or too. 4. MANAGING AND GOVERNING It is not possibe to find peope who have this compete package of skis. Even in the argest programmes, it is not feasibe or practica to maintain a team of staff which covers the entire range of skis and orientations described above. Depending on the nature of specific markets and interventions, programmes need to use externa peope to suppement the core competence of programme staff with specific technica or sectora knowedge (see beow). These requirements tend to change over time as interventions evove and programmes shift their focus. 71

80 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 4. MANAGING AND GOVERNING M4P PROGRAMMES Leadership The roe payed by managers of M4P programmes can be different from conventiona deveopment programmes. Conventionay, managers are typicay tasked to deiver specific outputs. The roe of M4P managers is to serve as cataysts of change. Managers need to be entrepreneuria, anticipating and reacting to deveopments in the market and the ambitions and ideas of market payers. Managers need to have credibiity and vision and be abe to act entrepreneuriay, investing in the ideas and ambitions of others. Their persona credibiity and abiity to create an effective programme cuture and bring stakehoders together is often critica to programme success. The seection of managers shoud emphasise their abiity to think strategicay and dispay entrepreneurship rather than focus soey on technica skis or track record in managing inputs and outputs within conventiona deveopment programmes. Terms of reference for managers wi need to refect these differences. M4P programmes are often organised around major themes corresponding to particuar markets or market segments (eg housing or insurance in a financia market deveopment programme or woo and texties in a commodity and service market deveopment programme). Other M4P programmes are organised around particuar market functions (eg market research or reguation). Each of these themes typicay has its own budget and intervention strategy, but otherwise has considerabe freedom to deveop their own ines of work. For such fexibiity to work, a theme champion might aso be needed drive work forward with consistent focus and energy and aso represent the programme to market payers. Consistency and continuity is needed to buid a programme s profie and credibiity with reevant market payers. Sub-dividing programme eadership in this way aows arger M4P programmes with broad remits to speciaise and, in so doing, to penetrate deeper into the deveopment of specific markets or parts of markets. However, to be successfu theme champions need to be guided by an overarching programme strategy to ensure that a ines of work add up to a coherent whoe and contribute to programme goas. Getting good peope is part of the chaenge. But once you ve got them and agreed a strategy, you ve got to give them space, resources and support to get on with it (within reason, of course!). Baance between in-house and outsourcing It is not reaistic for most programmes to recruit staff with a the requisite skis or orientations for the duration of a programme. Programmes need to strike a baance between maintaining inhouse core competencies and outsourcing speciaised roes for defined periods of time. Experiences differ in this regard depending on context and programme type (see Figure 20). What is cear is that speciaised inputs need to be deivered within a wider process of faciitation. Therefore, someone needs to decide what skis are needed, when, how they wi be used and where they wi come from. Programme staff need to be competent to make such determinations, ie as a basic minimum they need to have cear ownership and understanding of the process of market faciitation. Speciaist skis can be recruited as needed. Figure 20 Skis sets and sources M4P ski set Management Poitica economy Anaytica Business Technica Depends on context and programme type In-house Out-sourced Beyond core competence in the M4P approach and programme management, it is difficut to be definitive about which ski sets are best done in-house and which are best outsourced. For instance, with regard to poitica economy, infuencing government may be better achieved by we-paced poitica advisers which the programme contracts temporariy rather than a fu-time obbyist on the programme staff. The extent of outsourcing can vary (according to context and programme type) from the commissioning of specific tasks to speciaised suppiers to contracting-out entire parts of the faciitation process to sub-faciitators. Commissioning specific tasks Programmes need to contract a range of suppiers to provide speciaised services. This might incude working with market research companies to generate market information or conduct impact assessment surveys, using a communications speciaist to conduct awareness-raising campaigns or hiring a technica speciaist to anayse a specific market constraint. The key esson from experience is that programmes cannot outsource the thinking behind market faciitation to such suppiers. Programme managers must understand exacty what they need, in what form and for what purpose and transate that into tight 72

81 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 4. MANAGING AND GOVERNING M4P PROGRAMMES terms of reference against which suppiers can be contracted and their performance monitored. For exampe: Many programmes have tried to outsource their market assessment and impact assessment functions, with mixed experience. Market research companies cannot design survey methodoogies and questions in response to a oosey defined concept of market anaysis. They need to be briefed on background (eg preiminary anaysis conducted) and what the programme wants to achieve with market research. Most importanty, programmes cannot expect them to interpret information generated. Simiary, M&E and information management is integra to effective intervention, to improve performance and prove impact. Externa speciaists can provide speciaised technica advice, independent assessments or human-resource intensive information gathering. But programmes cannot expect suppiers to understand (et aone define) their strategic frameworks and impact ogics. Outsourcing faciitation By contracting sub-faciitators programmes can scae-up their coverage more quicky than by working aone. Sub-faciitators may aso bring new networks, connections, expertise and resources. If sub-faciitators are we paced in a oca context they can be a means of rapid ocaisation and ownership over the market deveopment agenda and hep a programme buid credibiity more quicky than it coud coming in cod to a situation. Despite these apparent benefits, the experience of working through sub-faciitators has not proved straightforward. Unike outsourcing tighty defined specific tasks, outsourcing faciitation requires that sub-faciitators buy-in to the M4P approach and are competent in faciitating systemic change. Unfortunatey, the advantage of sub-faciitators being we paced in a oca context can aso be a source of disadvantage: they tend to Figure 21 Pros and cons of outsourcing faciitation Advantages Manageabe span of contro Transparency of contracts with estabished payers Buiding on oca faciitators Appeas to funders as programme overheads are kept ow and fund disbursement is predictabe have estabished patterns of working, structures and systems and other paying cients which are not consistent with M4P (see Figure 21). In practice therefore, the extent to which faciitation has been competey outsourced has been imited. Buiding faciitation capacity The reaity is that M4P is a reativey new and distinctive approach. In many contexts, market faciitation skis are not readiy avaiabe in oca abour markets, and ready-made sub-faciitators (or even speciaised suppiers) are not avaiabe for contracting. In some countries it has proved necessary for funders and faciitators to commit resources to buiding effective faciitation capacity as part of programme intervention, either within programmes or in other organisations. The extent to which this is necessary wi vary from country to country. Some programmes have taken the step of scaing up staffing numbers initiay to impement preiminary interventions in-house, but with a view to heping staff to spin off at a ater date and thus create a poo of M4P expertise to which the programme can outsource tasks or which can be used by other programmes pursuing market deveopment objectives. If a staff spin-off strategy is pursued, it is important to ensure that remuneration rates within the programme are consistent with prevaiing rates for consutants or NGOs. If rates inside the programme are significanty higher than outside, there is a risk that a spin-off strategy wi be unattractive to staff or, if they do spin off, they are ikey to remain dependent on the programme. Such a personne and capacity buiding strategy correates with the idea of arge M4P programmes acting as supra-faciitators so they can achieve significant coverage and impact without having to main arge organisationa structures in their own right. Sma programme outsourcing faciitation Disadvantages Programme reduced to roe of grant manager Limits earning about what s going on in markets Limits fexibiity to adapt to changing markets Capabe faciitators with M4P vision and competence may not exist and may have to be deveoped Risk that programme becomes a scattered and incoherent mix of outsourced interventions 4. MANAGING AND GOVERNING Large programme with imited outsourcing of faciitation Fexibiity and scope for adaptation and earning high Deveopment of market-specific knowedge and methods Ensures strategic coherence and consistent appication of M4P approach Manageabiity of arge and compex range of interventions and activities Less appeaing to funders as programmes perceive staff costs as high 73

82 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 4. MANAGING AND GOVERNING M4P PROGRAMMES Ideay a programme shoud begin with strong inhouse impementation, so that it can earn and make the case for M4P. It shoud then shift to a more outsourced approach, accompanied by measures to inform and buid the capacity of potentia subfaciitators. 4.3 Externa reations M4P programmes operate in compex environments and tend to interact with a diverse range of externa partners or stakehoders. The compexity of this stakehoder picture can present chaenges for programmes. There are three important issues that programmes need to dea with: (a) differentiating types of partner; (b) reationship management; and (c) credibiity and branding. Differentiating types of partner The terms partner and partnership are overused in the deveopment fied; ike the term stakehoder they can encompass a variety of reationships. M4P experience indicates that it is usefu to be cear about what partner or partnership means in different circumstances and for different purposes (see Figure 22). Specificay, it is essentia to differentiate between a programme s poitica or ega partnership (eg as part of a biatera agreement) and the variety of partnerships a programme may have for operationa purposes (ie with co-faciitators or market payers) to intervene in market systems. Poitica or ega partner. Depending on the country, funder and type of programme, a programme is often obiged to have a poitica partner or officia counterpart, usuay a government department or agency, for the ife of the programme. The programme may be housed within and funded through government or government may ony have a steering and oversight roe (see Section 4C and aso Section 2). Operationa or intervention partner. Depending on its type and context a programme may have an operationa partner or partners, eg a joint venture with a co-faciitator or a contract with a sub-faciitator for the duration or substantia part of the programme. In addition, a programme wi have an array of shorterterm intervention partnerships with market payers for the impementation of specific interventions. Differentiating between these types of partners is important when it comes to managing reationships and expectations effectivey: A poitica partner is important because it gives the programme its icence to operate. In principe a poitica partner shoud share a programme s objectives and support its strategy, but that is often not the case. Poitica partners can have compex, poiticised agendas and ack capacity and fexibiity to engage substantiay in the diverse range of interventions of a typica M4P programme. So, in practice the roe of a poitica partner is ikey to be about oversight or endorsement of the programme or activities focused tighty on roes that ony government can pay (eg reguation). However a programme cannot afford to ignore a poitica partner: if it wants a icence to operate, a programme needs to main good reations with its poitica partner. This usuay means supporting the poitica partner to undertake activities which it regards as a high priority even if they are sometimes periphera to the programme s main strategy. M4P has to dea with reapoitik. Programmes have more fexibiity when it comes to operationa or intervention partners (see Section 3D). As far as possibe why shoud ead who, ie partner choice shoud be driven by a consideration of their capacity and incentives to perform specific roes: it s not just about partnership for partnership s sake. Operationa partners may take two forms: (a) another deveopment agency externa to the system, eg an internationa NGO; or (b) a payer from the market system, eg a business or a university. In the atter case, faciitators need to ensure that the reationship is conducted in a manner consist with the guidance provided in Section 3D. In both these forms, the partnership is temporary. The programme is engaging with an appropriate partner, over a finite period, with the intention of cataysing some form of change in market system. There is another type of partnership to be considered: partnerships as outcomes, ie new arrangements between payers in the market system that emerge as the outcome of intervention. For instance, government might form a pubicprivate partnership with a BMO to deegate to it icensing issuing and fee coection authority as part of an improved reguatory framework for an industry. Reationship management Smart pubic reations and communications and management of stakehoder expectations is essentia in M4P. The market deveopment task can be compex and is not aways easiy communicated to stakehoders, whether they are direct partners or other oca or internationa stakehoders. Simpe and cear messaging is therefore vita. However, different types of stakehoders wi have markedy different expectations about a programme s work, so a one-size-fits-a approach does not work. Programmes have to be effective at stakehoder anaysis and packaging and communicating messages in a taiored way to suit different stakehoder groups. 74

83 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 4. MANAGING AND GOVERNING M4P PROGRAMMES Figure 22 Differentiating types of partner Period of temporary intervention Programme: Poitica or ega partner Different types of partnership: what does partner mean in practice? Programme: Operationa or intervention partner (co-faciitator) Programme: Operationa or intervention partner (temporary partnership with market payers) Outcome: New partnership between market payers in system Programmes shoud avoid faing into the te everybody everything trap which is common in deveopment. Whist such an open approach might be seen as transparent, in reaity the vast voumes of information much of it technica and jargonaden generated in deveopment programmes are more ikey to be seen as a smokescreen and resut in confusion or suspicion rather than understanding. The portfoio approach (see Section 2) is important in this regard, as it can be used to ensure and demonstrate diversity and baance in a faciitator s work (especiay important if a programme has different stakehoders with mutipe objectives). A portfoio approach can aow a project to maintain a mix of interventions which achieve different criteria (eg gender representation, geographic ocations or consistency with government or funder poicies): different criteria can then be highighted in targeted communications to respective stakehoders. Reguar review is required to assess and revise the portfoio mix. This aows the programme to shift the direction of the overa portfoio in a way which meets stakehoder concerns whie sti aowing it to pursue diversity. Credibiity and branding M4P programmes need to be credibe in the eyes of market payers. Estabishing credibiity and infuencing payers in the pubic and private sectors is vita to successfu faciitation of systemic change. Credibiity may be estabished in severa ways: Ensuring staff profies are credibe amongst key stakehoders. Initiating and deveoping the programme through a joint process with stakehoders. Invoving credibe stakehoders in the governance of the programme. Working through credibe market payers or outsourced suppiers or sub-faciitators. Managers and staff shoud have, or deveop rapidy, the credibiity to infuence stakehoders across the pubic and private sectors. In countries where government is sceptica of new, more market-oriented approaches, it may be usefu for programmes to buid credibiity by demonstrating how markets can be made to work better for the poor through private sector initiatives before attempting to infuence poicy-makers. However, systemic change wi be reinforced if the new business modes introduced by the private sector are underpinned by poicy and institutiona change. 4. MANAGING AND GOVERNING 75

84 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 4. MANAGING AND GOVERNING M4P PROGRAMMES Branding can hep estabish a programme s credibiity. Some programmes have achieved this by trading on their deveopment inks. In other contexts, programmes have done this by pursuing a strategy of ocaisation, in terms of positioning within the domestic context, as we as through staffing profies. Successfu programmes aso deveop a brand or distinctive voice with which to project their infuence in a sector often connected to a programme s reputation for insight or innovation. It is harder for broad, muti-sector programmes to obtain such credibiity and buid a brand since their broad coverage requires that they communicate with a diverse range of stakehoders. For these programmes it may be more effective to buid a voice or brand at the intervention eve. This reates to the idea of theme champions (see 4.2). The need to stimuate oca ownership means that programmes often seek to be invisibe to the fina target group or beneficiaries ie they avoid waving a funder s fag so as not to come between the target group and the market payers who serve them. However, for a number of reasons, invisibiity may not be a reaistic or desirabe strategy with direct partners, such as government, BMOs or arge firms. Funders wi often want to see a programme with a certain profie that matches their expectations (see Figure 23). Figure 23 What shoud a programme brand? Activities with market payers Market research Events on programme experience Capacity buiding of other faciitators Case studies It is often usefu therefore for programmes to deveop mutipe brands towards market payers (where the deveopment image is downpayed) and towards funders (where the market image is downpayed). 4.4 Systems and structures To brand Not to brand The fexibe and faciitatory nature of the M4P approach invoving mutipe interventions and mutipe partners differs from conventiona deveopment programmes and does not aways fit easiy within conventiona systems and structures for programme management and governance. Four areas in particuar can be probematic: (a) budgeting and financia management; (b) contracting; (c) programme structure; and (d) programme steering. There are no definitive ways of deaing with these areas, but some of the key issues are considered beow. Budgeting and financia management Budgets and financia management systems of deveopment programmes are usuay spit into overheads (ie management and administration costs) and intervention costs (ie expenditure directy reated to outcomes or beneficiaries). Concerns about aid effectiveness and efficiency mean that funders want to keep the eve of overheads as a proportion of overa programme expenditure as ow as possibe. For programmes that deiver things directy to beneficiaries (eg vaccinations or seeds) this separation is reativey straightforward and the concern with deivery efficiency is warranted. For M4P programmes this separation as it is handed conventionay can cause probems. M4P programmes do not deiver things directy, but work indirecty to infuence others. This is a human resource intensive process. The probem is that programme staff costs typicay fa under the heading of overheads, so there is a tendency for M4P programme to overreport overheads and under-report intervention costs in effect, activity by staff is regarded as waste, something to be kept to a minimum. This distorts the picture of programme performance, from both a management and a governance perspective. It is imperative that funders and faciitators understand the nature of the faciitation process from the outset and ensure that faciitation costs are ocated appropriatey in budgeting and financia management systems, ensuring that they are incuded within intervention costs and not overheads. A second issue is the eve of detai required in budgeting and financia management. M4P programmes tend to undertake a significant number of interventions with a diversity of partners, none of which individuay may require significant amounts of money (indeed they often entai matching contributions from partners). Unike singe intervention, singe partner programmes, it is therefore difficut to pan each of these interventions in detai far in advance, making accurate budgeting a chaenge. Moreover, the sheer voume of activities can make financia reporting onerous in the extreme (eg in terms of number of budget ines). The experience has been that it makes more sense to define budgets and financia reporting on the basis of broader areas of intervention (eg on basis of cost per market or main areas of intervention). The coroary of this broader definition of budget ines is that programme management needs to ensure stringent inhouse financia monitoring, scrutiny and cash-fow management. 76

85 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 4. MANAGING AND GOVERNING M4P PROGRAMMES Initia interventions (Step 1 of the pathway to crowdingin) can hep programmes and their funders estimate market or intervention costs and enabe budgeting to become more accurate through the ife of the programme. Contracting As discussed in Sections 3D and 4.3, M4P programmes tend to have a variety of partnerships, which require different forms of contracts. Most obviousy, any M4P programme wi be subject to a singe overa contract between a contractor responsibe for impementing the programme and a funder who is financing the programme (for arger programmes there may be severa contractors and funders). This contract ays out the fiduciary responsibiity of the contractor and provides the basis for its ega accountabiity to the funder. The contract for an M4P programme wi be simiar in most respects to that for any deveopment programme. However it shoud make provision for the fexibiity requirements of the M4P impementation process described throughout the Guide and, as far as possibe, emphasise outcomes and sustainabiity rather than the minutiae of inputs and activities. Once a programme is up and running within its main contract, the programme wi need to engage a diverse range of different partners, which wi require different contracting considerations: Sub-faciitators. Some programmes may outsource substantia eements of the faciitation process to other parties subfaciitators. These are ikey to be we-estabished organisations and famiiar with forma contracting arrangements. The key point is that unike commissioning a suppier for a specific technica task (such as market research) which can have very tight terms of reference, a sub-faciitator wi be required to exercise creativity and discretion. Therefore it is important that the contract transfers the M4P impact ogic and faciitation process to the sub-faciitator to ensure their genuine commitment and abiity to faciitate systemic change. Experience suggests that this may require capacity buiding of the sub-faciitator and some eve of ongoing support, which shoud be refected in the contract. Market payers. Most intervention activities are ikey to invove working with some form of market payer, such as a ead firm, a government agency or representative organisation. In some cases the eve of interaction may not be sufficienty high to warrant a contract a simpe MOU may be sufficient. However if a contract is required it is important to use the principe of right-sizing (see Section 3D). For a partner types, contracts shoud try to refect and buid on incentives for good performance rather than penaise bad behaviour, party to ensure ownership over activities and party because in many countries enforcement of contracts for nonperformance is expensive and time-consuming. Because a programme s invovement with a market payer wi be reativey short-term and of a ow financia vaue, the eves of risk invoved do not warrant burdensome contracts and bureaucratic contracting processes. Lengthy competitive tendering processes may not be appropriate in weak environments where there is a scarcity of competent market payers or where payers ack the capacity to engage in such processes. Contracting needs to preserve a faciitator s abiity to respond to partners who often operate on a different timeframe to a deveopment programme (eg private firms). Contracting at the oca eve for ow-risk contracts at east can hep ensure rapid turnaround. It is important to buid in checks and baances if oca contracting processes are used. For exampe: Ensure negotiations and contracting are handed by a team from the programme, rather than an individua. Ensure that financia offers from partners are signed by the head of the organisation in question (not just communicated by emai correspondence). If competitive processes are not reaistic, ensure that the reasons for non-competitive awards are documented and maintained aongside the contract. Programme structure In M4P oca ownership is critica for fostering credibiity and the abiity to infuence others to change practices and take risks. An important success factor in M4P programmes has been the extent to which key stakehoders in the pubic or private sectors have taken ownership of a programme s objectives and strategy. Experience shows that ownership depends upon the extent to which concerned stakehoders are empowered and abe to exercise strategic eadership rather than on a specific structura or ega form. This is borne out by the range of institutiona and ega forms that define various M4P programmes. M4P programmes can take a variety of ega forms: Projects or programmes Are a common ega form. Typicay, contractors (internationa in the main) are contracted directy by a singe funder. For accountabiity reasons, inputs and outputs are often highy specific and detaied. Such tight specification conficts with M4P s requirements for: fexibiity and access to diverse skis; incrementa growth at a pace defined by opportunity; and onger timeframes. Contracting is typicay conducted off-shore and projects often operate outside of oca governance arrangements. Projects can be co-financed by many donor agencies. However, this in itsef has further 4. MANAGING AND GOVERNING 77

86 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 4. MANAGING AND GOVERNING M4P PROGRAMMES impications, as most agencies have specific accountabiity and process requirements. This can ead to tensions between funders and put pressure on programmes to be a things to a funders. Trusts Have been used by a number of programmes. Country-specific programmes are estabished as trusts on-shore in the host country. Muti-country and muti-funder programmes have more often been estabished as trusts off-shore. Trusts can be egay compex, chaenging to estabish and costy to manage. In principe, they can offer a number of advantages (over projects) in respect of the ocaisation agenda: Trusts can offer a more convenient vehice for pooed donor agency funding arrangements. By appointing trustees a trust can reduce the cost and management time spent by funder staff on oversight. This can be particuary attractive in pooed funding arrangements. Projects are often subject to oversight from a form of steering committee. Trusts on the other hand have the option of appointing a Board of Trustees. The responsibiities of a board member are often egay defined and committed, unike those for steering committee members. As such, trusts can offer stronger management, advisory and oversight commitments than projects. If trusts can attract the right caibre of board member, the benefits can be immediate and asting. Board members can hep programmes to estabish networks, credibiity and profie quicky and visiby. They can offer opportunities for government partners to take a rea and committed interest in M4P programmes. Finay, trusts can offer onger-term career opportunities for nationa staff. This assumes that the trust manages to generate onger-term funding streams, but staff wi be working for a oca organisation and not under contract to an off-shore project management company. This can hep attract staff candidates from outside the typica poo of abour from which donor-funded projects usuay draw. Government In principe, it is feasibe and even desirabe for certain aspects of faciitation to be financed, owned and housed within government. Faciitation is a non-commercia activity and it therefore requires pubic funding of some kind. Whist the faciitation focus wi change and adapt, such is the scae of the chaenge in many ower income countries that the faciitation function itsef (ie speciaist faciitation expertise and skis that might be appied to a range of chaenges) may be required for many years. Getting government on board is therefore important notwithstanding that government wi often be a major focus for change itsef! In practice, it is not aways easy for a market deveopment faciitator to be ocated cose to or within government and sti perform effectivey. To do so, a number of conditions need to be met: Faciitators need to maintain the independence of their anaysis, their dynamic, fexibe and entrepreneuria operating cuture, and their reationships with key non-government payers in markets. Faciitators need to access and ever key contacts and reationships across government, afforded by a proximity to government. There are exampes of (semi-)autonomous agencies of government that are tasked with private sector engagement and deveopment functions (eg investment promotion agencies, export deveopment agencies, competitiveness commissions). However, faciitating market change goes beyond each of these narrowy defined functions. As such, it might be desirabe and possibe for faciitators to be cose to or within government, but in practice this is often difficut to achieve without compromising the independence of the faciitator. Programme steering In addition to programme structure, the way the strategic direction of the programme is steered can be crucia to estabishing an M4P programme s credibiity in a oca context. An important distinction needs to be made between singe-sector and muti-sector programmes in this regard. Because change is an unpredictabe process, the abiity to set and, periodicay, adjust the strategic direction of the programme to respond to changes in market conditions is essentia for success. In the case of singe-sector programmes, committed stakehoders serving on the governing body are we paced to track and respond to such changes. They may aso fufi the usefu roes of acting as champions and faciitators of pro-poor change and provide the programme with the egitimacy and credibiity needed to be successfu. Where programmes address mutipe markets, it is more difficut to find informed, egitimate and credibe stakehoders across the markets to be addressed. The boards of mutipe market programmes shoud be made up of peope who are champions of a market-based approach to deveopment but their roe coud be imited to setting guiding principes and the exercise of fiduciary oversight. Strategic eadership over individua market interventions may be eft to informed, committed and credibe stakehoders within each market. In some instances champions of a market-based approach may be few and hard pressed to devote the time needed to provide effective eadership. In such cases, funders may have no aternative but to provide strategic eadership themseves. They wi need to fufi the roe of muti-sector programme boards, invoving stakehoders in providing eadership in individua market interventions. 78

87 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 4. MANAGING AND GOVERNING M4P PROGRAMMES Some programmes have estabished advisory committees of key stakehoders to steer the programme. The efficacy of such committees has been mixed. The advantages of these committees are: They are popuar with funders as they are associated with oca ownership. They usuay comprise prominent and we-connected members, giving the programme credibiity and entry points. They can hep funders deveop good oca networks. Their muti-stakehoder make-up can provide the programme with baance, eg avoid over-reiance on just government. However advisory committees have disadvantages, too: Prominent members are usuay busy peope and cannot devote sufficient time and effort to the steering roe; membership may simpy become a matter of prestige rather than vaueaddition. Powerfu members can exert pressure on the programme to support their pet projects. Members, by their very prominence, may actuay be quite distant from the types of market in which many M4P programmes operate and therefore might not be the market payers that the programme actuay needs. An aternative or suppement to a singe programme advisory committee is an informa sounding board of market payers which can guide a programme s interventions in individua markets in which the programme is active, rather than a highy formaised structure. Programmes are sometimes anchored in government with a view to giving government ownership over the programme. However in practice government is given no fiduciary power or steering roe. This ack of carity about what ownership actuay means can raise fase expectations and adversey affect a programme s icence to operate. 4. MANAGING AND GOVERNING 79

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89 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Successfu appications of M4P require broad consistency with the principes, frameworks and overa process outined in preceding sections. Utimatey, as in any programme situation, what matters is what peope and organisations do in carrying out the specific activities required at each stage of impementation to bring about specific change; in turning an approach into reaity. In some cases this is concerned with adjusting standard toos and methods; more commony it is about appying M4P thinking to anaysis and actions. This section presents a range of operationa good practices which organisations have used, are using or which are ikey to be of use in the future. These good practices reate to: The codified experience of programmes organisations activities condensed into a recognisabe form. Organisations experience in adapting and using standard toos. 10 For each good practice, the notes summarise what the good practice is and why it is important, how it is used, the factors that are important for successfu use and signposts to more information. This is not an exhaustive ist nor does it dea with the many generic management practices that are as appicabe to M4P as to any other programme. The notes here focus on the most important and M4P-specific experiences and present these in a summary format. 5.1 Vision buiding 5.2 Impementing demand-side surveys 5.3 Access frontier 5.4 Log frame 5.5 Deveoping the offer 5.6 Deveoping BMOs 5.7 Making a dea with ead firms 5.8 Promoting vaue chain deveopment 5.9 Understanding incentives 5.10 Giving grants to business 5.11 Guiding participation processes 5.12 Liveihoods anaysis 5.13 Knowedge management system 5.14 Intervention impact ogics 5.15 Interconnected markets 5.16 Stimuating demand 5.17 Anatomy of a transaction 5.18 Rapid market assessment 10 Toos are discussed genericay rather than with respect to branded versions athough these are cited where appropriate GOOD PRACTICE NOTES

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91 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.1 Vision buiding What and why? How to deveop pictures of how market systems shoud/ coud work in the future, to provide the basis for panning and intervention design. Without a vision of how market systems shoud work in the future broady, of who shoud carry out and who shoud pay for different market functions interventions can ack direction and ambition. Many do ack this vision and are uncear of how to work with partners to deveop it. How does it work? In practice, vision buiding incudes a spectrum of different toos. These vary in terms of the anaytica frameworks used and, more important, the extent to which they emphasise (a) participatory processes as opposed to (b) externay driven (product) anaysis. Vision buiding approaches 11 differ according to where they ie in this process-product spectrum (Figure 24). Process-orientated. The emphasis is on capturing the perspectives of market participants and buiding future visions and pans around these. Workshop faciitators baance the bottom-up views of market payers often focused on business-specific probems with wider anaysis from their own/other experiences. Product-orientated. Primariy using desk-based anaysis and discussions with key informants, the emphasis here is on deveoping a tight product of a detaied view of the future or severa different future scenarios. Key factors for successfu use Process orientation These tend to revove around workshops with key market participants and require: Appropriate participants. Representative but ensuring that existing and potentia eaders and change agents are present. Communication with participants. Prior communication to participants estabishes the key objectives of (a) the workshop and (b) the wider process of intervention of which it is a part. Competent and informed moderator. Skied in, at minimum, the process of workshop faciitation and depending on the objectives of the process knowedgeabe on content. Informed by initia anaysis. How much prior anaysis is necessary aso depends on the objectives of the process. More emphasis on gaining a consensus for immediate actions requires ess attention to anaysis. For instance, one we-known approach PACA envisages a process of anaysis and fiedwork incuding a series of workshops taking ony two weeks. Another SHAPE, a process aimed at deveoping sector strategies takes 4-5 months. Product orientation These tend to be based on desk-based anaysis and discussions with key informants and require: Correct identification of the strategic factors impinging upon market system performance. This might incude trends reated to competition, technoogy, market opportunities, consumer tastes, reguations and standards, environmenta pressures an governance issues. Figure 24 The continuum of approaches to vision buiding and market anaysis Process orientation Main focus of vision-buiding Product orientation Participative process to buid ownership Key emphasis: Tight, rigorous anaysis Eiciting shared commitment among stakehoders Bottom-up; operationa Symptoms; organisation-eve Quick Superficia anaysis that provides no sound basis for intervention ( wish-ists ) Loss of the bigger strategic picture Faciitators add vaue by: Overa orientation: Depth of anaysis: Speed of process from discuss to actions : Risks: 11 In practice, buiding a vision of a market system in the future and anaysing current market conditions are cosey inked. 83 Introducing new knowedge, perspectives and insights Top-down; strategic Causes; system-eve Sow Abstract and distant; divorce between anaysis and action Miss out on vita knowedge source 5. GOOD PRACTICE NOTES

92 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Projection of the impact of ikey future trends on market system performance estabishing a no intervention scenario of the future. Projections of the future if key systemic constraints are addressed estabishing a with intervention view on the basis of actions to enhance market performance. At their most deveoped, these anayses can resut in the deveopment of different scenarios under different sets of assumptions. These can then form the basis for diaogue with stakehoders on future directions and the impications of these for immediate decision-making (as has been done successfuy in the South African financia sector, for exampe). Achieving an appropriate process-product baance Good practice in vision buiding requires both rigorous anaysis and a process that engages with market payers. An anaysis that is not sufficienty deep means that faciitators cannot bring overview, insight or guidance to their interventions and they can become dangerousy dependent on the instincts of market payers ony. A process that is not sufficienty participative misses out a vita source of ideas (market payers) and prevents faciitators from making the ink from anaysis to actions; the point of anaysis is to do something with it. Further reading FinMark (2003); Vision 2010 scenarios of the South African financia sector; FinMark, South Africa Mesopartner (2006); How to introduce PACA; a guide for donor organisations in internationa deveopment cooperation; Ibury, C & Sunter, C (2001); The mind of a fox: scenario panning in action; Human & Rousseau, Cape Town 84

93 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.2 Impementing demand-side surveys What and why? How to design, impement and disseminate the findings from demand-side surveys of consumers actua and/or potentia. These are used primariy to throw ight on systemic constraints, estabishing an information base with which to infuence stakehoders and provide initia guidance on intervention processes. However, in practice the quaity of these surveys and the reiabiity of data and findings emerging from them has been mixed and their usefuness imited. How does it work? There are three broad stages: Agreeing on overa objectives. In particuar, whether this (a) wi be a pubic document (product) or be used ony by a faciitator and (b) is seen as a one-off activity or might be repeated in future as a function internaised within the market. Impementation steps. The main how to ist of tasks to be undertaken from initia scoping through samping and questionnaire design to data processing and anaysis. Dissemination. Taking the raw information and turning it into usefu products that can feed into interventions. Key factors for successfu use Agreeing on overa objectives If the aim is to deveop a product that wi be in the pubic domain, reativey more attention needs to be paid to the product s fina design and utiity, and to ensuring a process that is rigorous and invoves potentia users. If the faciitator wishes to keep the door open to internaising within the market, this wi require a process that confers more ownership on potentia owners of a fina product (eg research companies) by: Invoving them in tasks and decision-making from the outset. Requiring part-payment either by sponsors or fina users. Impementation steps Assuming that the aim is to produce a pubic document, there are a number of reativey standard factors to be considered 12 : Scope the opportunity and obtain the buy-in. Activities might incude desk research, interviews with stakehoders and market assessment workshops. Deveop key reationships. Estabish a forma (or informa) advisory committee comprising individuas and organisations who have reevant technica knowedge of the subject area or 12 Taken from the FinScope Technica Manua. 85 the process of doing surveys and can (a) act as a sounding board throughout the process and (b) infuence other stakehoders on the potentia vaue of the fina product. Typicay this might incude government, reguators, commercia firms, statistics bureaux and researchers. Estabish key budget headings. These are ikey to incude: - Administration costs: incuding ogistics, trave, paperwork, premises, equipment hire etc. - Survey-specific costs: incuding cost of a research company (interviewers, data inputting, questionnaires, etc), project management and fees for the centra statistics office. - Promotion of fina product: pubication, aunch, marketing etc (see Dissemination beow). Create structures and procedures to ensure quaity contro. These reate to questionnaire design, samping procedures, fiedwork supervision, communication between researchers and managers and data capture and management. Contract a research organisation. These shoud have appropriate experience in managing simiar surveys and strong networks with the centra statistics bureau. Deveop samping structure and design. A range of technica issues need to be agreed on incuding the rues for samping, how to weight data, appropriate precision eves, etc. Design the questionnaire. Use focus groups initiay to deveop questions and piot the draft questionnaire before finaising. Prepare and undertake fiedwork. Train interviewers and estabish survey administration procedures reating to, for exampe, survey objectives, samping methodoogies, understanding of each question, roes and responsibiities, procedures for deaing with errors, etc. Process data. In particuar, procedures for ensuring good quaity of data input such as the percentage of back checks to be done on each interviewer s work. Anayse data. This shoud be focused on the main anaytica outputs that have been panned from the outset for exampe, the proportion of different target groups that use, are aware of and understand particuar products. Dissemination This is often considered amost an afterthought and consequenty the potentia of surveys to spark changed attitudes and behaviour is sedom fufied. In advance of survey competion, faciitators need to consider: The aunch process. Incuding events, contacts with the media and with key networks. Pubications. Not just the main output but aso derivative products summaries, niche anayses etc. Accessibe presentation is especiay important for survey data. Organisation-specific presentations and discussions. Taking findings to particuar audiences and highighting their potentia reevance. Passivey hoping that stakehoders understand and act on survey findings is, at east initiay, optimistic. 5. GOOD PRACTICE NOTES

94 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES If faciitators envisage that the survey product shoud be internaised within the market system as, essentiay, a commercia product, then part (or fu) pricing is required. This might be done, for exampe, as a syndicated service with buyers investing upfront to shape the survey content and others buying the survey report(s) after competion. If this is seen primariy as a one-off activity, a decision must be made about pricing. Surveys are a hard se, especiay in ow-income economies. However, if users pay nothing, it may be more difficut to ensure that they see vaue in and take ownership over the survey resuts. Further reading FinMark (2007); FinScope Technica Manua, FinScope, South Africa Miehbradt, A (2001); Guide to market assessment for BDS program design; ILO, Geneva 86

95 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.3 Access frontier What and why? How to use this anaysis too for understanding how markets work over time and their potentia to serve poor peope as consumers. Based on the idea that market growth takes pace through a number of stages in reation to structure, performance and size the access frontier estabishes the current imits of the market (the access frontier) and the potentia to reach more underserved peope. In doing so it provides guidance to faciitators on actions to push the frontier outwards. The access frontier can be used at any point in an intervention process but is most usefu at the start. Improving access is a centra objective in M4P, yet especiay for consumer markets there have been few attempts to anayse the process of extending access in detai; the access frontier potentiay fis this gap. How does it work? The eve of deveopment of the market for any product can be tracked in reation to usage as a percentage of the eigibe popuation against time (Figure 25) with different categories of user/non-user identified, those who: Use it now. Coud have it but don t want it or, for other reasons, who have not yet used it these ie within the access frontier. Are within reach of the market in the foreseeabe future based on expected changes in product or market features in a 3-5 year period. Are beyond the reach of the market: the supra-market group who are currenty outside the reach of market soutions. In order to define a market s current access frontier five steps need to be foowed: Figure 25 Access frontier Step 1 Define the market. Specify the market in functiona (rather than product-specific) terms and the user unit (eg individua or househod). Step 2 Determine current usage eves and trends. The eve of usage (as percentage of eigibe consumers) currenty and over recent years. Step 3 Segment non-usage to assess the current access frontier and natura imit. Non-users typicay fa into two main categories: those choosing not to use the product and those who don t know about it. Step 4 Assess positions of the future access frontier in the medium term. Estimate how foreseeabe changes wi affect the access frontier, incuding both demand- (eg consumer tastes) and suppy-sides (eg technoogy and competition). Step 5 Identify those in the supra-market group. Those, who, for nonchoice reasons (chiefy ow incomes) do not have access. The current and projected position of a market shape the nature of interventions required (Figure 26). More immediate measures to bring in those on the fringes of the market (in the market enabement and deveopment zones) might incude competition and reguatory poicies. For those in the supramarket zone, where the most severe market deveopment chaenge ies, additiona interventions may be required. Figure 26 Market poicy zones % 100% Don t want it Beyond the reach of the market currenty Supra-market zone % usage Market can reach future Market can reach now Have now Time 13 Adapted from Porteous (2005). 87 Market deveopment zone Market enabement zone Time Faciitation interventions seek to expand access frontier 5. GOOD PRACTICE NOTES

96 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Key factors for successfu use Acquiring proper data. The best use of the access frontier requires significant data. Some of this can be derived from nationa census statistics and some from commercia providers. Accurate data on reasons for non-usage requires detaied surveys but, in the absence of this, estimates can be made based on industry discussions and projections. If accurate quantitative data are not avaiabe the too sti has vaue in providing a usefu framework to aow faciitators to understand the state of the market and to shape their strategy for achieving market deveopment. In practice, the access frontier may be used widey for this informa roe. The too has been used principay in reation to different strands of financia and insurance services deveopment (incuding transaction banking, insurance and housing finance), most notaby by FinMark in Southern Africa. However, it can be used in any market where extending access to poor peope as consumers is a poicy priority, incuding those markets which might have some merit good characteristics such as mobie phones, water and heath care. In principe, use of the access frontier might be extended to markets where the poor participate as producers for exampe, extending the opportunity to se to specific markets (athough this has not yet happened in practice). Further reading Porteous, D (2005); The access frontier as an approach and too in making markets work for the poor; DFID, London Metzer, I (2006); Exporing access to insurance in South Africa using the access frontier; avaiabe via 88

97 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.4 Log frame (or ogica/project framework) What and why? How to use this generic panning and management too, used widey among deveopment agencies, to design and impement projects (faciitators) and to aow oversight and accountabiity (funders). Based (usuay) on a matrix of four coumns and four rows (16 boxes) 14, the og frame is a systematic way of organising and presenting information reated to a project design. The ogica dimension is derived from the reationship between each of the boxes in the matrix, especiay the fow of cause and effect which joins each of them. Athough og frames are widey used, the potentia of the og frame to offer usefu strategic management guidance and to act as the basis for accountabiity is sedom reaised. How does it work? The og frame inks three eements found in any project situation (right-hand tabe in Figure 27): The project itsef: its resources, what it does and what it achieves directy. The impact that the project is seeking to have on the rea word. The wider environment: factors outside the project s contro that impinge directy on it. In using the og frame, there are three main steps: Going from impact to actions. Pan down coumn 1, deveop the initia hierarchy of objectives. Take account of the wider environment. Think up coumn 4, identify the assumptions being made in the fow of objectives and, if necessary, change these to make them more reaistic. Focus on the M&E core. The essentia panning patform for thinking about indicators (coumn 2) and measurement methods (coumn 3). Key factors for successfu use The rues that appy to using og frames generay appy to M4P as we. These reate to, for exampe, having one goa and one purpose ony, the importance of process, and keeping assumptions focused on externa factors beyond projects contro. However, there are two specific factors to bear in mind in deveoping og frames reated to M4P: (a) ensuring consistency with M4P s strategic framework and (b) baancing accountabiity and fexibiity. Both of these procedures expose the imitations (and origins) of og frames namey, the og frame idea of a reativey fixed and predictabe project (such as a construction project) where most interna and externa factors are known. This is not the compex and dynamic word of market systems that M4P is seeking to infuence and the use of og frames needs to be adapted to refect this reaity. Consistency with M4P strategic framework Coumn 1 of the og frame shoud conform with the underpinning ogic of market deveopment system change resuting in growth and/or access benefits in turn causing a reduction in poverty (Figure 28). In writing objectives, there are a number of practica considerations: Focus on the probem and not the soution at the goa and purpose eve. Don t add a by or through to the objectives statement (eg to increase incomes through improved market access ). The soution is provided by the next ower objective. Keep impacts at purpose eve and above. Outputs are what a project deivers beyond that are rea word changes caused Figure 27 The og frame a 16-box matrix covering three eements in a project situation 1. Summary 2. Indicators 3. How measured 4. Assumptions 1. Summary 2. Indicators 3. How measured 4. Assumptions Goa Purpose Outputs Activities 14 An extra supergoa eve is often added to create another, fina, eve of impact. 89 Goa Purpose Outputs Activities The impact The project The wider environment 5. GOOD PRACTICE NOTES

98 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES by these outputs. A common mistake is for outputs to focus on the first eve of impacts. Whie technicay this is wrong, in practice, as ong as the overa fow of og frame ogic is consistent with the strategic framework, it is an error that can be accommodated. Overa ogica fow matters more than precise abeing. Deaing with the not enough boxes probem. Three eves of rea word change (system growth/access poverty) need to fit in to the og frame. To do this, either insert a supergoa eve or merge the growth/access and poverty objectives at goa eve. This might be done by a formuation such as To improve the pro-poor performance of the financia services sector (ie combining growth/access and poverty objectives) and by ensuring that indicator choice refects this broader objective (see Good Practice Note 5.14: Intervention impact ogics). Baancing accountabiity and fexibiity Faciitators are accountabe for their performance and this requires assessment against targets. However, one of the centra tenets of M4P is that interventions are driven by an understanding of market system constraints and need to be designed and impemented iterativey to refect earning and changing conditions. This key tension between accountabiity and fexibiity is seen ceary in how projects design and use their og frames and, in particuar, how they use coumn 2: indicators. A number of factors emerge from experience (see Figure 29): Be specific enough for now. The eve of detai possibe in a og frame is determined by how much is known, what data are avaiabe on the prevaiing situation and the degree to which specific intervention tasks have been fixed. So, for exampe, at the outset it might be possibe to use information from other pubished and industry sources to estimate the overa scae of performance improvement required but ony to describe in more genera terms the nature of market system changes needed, not the specific detai of interventions. what a project wi do and achieve directy are desirabe. What shoud be fixed in a og frame is essentiay coumn 1; indicators in coumn 2 shoud be the subject of reguar review, especiay those reated to the critica purpose eve. Changes in a og frame shoud of course be the subject of discussion between different parties. Accountabiity through performance against purpose (and goa) targets. The traditiona view of faciitator accountabiity compiance with output deiverabes is ess reevant in a context where deiverabes cannot be fixed in detai in advance. As a project proceeds, more output detai becomes possibe and this becomes the basis of accountabiity. However, the overa principe remains: M4P accountabiity is not primariy about hitting output targets. Intermediate indicators. Indicators need to refect the nature and chronoogy of change in market systems. For exampe, in introducing a new service, a project might first be interested in consumers and providers awareness and understanding of this but, over time, take-up and usage become more important. These changed indicators shoud be captured in new workpans (and og frames). Baanced indicators. Indicators need to ensure that baanced and significant market change is achieved. In practice this means that they need to refect key dimensions of market deveopment outreach (how many?), impact (how effective?) and sustainabiity (wi it ast?). For sustainabiity, which is often negected, this means considering incentives, behaviour and services that support further deveopment and the extent to which market activity continues independenty of project support. By being specific enough for now, designers and funders therefore are committing themseves to fina ends without knowing in precise detai the means to those ends. This (unsatisfactory but unavoidabe) reaity needs to be recognised. Attempts at fixing too much at purpose and outputs eve inevitaby resuts in a tacit game of coective make-beieve and sef-deusion where significant detai is specified without justification or credibiity. Learn and revise. Log frames are not intended to be fixed throughout an intervention period. They shoud be adapted to refect new information, circumstances and resuts from piot interventions. Roing workpans for exampe, annua or six-monthy that aow more detai to be deveoped on 90

99 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Figure 28 Fitting the M4P strategic framework to the og frame M4P strategic framework Log frame considerations Log frame eve (coumn 1) Poverty reduction The top eve (goa or supergoa) reating to poverty reduction or other socio-economic wefare improvement for a particuar target group. This might typicay be expressed in terms of changes in: Income or assets which are proxies for income (eg new roof). Non-income dimensions of poverty such as heath or vunerabiity. There may sti be an economic dimension here (eg productive heath working days ost to sickness). Improved access and growth Typicay, the goa eve focuses on increased opportunities and capacities for poor peope arising from improved growth and access. This reates to: Stepping up (eg increased productivity, market share or more appropriate goods and services). Stepping out (eg access or entry to new markets, new empoyment, new goods and services). Hanging in (ie reducing vunerabiity or instabiity). Supergoa or Goa Market system change The key focus on systemic change shoud be refected at the purpose eve. Foowing the market system framework (core, rues and supporting functions), change is manifested in: Improved deivery of core function (eg increase in participation rates or eves of satisfaction etc). Changes in practices, roes and performance of important system payers and functions. Crowding-in of system payers and functions. Demonstrated dynamism of system payers and functions (eg responsiveness to changed conditions in the system). Purpose Systemic intervention The output eve shoud focus on the main areas of intervention to change different dimensions of the system(s) in question. This is about tasks deivered rather than impacts achieved and typicay wi incude interventions to: Ater the attitudes and perceptions of key payers. Strengthen capacity and practices. Change the aignment or roes of payers. Encourage inkages between payers. 91 Outputs and activities 5. GOOD PRACTICE NOTES

100 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Figure 29 Styised summary M4P og frame for vaue chain project where the key constraint is reated to services Summary Indicators How measured Assumptions Goa Change infrequenty Purpose Change reguary as more knowedge on nature of constraints emerges Outputs Change reguary to refect emerging workpans To increase propoor business competitiveness in three vaue chains To improve the performance of the market system impinging on three vaue chains Market faciitation process designed and impemented Against initia benchmarks, by the end of the project period, average and sma-scae producer performance improves by xx % in reation to: Output Productivity Empoyment In each vaue chain, by the end of the project period: Among SMEs Higher awareness of services Greater use of and satisfaction with specified services Among providers Increase in no. of providers Greater independent service innovation Greater use of supporting services/information Initia demand- and suppy-side research undertaken Key constraints identified and anaysed Workshop hed with key stakehoders Intervention strategy designed Interventions impemented eg new ideas introduced with seected partners, socia marketing campaigns undertaken Wider technoogy and consumer trends do not shift the prospects for and incentives within the market significanty The poor s interaction with the market remains primariy as producers and empoyees Government strategy does not change markedy Donor engagement remains generay non-distortiona Activities Not usuay specified initiay Further reading Gibson, A (2001); Deveoping indicators in sma enterprise deveopment projects. A too for peope invoved in designing, impementing and evauating SED projects; SED Working Paper No 1, SDC, Berne GTZ (2004); Resuts-based monitoring. Guideines for technica cooperation projects and programmes; Corporate Deveopment Unit, GTZ, Eschborne, Germany 92

101 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.5 Deveoping the offer What and why? How to deveop the service or activity that a faciitator offers to its partners in exchange for a defined change in behaviour or actions. 15 Interventions usuay have to be with someone a partner in a market system. The offer represents the essence of a faciitating organisation what it is and what it does in reation to these partners. Athough centra to how businesses and business-ike organisations must behave, for many agencies that are more accustomed to doing things themseves rather than with others, deveoping their offer is a discipine and process that does not emerge easiy. How does it work? Four key questions need to be addressed in deveoping an offer. Who is our offer aimed at? The types of individuas or organisations, their ocation and context. Why shoud someone want our support? The direct benefits that they coud expect to derive from working with us. What coud they expect to get? The specific service or activity that is undertaken. What do we expect in return? The price charged or other form of quid pro quo. In answering these questions, faciitators shoud appy both operationa and strategic criteria (Figure 30). Figure 30 Deveoping an offer The key questions Key factors for successfu use Is it consistent with the main operationa criteria? Successfu offers meet three main criteria: Carity. Both faciitators and partners shoud be cear about what each wi get from a reationship and how this wi contribute to their goas. In the absence of carity, partners wi give their own meaning to the offer, guided by their own and wider impressions of what deveopment agencies commony do (for some, giving handouts). This can be the source of misunderstanding and eventua faiure. Specificity. Unike a simpe commercia transaction, exchanges here are ikey to invove different activities and commitments as we as finance. Offers therefore need to go beyond genera descriptions to provide sufficient detai for each party to know what they wi get, what they wi give and why and how this is different from other reationships. Credibiity. Partners need to have the necessary skis and knowedge to deiver the offer and as important be seen to have this capacity by potentia partners so that they have confidence that they wi deiver. Is it consistent with the main strategic criteria? Successfu offers promote wider crowding-in of other market deveopment beyond the immediate partner. In practice this means that they shoud: Be cear over whether this is one-off temporary activity or required in the market in the future. Be with the right market payer in reation to their capacity and incentives. Have an appropriate reationship with a partner which aso aows others to crowd-in (ie, is not excusive) Be of the right intensity and scae to deveop rather than distort the market. Operationa criteria Cear? Specific? Credibe? The offer Who - aimed at? Why - they want it? What - they get? What - we get? and the main considerations in thinking about these questions Strategic criteria Does it encourage crowding-in? Who? Where? Reationship? Intensity? 15 Offer is a term used commony in commercia situations; its use here emphasises the need for faciitators to be business-ike in their activities and in their orientation to partners GOOD PRACTICE NOTES

102 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES In practice, there are a number of more detaied do and don t rues in deveoping a successfu offer (Figure 31). Figure 31 Do and don t rues in deveoping an offer Do Be business-ike faciitators are not necessariy profitmaking businesses but do need to approach the transaction contained in the offer in a business-ike manner. Strike a baance between (a) the direct (private) perspective of a partner and (b) the wider goas of bringing in others in the market system. Be specific about ownership questions where innovation is supported, ensure that the ownership does not ie excusivey with the partner. Use partner s context to shape the offer don t seek to impose an externa agenda but begin with partner s objectives and buid infuence and the offer from that starting point. Don t Confuse an offer with a mission statement it has to be tighter and more focused than the oose sentiments and wording associated with mission statements. Aways insist that it is written down this might be required (for exampe with a ead firm) but presenting an offer is often as much about a faciitator s orientation as about written agreements. Focus too much on the financia eement this may often be required as a sweetener but is sedom critica to success. Overy define initiay eave sufficient space to aow taioring for specific partner context. Strike a baance between (a) the expressed needs of the partner (what they say they need) and (b) their objective needs (what they actuay need but don t know it yet!). 94

103 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.6 Deveoping business membership organisations (BMOs) What and why? How to rues on understanding and working effectivey with BMOs to enhance their roe within market systems. This note buids on two facts. First, as organisations of and representing business, with an apparenty natura market deveopment objective and (at their best) bringing business skis to the wider market deveopment task, BMOs woud seem to be an obvious ay for M4P. Second, experience over many years in working with BMOs has been mixed and appropriate essons must be drawn from this experience. How does it work? Working with BMOs requires two broad steps: Understand the potentia roes a BMO coud pay in a market system. This invoves assessing the current position of the market and the constraints impinging on it. Foow key principes emerging from on-the-ground experience. Key factors for successfu use Understand potentia BMO roes From an M4P perspective, BMOs vaue ies in how they can serve market deveopment (not the other way around). Therefore: Identify the key constraints in the market system. Any engagement with a BMO must be based on a detaied knowedge of a market not a superficia sketch. Identify potentia areas where BMOs may be abe to pay a roe. Athough there is no bueprint, typicay BMO roes are reated to their core competence in (Figure 32): - Advocacy - representing members and communicating with stakehoders. - Information - on trends, inkages, new ideas and opportunities. Other roes might aso be payed depending on capacity and context, such as: Coordination: a strategic roe requiring oversight and inkage of key payers. Standards setting and enforcement (eg industry codes of conduct). New technoogy/product deveopment: sponsoring new ideas in practice. Deegated government functions (eg export certification). A key consideration is to aow BMOs to pay appropriate roes to encourage their deveopment but not to ure them into inappropriate roes beyond their competence. Figure 32 Potentia roes for BMOs in markets Supporting Functions Other potentia roes Product dev t Government functions Coordination Information Advocacy BMO priorities D CORE s D = Demand S = Suppy Standards Rues GOOD PRACTICE NOTES

104 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Foow the rues of engagement with BMOs Ensure that the BMO represents a genuine shared interest. Is the BMO concerned with bringing more peope into the market or has it been captured and is protecting narrow vested interests? Check that the baance between private and pubic interest is acceptabe. Understanding incentives is critica to BMO deveopment. BMO eadership is usuay driven by both sefinterest and wider (pubic) goas a workabe overap between these two goas is the basis for deveopment. Buid around key peope. As with sma businesses, the potentia of BMOs is often shaped by the competence and motivations of key eaders. Conversey, if eadership is weak, there may be itte basis for coaboration. Use workshops to infuence the BMO vision. Coective vision buiding workshops are usefu in providing an open and transparent patform to expore the BMO s view of the market deveopment chaenges ahead and the BMO s roe within this. Find an initia focus. Buid support around a ogica area where coective action (rather than by individua firms) is the ony feasibe approach. Aow the faciitator offer to emerge. Rather than approaching BMOs with a fixed offering, et this emerge in a context of a process of assessing the strategic chaenges in a market and the potentia roe of the BMO within this. Baance ambition with pragmatism. Whie the wider experience has been for externa support to extend BMOs beyond their reaistic imits (with faiure the resut), given the right peope, incentives and encouragement, BMOs roe can be more strategic and infuentia. Engage over a period of time. Rather than investing significant amounts of support, intervene in sma, iterative ways so that the eve and nature of intervention is appropriate to the eve of BMO deveopment. Let intervention support grow with the organisation. A tough ine in intervention negotiation. The faciitator s stance shapes the incentives framework for the BMO. Make support conditiona, don t give too much and focus on technica (noncash) inputs. Estabish interventions vaue-added as knowedge and ski based not finance. Accept a degree of financia opaqueness. Changing BMOs into modes of financia probity is often an impractica aim, requiring a degree of externa support that woud change their nature (and increase their overheads). Sma, specific interventions may increase transaction costs but have a better chance of maintaining the integrity of the reationship. Cost-share to increase BMO ownership. Athough there is no formua, more of the cost burden shoud be met by the BMO over time. Remember that BMOs are not aways necessary! BMOs are a means to an end; their vaue extends ony as far as the roes that they can pay. Don t set out to work with them as a matter of principe; ony do so if they have the potentia to be usefu. 96

105 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.7 Making a dea with ead firms What and why? How to deveop a successfu dea with ead firms so that both deveopmenta (M4P) and commercia (ead firm) objectives are met. Lead firm interventions tap into the resources and incentives of estabished businesses and support them to change their business mode in a direction which encourages wider systemic change and pro-poor benefits. At the heart of these interventions is a mutuay beneficia dea between a ead firm and a faciitator. Agencies increasingy see the potentia benefits of engaging with ead firms. However, they are ess cear on how to interact with ead firms productivey going beyond merey subsidising private operations. How does it work? There are three broad steps in a ead firm-based intervention: Identify and approach potentia ead firms within a market system. Deveop a piot project with one (or a sma number) of these that has the potentia to bring both private (ead firm) and pubic (market system) gains. Buid on these initia activities to crowd-in other market payers and stimuate wider, more sustainabe change. This practice note deas with the first two points above making a dea with ead firms (see Section 3D of this Guide for detaied information on crowding-in). Key factors for successfu use Baancing pubic and private benefits Change and innovation in process or product is introduced by an intervention with a ead firm partner, which resuts in commercia benefits for the ead firm, but more importanty, ays the basis for wider systemic change among other market payers so achieving greater and more sustainabe impact through the market system. Interventions that resut ony in commercia gains for the ead firm are giving a private, anti-competitive captured subsidy that, in the onger term, does not achieve pro-poor market system change. Baancing pubic and private benefits is centra to successfu intervention (Figure 33). Ensuring faciitator capacity and practice To engage effectivey with ead firms faciitators must: Have sufficient knowedge and confidence to engage crediby with firms. Initia market assessment needs to be sufficienty 97 Figure 33 Shared goas in eads firm agreements Focus here Faciitator Pubic / deveopment goas Shared goas to bring change here Lead firm Private / business goas detaied to give faciitators a good understanding of the key competitiveness issues trends, threats, impending chaenges, etc that wi shape the future performance of the sector as a whoe. Have deveoped areas of potentia project offer or an initia idea of where opportunities for engagement might ie often innovations in product, service or process. Interventions based around a financia offer ony usuay don t work firm constraints are more ikey to be about how to rather than money ony. Faciitators shoudn t have a fixed view of their potentia offer but neither shoud they have a bank canvas (see Good Practice Note 5.5: Deveoping the offer). Identify appropriate potentia partners. Market assessment shoud highight the identities of key firms and, ideay, they wi aready have been contacted as part of the process. A ead firm is one that has the potentia to infuence a market as whoe on the basis of its size, innovativeness or reputation (ie there s no point in deaing with the sma, du and dubious ). Approach potentia partners in an appropriate manner. Approaches shoud generay be personaised rather than through a remote procedure (such as invitations to tender). Successfu ead firm engagement emerges from persona discussions and the initia approach needs to be simiary direct. Structuring the right kind of dea A successfu dea between ead firm and faciitator is one which has a number of characteristics: Is cear on the transactiona process who does what. The main contributions (financia and non-financia) of each party shoud be understood ceary, usuay stated in a forma agreement. Is cear on the objectives who gets what. A dea has to recognise (a) the commercia incentive of firms often concerned with aowing firms a head start, (b) discernibe benefits for disadvantaged peope and (c) the scope to catayse wider change with other payers in the market system. Any agreement must therefore keep the door open to working with others in some way. Tests commitment and buids ownership. For a dea to work, the ead firm has to have appropriate capacity and incentives. 5. GOOD PRACTICE NOTES

106 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES The first is a function of resources technica, financia and organisationa but the second depends on the nature of the agreement that is struck. In deciding on the aocation of tasks and, in particuar, cost-sharing, precise ratios or figures are ess important than the overa aim: a ead firm partner committed to the piot project. Is with one firm (or severa). Ideay, faciitators shoud work with more than one partner to reduce risk and enhance the chances of more successfu crowding-in. However, in competitive markets and with especiay innovative projects working with one firm wi often be the ony reaistic option. Ensures ownership in impementation. A successfu impementation process requires continued coaboration between faciitator and ead firm. The dea itsef shoud be formay monitored but, more important, it shoud encourage cose reationship between each party. Further reading Gibson, A (2006); Enhancing the suppy-side in the maize market; Katayst Case Study No. 4, Dhaka, Bangadesh 98

107 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.8 Promoting vaue chain deveopment What and why? How to adapt standard vaue chain anaysis (VCA) so that it is consistent with M4P and contributes to the deveopment of more effective and sustainabe vaue chain systems. Athough there are different variants of VCA, it is aways based on the anaysis of the fow of vaue added that is created as raw materia is transformed into fina products. Most firms are either ocated in vaue chains or interact with them. Interest in vaue chain deveopment has grown significanty as governments and agencies reaise the importance of focusing on changing systems (rather than individua firms) to achieve significant scae and that, for many firms, their vaue chain constitutes their most important system. However, despite the systemic character of the vaue chain, many vaue chain-focused interventions do not achieve their potentia, in practice stimuating ony imited change. Limitations in VCA ie at the heart of this probem. How does it work? Adapting VCA to take account of M4P requires that its strengths and imitations in reation to its three main stages be understood: Mapping of the vaue chain. This requires that the main stages in vaue added are assessed to generate a quantified picture of the different channes of the vaue added process incuding number of firms, empoyees and margins at each stage as we as supporting services, incuding reevant nationa/internationa comparisons. Anaysis of the key constraints. Identification of gaps that undermine the performance of the vaue chain and, therefore, the opportunities for intervention. Specification of actions. Given the above anaysis, recommendations for action by governments or agencies. Key factors for successfu use Adapting VCA requires that severa factors are taken into account. Recognise the common ground Many firms exist within vaue chains. In an increasingy competitive goba environment, VCA is a vaid and practica way of examining the word around firms sharing a number of simiarities with M4P: VCA recognises that the deveopment task is concerned with changing systems (it has a systemic perspective). Figure 34 The vaue chain as a market system Supporting Functions Integra part of the market system Inputs Land Coordination core Market services Information Finance R&D Vaue chain as core of the market system Standards Reguations Rues 99 Vaues 1 Raw materias 2 Production 3 Processing 4 Distribution 5 Retaiing 5. GOOD PRACTICE NOTES

108 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES VCA fits within the M4P markets system construct, with the main vaue added process in the core and the vaue chain environment corresponding to rues and supporting functions (Figure 34). However, unike many versions of VCA, the supporting functions and rues are seen to be an integra part of the market system not a secondary consideration. 16 Recent innovations in VCA thinking have emphasised the importance of power and governance in vaue chains, especiay in reation to the position of sma producers. This corresponds cosey to M4P s recognition of forma and informa rues and power and information asymmetries in market systems and the need for supporting functions (for exampe, advocacy and reguations) that address these. From this observation of the common ground between M4P and VCA, the foowing points are concerned with how VCA can be adapted or extended by M4P. Extend the anaysis to interconnected markets The soutions to vaue chain probems often ie in interconnected markets. These may be factor markets for exampe and and finance in agricuture or, increasingy, as knowedge and information become more important in determining competitiveness, they may be services either fee-paying services or informa services embedded within vaue chain reationships. Simiary, the process of reguatory reform can be regarded as a poitica market. Interconnected markets can be viewed through the same anaytica ens as the main vaue chain to identify and address underying causes (see Good Practice Note 5.15: Interconnected markets). Distinguish between causes and symptoms A common weakness in VCA is the disconnect that appears between mapping the vaue chain and anaysis of key constraints. VCA aways generates maps, but these ony serve a descriptive purpose if they do not provide the basis for an anaysis of the systemic constraints that determine overa performance. This emphasis on the vaue chain map rather than on anaysis can ead to anaysis as firm wish-ists a faiure to distinguish between a firm s probems (not the direct focus of a faciitator) and the root causes of these (the correct focus). Probems in the core of any market system incuding vaue chains often have their cause and soution in its supporting functions and rues. If these are under-emphasised there may aways be tendency to focus on superficia anaysis and action. Incude sustainabiity in the anaysis The ack of emphasis given to sustainabiity in VCA means that there can be a tendency to underpay the importance of estabishing cear forward direction for future vaue chain deveopment. Vaue chains, as with any market system, are mutifunction, muti-payer processes. Any vaid view of the future has to consider in depth the roes of payers such as the private sector, government and BMOs in reation to key functions. M4P provides a framework to aow this view of the future to be deveoped. Provide guidance on the how to of interventions (from anaysis to approach) VCA is a means of examining the word but it does not provide guidance on how to take action on how to intervene to address the constraints identified. Anaysis is usefu of course but, for agencies and governments, it is ony a means to an end. VCA stops at anaysis it is an anaytica too. 17 M4P provides anaysis and guidance frameworks, good practices, principes that can aow faciitators to intervene effectivey; it is an overarching approach. If this is not borne in mind, there is a danger that faciitators wi take the oose prescriptions such as the need for upgrading emerging from VCA and act in a way that does not produce effective and sustainabe change. Further reading FIAS (2007); Moving toward competitiveness. A vaue chain approach; Foreign Investment Advisory Service, Word Bank, Washington GTZ (2007); Vaue inks manua; GTZ, Germany Herr, M & Rogovsky, N (2008); Vaue chain deveopment for decent work a guide for private sector initiatives, governments and deveopment organisations; ILO, Geneva Kua, O, Downing, J & Fied, M (2006); Gobaisation and the sma firm: an industry vaue chain approach to economic growth and poverty reduction; USAID micro report 42, Washington Schmitz, H (2005); Vaue chain anaysis for poicy-makers and practitioners; ILO, Geneva 16 Stricty speaking, each ink in the chain of vaue added is a separate market system in its own right and shoud be subject to a separate anaysis. This more detaied breakdown is often required but it is, nonetheess, usefu to conceive the whoe vaue chain as one system. 17 In this sense references to the vaue chain approach are miseading. VCA does provide a framework for anaysis but it does not provide a framework to shape the design and management of interventions. 100

109 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.9 Understanding incentives What and why? How to identify, and take into account, the incentives of key market payers 18 in the process of intervention design and impementation. The roe of incentives is increasingy recognised to be critica in expaining the deveopment experience to date and in shaping deveopment potentia in the future. Many interventions fai because they: Make oose assumptions about market payers motivations and do not expore the underying causes of behaviour; for exampe, assuming that change processes ony need a champion rather than recognition of the mutipe factors driving change. Use methodoogies for programme design which commony focus on the symptoms eve of anaysis 19 and fai to reach the underying poitica economy of market systems. Don t take incentives into account in their visions of how market systems can operate in the future. Whether using a forma framework such as Participatory Stakehoder Anaysis, in which a numerica scoring system is used or through ess forma, more intuitive processes, taking account of incentives aways invoves these steps. Key factors for successfu use Adapting stakehoder incentives anaysis to the M4P requires that a number of points are recognised: The wide range of payers in a market system M4P is buit on a muti-function, muti-payer view of markets that aso recognises their interconnected nature the fact that one market (eg media) impinges on another (eg agricuture) see Good Practice Note 5.15: Interconnected markets. The impication here is that interventions that seek to address underying causes can take faciitators to a set of stakehoders seemingy a ong way from where they start! For exampe, a probem of ow productivity in agricuture might easiy ead faciitators from an initia focus on, say, poor farmers to a fina priority of business schoos and consutants (Figure 36). Incentives need to be understood throughout these interconnections. Conversey, interventions that are grounded in detaied knowedge of incentives and ensure that they are aigned with incentives have been shown to be capabe of successfuy uneashing the power of market systems. How does it work? There are four genera steps required to take account of incentives (Figure 35): Identify key stakehoders. This obviousy incudes the intended fina beneficiaries but aso a those groups that have an interest in the outcome of an intervention. Identify stakehoders interests. These might be, for instance, sympathetic or negative towards the objectives of an intervention or, more ikey, a more nuanced combination of both. Determine the importance and infuence of stakehoders. How much do stakehoders matter in reation to intervention goas and what is their potentia impact on intervention achievements? Determine priorities for action. Given the above anaysis, which stakehoders are the priorities for intervention (and what form might this intervention take)? Figure 35 Bank stakehoder tabe Stakehoders Interests Importance and infuence Priorities for action 18 The terms stakehoder and market payer are used interchangeaby here. 19 See for exampe DFID Briefing Paper, Using Drivers of Change to improve aid effectiveness, The importance of informa rues Whie a market payers operate within sets of forma rues that are supposed to guide actions, in practice informa rues are often more important. For exampe, firms are sedom as risk-taking and profit-maximising as economic theory woud indicate; baancing risk with operating comfort and persona career objectives may be more important. Inter-firm cooperation is frequenty undermined by cutura divides. Business associations often demonstrate an amagam of persona, business, poitica and atruistic aims. Different eves of government hierarchies have conficting priorities. Informa incentives are critica in adapting M4P to different environments. The shifting nature of forces for change The dynamic nature of market systems means that the reative importance of different infuences aso changes. Probems, crises, pressures, etc may create opportunities for interventions. For exampe, emerging issues inking cimate change and food prices and corporate socia responsibiity a impact on the incentives impinging on payers and have impications for the focus of interventions. There are, in reaity, very few perfect storm situations where a confuence of factors creates the idea scenario for interventions, but there are often new opportunities time and context-bound that can buid on payers incentives. In this sense, successfu interventions are aways opportunistic. 5. GOOD PRACTICE NOTES

110 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Figure 36 Understanding the incentives of different market payers in the vegetabe market system Probem Farmer productivity Information to farmers Symptoms Market payers/stakehoders Farmers Retaiers, extension agents, media Business mode of retaiers/input suppiers Advisory services and information to companies Causes Focus of intervention(s) Retaiers, input providers Input providers, business schoos, consutants, media Pacing incentives at the heart of panning and vision buiding The who shoud do who shoud pay matrix inking payers and functions that is centra to considering the future sustainabiity of market systems is based around assessment of why market payers shoud behave in a particuar way. Visions of the future shoud be ambitious but reaistic, meaning they take into account (a) what payers can do and (b) what they wi want to do. In other words, incentives anaysis is centra to intervention design but aso to panning for the future. Further reading DFID (1995); Stakehoder participation and anaysis; DFID, London Jacobs, S (2006); Broad reform of the business environment: drivers of success in three transition countries and essons for South Asia; paper prepared for the conference on Creating better business environments for enterprise deveopment; Donor Committee on Enterprise Deveopment, Bangkok MacArthur, J (1997); Stakehoder anaysis in project panning: origins, appications and refinements of the method; Project Appraisa, Vo. 12, No. 4, Beech Tree Pubishing, UK 102

111 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.10 Giving grants to business What and why? How to give financia support to businesses, of various sizes, so that individua firm-eve change is stimuated, and wider sustainabe benefits throughout the market system are stimuated. For many agencies, their main resource and the easiest type of offer they can make is financia support to businesses for exampe, grants to try a new service, deveop a new product, invest in a new process or ink with a new set of suppiers. In the spectrum of potentia types of intervention (Figure 37), grantgiving is an obvious option. The argument for grants is that they provide a direct incentive for pro-poor business innovation and kick-start a process of change which others can foow. The argument against grants is that they can resut in gross distortion in market systems, undermining the information and incentives that are centra to effective market functioning. How does it work? Grants for business can take a number of forms, such as: Matching grant schemes are aimed at stimuating business use of consuting services and based on a cost-share (50:50 usuay) between firms and agencies. They have been used extensivey. Voucher schemes give coupons equivaent to a defined proportion of the cost of a good or service (up to 100%) to potentia consumers and have been used in business services and extensivey for individuas in education and heath interventions. Direct grants for individua firms, usuay for a proportion of project cost, and generay aimed at supporting innovations or pro-poor investments. Chaenge funds offer such support through a competitive bidding mechanism. Direct grants pus technica support are offered as taiored packages to firms, usuay as part of a wider programme of market deveopment, in a process ed by faciitators. Figure 37 Grants as one intervention option open to faciitators Spectrum of options for faciitators Do-it-yoursef Supporting Functions D CORE s Direct financia support Financia inducements Direct non-financia support Networking/payer aignment Awareness buiding Direct Indirect D = Demand S = Suppy Rues 103 Do nothing 5. GOOD PRACTICE NOTES

112 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Key factors for successfu use In a the above situations, adapting grant-giving to M4P is aided by consideration of a number of factors: Recognise the mixed experience A types of intervention have the abiity to change market systems. This change can be assessed against a distort (negative) or deveop (positive) continuum (Figure 38). Grants are, by their nature, an invasive form of support, especiay when they are focused at the core of a market system, since they seek to infuence the incentives, prices and reationships centra to market functioning. The deveopdistort diemma is present whether or not grants are offered on the demand- or suppy-sides of the market. Proponents of matching grants, for instance, see them as inherenty better than support to consutants (suppiers) because they empower the demand-side and make suppiers more responsive to it. However, grants for service users can easiy undermine their wiingness to pay more commercia rates whie encouraging suppiers to infate their prices to take account of the grants offered. The net resut can be to drive suppy- and demand-sides further away from each other. Focus grants on systemic constraints As a basic principe of M4P, grants (as with a interventions) shoud address the causes of poor market performance (or systemic constraints). Not every probem a firm faces is due to a systemic constraint often they are attributabe to interna factors (eg owner-managers attitudes and ambitions). Grant support, sometimes in response to the knee-jerk responses or the expressed needs of businesses, can easiy see probems and soutions ony in terms of ack of money. In doing so they address symptoms ony and miss causes a fata error for any intervention. For exampe, matching grant and voucher programmes assumed impicity that probems are concerned with incentives and information; if constraints are more reated to suppy-side capacities or offers they do not address these directy. Buid other interventions around grant mechanisms to crowd-in system change Grants on their own can induce change, but without conscious efforts to compement them, the benefits of change can be captured ony by the direct grant recipient. Utimatey, grants that have a negative impact on competitiveness are not in the Figure 38 The deveop-distort continuum Faciitator infuence Market payers and functions Monopoistic/monoithic payers Narrow range of functions Dependent on externa support Boated cost base Artificia expectations Limited market size Limited market incusion Diversity of different payers Diversity of functions Indigenousy owned/resourced Appropriate cost base Reaistic expectations Increased market size Increased market incusion Faciitation aways has the potentia to change markets Market distortion Market deveopment 104

113 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES interests of the poor. 20 Acting to bring about greater change beyond the immediate recipient may require a number of steps. In some case, the buzz created by initia support may induce a range of other market activity. In other cases, interventions to encourage changes reated to information, services, attitudes, etc may be required which might aso invove some grants but in combination with other interventions. Chaenge funds, for exampe, were conceived simpy as a grant mechanism but increasingy recognise the need to support wider systemic change (Figure 39). Size and duration matter! As a rue, grants that are arger in size and onger in duration are more ikey to be distortiona. Rather than prompting changed behaviour, they incentivise market payers to seek more grants. However, in other situations, too much attention to precise costs is ess reevant. For exampe, in ead firm coaborations, what matters is making the dea work since these are, by their nature, one-off interventions intended to stimuate other activity. Grant mechanisms to promote sustainabiity In most situations grants shoud be seen as temporary interventions to stimuate sustainabe change. However, in some instances, grants to individuas can be seen as egitimate features of the market system. In heath and education, for exampe, where there is an obvious vaid pubic interest, vouchers may have a roe to pay in re-orientating suppy to the demand-side. In these situations, where the ong-term picture of the market is for continuing pubic finance, sustainabiity anaysis assesses the reiabiity of this funding from domestic governments. Figure 39 Evoution in chaenge fund focus Supporting Functions D CORE s Main chaenge fund (grant) focus Increasing importance of interventions here Rues D = Demand S = Suppy Further reading Christensen, C & Raynor, M (2003); The innovator s soution; HBS Press, Cambridge The Committee of Donor Agencies for Enterprise Deveopment (2001); Business deveopment services for sma enterprises: principes for donor intervention; 20 Grants that are essentiay to support one company s operations with no ambition to stimuate wider change have imited vaidity in M4P GOOD PRACTICE NOTES

114 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.11 Guiding participation processes What and why? How to use participatory approaches, commony used in oca economic and community deveopment, so that they are more consistent with M4P. The potentia benefits of more participatory approaches in deveopment are we known. In principe they shoud ead to better-focused interventions, more oca ownership of the deveopment process and greater impact and sustainabiity. Yet standard participatory approaches are often criticised for (a) confusing means (participation) with ends (impact); (b) their perceived ack of depth and (c) the ack of efficacy of the quasi- democratic mechanisms estabished. How can M4P make the best use of participatory approaches without inheriting their negative attributes? How does it work? There are typicay four phases in participatory approaches, often consisting of a series of workshops and other participatory toos: Set-up. This might incude training of oca faciitators, initia assessment of target sector and networking with oca stakehoders and initia introductory workshops to understand genera opportunities and constraints. Research. Focus group discussions, interviews and other participatory methods invoving oca stakehoders for in-depth assessment of opportunities and constraints (SWOT) and oca competitive advantage. Anaysis. Evauation of research findings in a panning workshop, and formuation of interventions that address needs and that promise quick returns. Impementation. Presentation of proposas to the reevant community, setting priorities through participatory panning processes, setting up of steering groups to guide impementation. Key factors for successfu use Adapting participatory approaches requires that severa factors are taken into account: Fit participatory approaches to the market diagnostic and impementation process (not the other way around) As Figure 40 shows, M4P and participatory approaches do not necessariy excude each other. The key frameworks for understanding the poor for market seection and for assessment, for exampe can be used as diagnostic toos in the initia phase of participatory processes. However, it is important that participation serves the diagnostic process, and that it is seen as a means to the end of more incusive, effective market systems. This is a more tangibe, meaningfu form of participation. For exampe, setting up community-based organisations (CBOs) or steering groups as a fixed starting point in the process a common approach might not serve any functiona M4P purpose. In many situations, meeting with key individuas and existing groups/associations is more usefu. Address the ack of rigour in participatory anaysis Participatory processes are often usefu ony in identifying needs of the poor the symptoms. However, poor peope mosty have ony a vague understanding of systemic constraints that underie these symptoms. Understanding market systems in which the poor are participating requires that agencies go beyond the community borders the confines of the poor s own understanding and speak to other market payers; for exampe, buyers, suppiers, government, service providers, etc. Within a participatory approach therefore, technica expertise is required that wi ead to interventions addressing systemic constraints. This process does not need to be entirey expertdriven it coud incude measures that make it more transparent to target groups. However, agencies need to understand that what they offer is more than simpy a process it is ideas, knowedge and resources as we. Go from immediate resuts to systemic change Participatory processes often aim at short-term and visibe outcomes that motivate oca stakehoders to take on new and more demanding chaenges. The probem is that these often do not ead to sustainabe soutions addressing systemic constraints but rather create dependency on externa funding. Managing this tension between the expectations for immediate resuts, often stirred up by participatory processes, and the need to address underying constraints is a centra impementation chaenge. In essence, this is concerned with baancing operationa tactics and strategic goas. Panning for quick wins is often an important operationa priority and can serve as a patform for a more strategic focus on underying causes. Appropriate participation can assist in achieving this baance by creating the right expectations among market payers. Go from piot tests to crowding-in Participatory approaches by nature are restricted to a imited geographica area (there are practica imits on how many peope can participate) and therefore are imited in the scae that they can reach. However, participatory approaches can be usefu in pointing interventions in the right direction. Reativey intensive and sma-scae piot-testing interventions that identify key constraints and trigger points for change can serve as a basis for (a) creating a future market vision and (b) buiding other interests to crowd-in more activity. 106

115 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Figure 40 Participatory approaches in reation to market system diagnosis 21 M4P diagnostic process Common participatory approaches Symptoms The poor and their context Initia engagement 1 Phase A: Set-up Defining common agenda 2 Panning workshop 3 Specific market system(s) Phase B: Research Interviews and focus group discussions 4 Systemic constraints Phase C: Anaysis Resuts workshop 5 Causes Focus of intervention(s) Phase D: Impementation Presentation 6 Impementation Further reading Abu, M (2008); Comparing M4P and SLA frameworks compementarities, divergences and synergies; in Making markets work for the poor market deveopment and sustainabe iveihoods a comparative assessment, The Springfied Centre, SDC Herr, M (2008); Loca vaue chain deveopment (oca-vcd) a guide; Internationa Labour Organisation (ILO), Enterprise for Pro- Poor Growth project ( Sri Lanka Meyer-Stamer, J (2003); Participatory Appraisa of Competitive Advantage (PACA) effectivey aunching oca deveopment initiatives; Mesopartner, Duisburg, Germany 21 The right side of Figure 40 is adapted from the PACA procedure framework (Meyer-Stamer, 2003) GOOD PRACTICE NOTES

116 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.12 Liveihoods anaysis What and why? How to utiise the Sustainabe Liveihoods Approach (SLA) to aow more detaied understanding of the position of the poor in market systems and better design of M4P programmes. The starting point for M4P is a detaied understanding of the poor. However, M4P has, on occasion, been criticised for not addressing this start with the poor requirement rigorousy. In particuar, some have seen it as top-down in its anaysis and pacing too much emphasis on monetary and economic exchange rather than on deveoping the more diverse iveihood strategies of the poor. SLA on the other hand is criticised for its imited understanding of the wider market system of which the poor and their communities are a part. Its emphasis on participatory processes can further ead SLA to assessing symptoms rather than underying systemic constraints. Its efficacy as an approach to intervention is consequenty of imited vaue. However, SLA potentiay offers vaue not as an approach to intervention but as an anaytica framework that can be used to better understand the iveihoods context of the poor as part of the market system. How does it work? SLA is based on the premise that putting the poor and their iveihoods at the centre of deveopment increases the effectiveness and socia sustainabiity of deveopment interventions. It seeks to gain an understanding of peope s strengths (assets or capita endowments) and how they convert these into positive iveihood outcomes. Athough different methodoogies are used they a are based around common features which form the SLA framework: At the centre of this framework are peope s assets, which they require to achieve positive iveihood outcomes. Assets incude not ony financia resources but have socia, human, natura, physica and even psychoogica/spiritua dimensions (represented graphicay by constructs such as the asset pentagon). The way peope move into and out of poverty inks assets to the iveihood strategies that peope choose in order to achieve the iveihood outcomes they seek. Cruciay, peope s asset accumuation, their choice of strategies and the outcomes they achieve are heaviy infuenced by powerfu externa factors (the vunerabiity context). SLA envisages scenarios in which peope and communities can better maintain or enhance the assets on which their iveihoods depend (empowerment), can cope with and recover from stress and shocks (responsiveness) and can provide for future generations (sustainabiity). Participation becomes an important means by which to achieve this goa. Key factors for successfu use Three factors are especiay important in bringing SLA with its characteristic participatory diagnosis focus on househod, famiy and community assets constructivey into M4P programmes: The poor s engagement with the externa word Athough the SLA framework has cear imitations in understanding the externa environment the wider market system it can provide usefu insights into perceptions the poor have about the wider word, and how they interact with other market payers. This is especiay usefu in understanding the poor and their context at initia stage of the M4P diagnostic process (Figure 41) for exampe, in understanding the poor s perception of service providers, reasons for use/non-use and comparison with informa sources. Figure 41 SLA framework within the market diagnostic process Symptoms The poor and their context Specific market system(s) Systemic constraints Causes Focus of intervention(s) SLA framework Intra-househod dynamics SLA can be usefu in aowing a window on groups within househods for exampe women and chidren. Both may engage with the economy and wider socia processes in ways that are different from the average househod response. For exampe, some types of economic activity may be more accessibe for women (and vice versa) and economic gains for househods may resut in differentia benefits for famiy members in reation to education, heath and decision-making. 108

117 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Community and group dynamics As an approach that focuses on community participation and empowerment, SLA frameworks can offer usefu insights into how members of a community interact. This is particuary important, for exampe when trying to understand mechanisms of knowedge and information dissemination within communities and target groups (eg farmers sharing knowedge about cutivation techniques amongst each other) or of resource aocation (eg distribution of and for renta or sharecropping). Agencies have had mixed success in organising the poor in groups and groups can often fai if there is no common interest. However, there are many situations in rura areas where there is a compeing ogic to coaboration for instance, to access technica and market services for agricuture or to exert appropriate pressure on pubic organisations. For such coaboration to be effective it has to buid on group incentives and reationships. SLA, as a means of anaysis, can be usefu in M4P. The wider chaenge for SLA is to address systemic constraints rather than the symptoms of probems appearing in communities and househods. For this to happen, the frameworks and processes outined in the Guide need to be taken into SLA. Further reading Abu, M (2008); Comparing M4P and SLA frameworks compementarities, divergences and synergies; in Making markets work for the poor market deveopment and sustainabe iveihoods a comparative assessment, The Springfied Centre, SDC DFID (2001); Sustainabe iveihoods guidance sheets; DFID, London Dorward et a (2002); Critica inkages: iveihoods, markets and institutions; paper presented at the seminar on Supporting institutions, evoving iveihoods, Bradford Centre for Internationa Deveopment, UK GOOD PRACTICE NOTES

118 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.13 Knowedge management system What and why? An interna management system, deveoped in M4P programmes and used chiefy in promoting more competitive and incusive industries. Its purpose is to reguary compare actua versus expected changes in market incentives, reationships and capacities at two different stages in a panned systemic change process: Transactions to reationships. Are interventions fostering more productive interactions between market payers moving from one-off transactions to onger-term commercia reationships based on earning/innovation and shared benefit fows? Scae-up/exit. Is there increasing evidence of ownership of the change process among more market payers and is this ownership resuting in a significant shift in the norms/rues that wi drive market deveopment and aow faciitators to scaeup and exit? Effective faciitation requires an organisation with the capacity to read and react to oca market signas. This heps in understanding the fine ine between faciitating change and directing change and in capturing and using knowedge to determine if interventions are progressing in the right direction and at an acceptabe pace. How does it work? There are two key steps in deveoping a knowedge management system: Lay out industry pathway. 22 A knowedge management system starts by aying out expected changes aong a change process eading to a vision of competitiveness (Figure 42). These observations are based on oca and internationa anayses of effective behaviour patterns in competitive industries and then are appied to the oca market/industry context. Pathway observations provide a benchmark against which a faciitator can compare expected with actua observations to determine direction and pace of progress. Estabish knowedge capture system. A knowedge capture system is required to compare how market payers react to opportunities and threats cataysed by the interventions. Of course there are other potentia factors that, if changed, wi resut in shifting incentives and new behaviour patterns. To dea with this compexity, a project needs to constanty compare actua versus expected observations to assess nuanced differences and determine if/when shifts in its interventions shoud be considered (Figure 43). The usefuness of the knowedge management system is dependent on the project s abiity to understand both tacit knowedge (knowedge that is hed interna to an individua) and expicit knowedge (knowedge that is defined through a report or presentation). It is aso critica to have confidence in the information that it is capturing to make sure it is accurate within a reasonabe range of variabiity. Figure 42 An industry pathway Not competitive Transactions to reationships Intervening to foster new/existing reationships based on commercia incentives Scae-up/exit Market-responsive interventions to crowd-in reevant market functions and payers More competitive Observed behavioura changes benefits, reationships, earning to achieve future vision of competitiveness 22 The industry pathway is cosey reated to the pathway to crowding-in referred to in Section 3D of the Guide. 110

119 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Figure 43 The knowedge management process Coective earning drives foow-on faciitation activities Adjust faciitation activities Compare actua and expected pathway changes Evidence of market payers ownership of change process increasing without faciitator support Behaviour Observed behaviour Behaviour Adjust faciitation activities Less competitive STAGE 1 Transactions to reationships STAGE 2 Scae-up/exit More competitive To capture tacit knowedge different quaitative methods can be used: A knowedge or earning-based operating cuture with appropriate incentives (bonuses or kudos) encourages team members to share information and question why they are doing a specific activity. Reguar team meetings encourage the sharing of experiences, capture success stories and earning and promote new ways of addressing chaenges. Staff-ed exchanges with other team members foster increased ownership and socia pressure to share and use information for improved performance. Participatory sma-group earning workshops are effective toos to extend earning and increase team member interaction. Different eves of expicit data capture can be used to ensure that quaity of knowedge fows into project progress reviews: Monthy tracking reports on a set of quantifiabe indicators investments, contracts, promotiona events, saes shows if behaviour change is being adopted and becoming entrenched in a ead firm and other market payers. Quartery and annua reports aggregate monthy tracking report data and compares it against nationa eve data coection on industry-wide performance. Twice yeary househod evauation (to different standards of rigour) provide a credibe eve of attribution to guide strategic project decisions. No singe indicator or source of information is sufficient to guide decisions in compex and evoving markets. The mix of tacit and expicit data sources/methods offers checks and baances to assure quaity and timey information for decision-making. 111 Key factors for successfu use Two factors need to be borne in mind in deveoping a knowedge management system: Effective market system faciitation is effective knowedge management To effectivey faciitate a change process, agencies must understand and adjust to the adoption and crowding-in processes of oca payers. The triggers that cause socia shifts which in turn ater behavioura norms are dynamic and rarey occur in a smooth and predictabe fashion. This has impications for managing projects, both inside the market system with market payers and outside with funders. Effective faciitation is highy dependent upon a management cuture and structure that activey pushes information from the ground up to agencies headquarters and then back down to the fied. Empowering a faciitation team with the knowedge and skis to fufi this roe is critica and highy dependent upon a team members having ownership of the agency s systemic change objectives and approach. Knowedge management for decision-making At any point in time, faciitators may be at different points in the change process (from market entry to exit to re-entry) and engaged in a range of different roes (from direct to indirect to activey taking a wait-and-see position). The knowedge captured from the system is used to guide them in confronting intervention chaenges aong the pathway. For instance: Wi this intervention foster increased competitiveness at a systemic eve? Wi it be conducted in a way that crowds-in oca payers to take on responsibiity? 5. GOOD PRACTICE NOTES

120 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES What roe and reated eve of faciitator support is required? Wi the faciitator be abe to finish the intervention given resource and time constraints? Further reading Bear, M & Fied, M (2008); Managing the process of change: usefu frameworks for M4P impementers; Enterprise Deveopment & Microfinance, Vo. 19 No. 1, June

121 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.14 Intervention impact ogics What and why? How to use impact ogics as a panning and management too for specific interventions to ensure consistency with the overa strategic framework for M4P. M4P programmes need to have credibe and practica ways of panning what they do, of ensuring that this fits overa objectives and of assessing performance. Impact ogics are a way of panning interventions within the overa ogic for market deveopment. Typica programme panning toos such as og frames, whie usefu in estabishing strategic carity (see Good Practice Note 5.4) are often not sufficienty detaied to be of operationa vaue. Impact ogics are compementary to these and serve two practica purposes 23 : As an interna panning too they provide information on how specific interventions fit into the overa strategic context and how changes in the market system ead to changes in growth and access. For externa reporting purposes, they hep to demonstrate pausibe attribution between interventions and overa goas. How does it work? There are severa steps in deveoping impact ogics: Estabish the overa market ogic Impact ogics must be set within a context of the overa strategic framework - which enshrines the market ogic. The market ogic is however not sufficient in itsef to provide guidance for specific interventions hence the need for impact ogics that focus on more detaied and immediate changes further down the strategic framework. Deveop the ogica cause and effect fow for specific interventions Breaking down the overa market ogic into more detaied, operationa steps requires that the different constraints in the system are addressed through different actions for exampe reated to services BMOs and reguatory change. Each intervention requires its own ogic, inking activities to expected outcomes reated to systemic change and growth and access (Figure 44 provides an iustrative exampe of one of these). Ensure that each impact ogic contains reaistic causaity inks The connections between specific activities and their immediate effects on the market system and then to growth and access for the poor must be pausibe. Figure 44 Intervention impact ogics in reation to overa market ogic MARKET IMPACT LOGIC Strategic framework INTERVENTION IMPACT LOGICS Iustrative intervention areas Poverty reduction Services BMOs Reguations Improved access and growth Market system change Systemic intervention Aggregation Compie key information from a series of intervention impact ogics to access overa impact on poverty reduction Expansion Transate wider market impact ogic into a more operationa and detaied impact ogic for specific interventions in specific markets Farmers make higher profits due to increased productivity and quaity Farmers start using appropriate cutivation methods and inputs Retaiers share information and knowedge with farmers Retaiers trained on appropriate use of inputs and customer information Identify suppy company and assist in preparing retaier training modue 23 Section 3E highights impacts ogics in reation to M&E. Here the focus is on impact ogics as a panning too, and inking them to M4P s overa strategic framework GOOD PRACTICE NOTES

122 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Using impact ogics for M&E Appropriate indicators and expected impacts (predictions) are seected at each eve of change. Various means of information coection can be used to assess progress against indicators. Key factors for successfu use Focus on systems Impact ogics are concerned with expoding the detais of changes at the system (the priority) and growth and access eves ie with giving specific meaning to what is meant by systemic change. Rather than getting ost in trying to prove the ink between specific interventions and the overa poverty reduction goa, impact ogics shoud be here. The achievement of the poverty reduction goa is addressed through correct seection of markets that provide opportunities for increasing growth and access and through correct anaysis of the systemic constraints that prevent the poor from participating fuy in markets. Interventions together a contribute to the poverty reduction goa. 24 Focus on the practica Athough impact ogics aso serve externa purposes such as reporting to funders - they primariy fufi a management and panning function. Impact ogics need to refect a practica view of how project managers and staff see change happening. Indicators and assumptions therefore need to be grounded in a cear idea of how market system change takes pace and must be owned by managers. Link to pathways to crowding-in When constructing impact ogics, faciitators need to refect on how specific interventions ink to systemic change and to the other M4P frameworks reated to systemic change. For exampe, impact ogics hep faciitators to think through the roes and incentives of market payers (who does what and why) and the pathway to crowding-in (ensuring that other market payers and functions are brought in to the market deveopment process see Figure 45). Figure 45 Intervention impact ogics the pathway to crowding-in Market not working Market working better Market system change Growth and access Poverty reduction Intervention impact ogics Market impact ogic / strategic framework Individua intervention ogics over time for specific interventions Further reading Katayst (2008): Impact management system manua a guide to monitoring, impact assessment and reporting; Dhaka, Bangadesh Team Technoogies (2001); The ogframe handbook: a ogica framework approach to project cyce management; Word Bank, Washington 24 This reationship between market and intervention ogics is comparabe to the distinction between programme and project og frames, sometimes referred to as nested og frames. 114

123 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.15 Interconnected markets What and why? How to understand the reationship - the interconnection - between different market systems in the process of market anaysis and intervention. Markets do not exist in isoation from each other payers, functions, reationships and transactions overap from one to another. Interconnected markets refer to market systems which, as we as being a market in their own right, constitute the supporting functions or rues of another market system. Their significance is that, as M4P programmes move through the diagnostic process towards identifying underying constraints, they often find that causes and the focus of their interventions are in different markets apparenty distant from those where they started. Whie the compexity of interconnected markets is sometimes unwecome, it is no more than a refection of the compexity of the the rea word. 25 Moreover, by taking account of interconnected markets faciitators can potentiay increase both the scae and sustainabiity of their interventions. Agencies therefore need to be abe to understand and act on the reaity of interconnected markets. How does it work? Understanding and intervening in interconnected markets is an iterative process that has a number of key stages: Understanding the initia market system The starting point is to understand the key eements of the market system of immediate interest (Market 1 in Figure 46) focusing, as in any M4P situation, on which rues functions and payers are currenty underperforming and preventing the poor from fuy participating in markets. Underying causes of probems in the core market usuay ie in supporting functions and rues. Going from priority constraints to a new market system Supporting functions/rues that have been identified as major constraints in the initia market are seen as the core of a new market system. Whatever the constraint is training, finance, seeds, information, reguations etc this can be seen as the core of a new market (Market 2). And around this core, new supporting functions and rues emerge. Different market payers are aso now entering the fied of view, responsibe for the performance of various functions and rues in the interconnected market. Understanding key constraints in the interconnected market The interconnected market system is then subject to a market anaysis, using the same frameworks as in Market 1, in which again supporting functions, rues and the roes and incentives of market payers are anaysed. Repeating the process if necessary Steps 2 and 3 can be repeated if necessary thus seeing the M4P programme moving from one market to another (Market 3 and beyond). Two brief and different exampes iustrate interconnected markets in practice. Probems of sma business finance (Market 1) often ie with the quaity of business financia reporting and proposas presented to providers which is a function of accounting services (Market 2) where ow eves of transactions may be expained by a number of factors, incuding inappropriate financia reguations impinging on sma business (Market 3). Second, ow eves of income for farmers (Market 1) might be expained party by ow productivity caused by poor quaity seeds (Market 2) which, in turn, might be caused by weak market coordination and information (Market 3) which does not aow seed purchasers and producers to differentiate on the basis of quaity. Figure 46 Interconnected markets Supporting functions Supporting functions Supporting functions Core Core Core Rues Rues Rues Market 1 Market 2 Market 3 25 Faciitators deude themseves if they pretend interconnected markets are somehow not there! GOOD PRACTICE NOTES

124 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Figure 47 Interconnected markets in the diagnostic process Symptoms Causes Market 1 Market 2 Focus of intervention(s) Key factors for successfu use Understanding the interconnection between market systems requires consideration of some key factors: Set interconnected markets within the market diagnostic process The driving motivation for programmes to move from one market to another is to focus interventions on causes not symptoms. M4P programmes thus often find themseves intervening in markets that are seemingy unreated to the market in which the poor are ocated but the connection is cear in a context of the diagnostic process (Figure 47). Use interconnected markets to increase impact and sustainabiity As programmes move from one market to another, the potentia for reaching impact at scae increases. Figure 48 iustrates the point for an exampe where farmers ow incomes are caused by poor practices. With imited resources, providing direct training to farmers can ony resut in imited impact and sustainabiity. Moving progressivey from one cause, market and potentia set of interventions to another (Markets 2, 3 and 4), and to working directy with other payers for exampe, retaiers, retaier trainers (suppiers), service providers etc aows the prospects for everage, scae and sustainabiity to increase. Anaysis and actions together Understanding interconnected markets is not ony an anaytica process but shoud be connected to concrete action. In practice, anaysis and action are interwoven. The process of intervening aows faciitators, as we as achieving impact, to earn how they can go further from a patform of greater knowedge and improved networks. Programmes often begin with imited operations but then can go to a next eve, refocusing interventions on interconnected markets to seek wider impact. Baance ambition with pragmatism The question often asked in this context is how often shoud M4P programmes go through the iterative process of moving from one market to another. Where are the imits? Whie there is no definitive answer to this, in responding faciitators need to baance two factors: Their capacity and resources (what they can do). Their ambition (what they want to do). Figure 48 Increasing impact through interventions in interconnected markets Prospects for: everage, scae and sustainabiity 1,500,000 farmers 500,000 farmers 50,000 farmers 5,000 farmers Market 4 Suppy chain deveopment services Market 3 Retaier training Market 2 Productivity-reated information Market 1 Low productivity in vegetabe sector 116

125 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.16 Stimuating demand What and why? How to simuate demand in weak markets for new ideas, practices or products, in particuar through use of socia marketing techniques. Weakness in market systems can be manifested in a range of constraints. On the suppy-side, providers may ack incentives and capacity to innovate and deiver the appropriate offer for consumers. And often interventions need to focus on these issues. However, demand-side constraints are aso especiay apparent in weak markets. Consumers wiingness to change behaviour or knowedge of the benefits of change and how to change may be deficient. In an idea situation, demand drives change in the suppy-side, so bringing about change here is especiay important. 26 Stimuating the demand-side can be pursued through a variety of approaches (Figure ). One of the most important of these is socia marketing. Socia marketing refers to the adoption of marketing principes (used to se products) to seing ideas, attitudes and behaviour not for the direct benefit of the marketer but for wider deveopment purposes. In essence, it is about improving the knowedge and information in market systems that aow consumers to earn, make more informed decisions and change. Socia marketing has been used extensivey in the deveopment of heath systems but aso in other spheres such as business services. How does it work? Faciitators using socia marketing to stimuate demand in weak markets shoud foow a number of basic steps. Understand the message to be deivered As in any marketing campaign, be specific about the nature of the message to be deivered. In particuar, the potentia benefits of change for exampe, from trying a new service - and the evidence to support this message need to be cear. Be specific about the audience to be reached Marketing campaigns shoud be transparent about the audience(s) the demand-side segment they are trying to reach and be based on a good understating of their audiences existing perceptions. Use appropriate media The most reevant media wi vary with different audiences. In many African countries, radio is the most important mass media, in others it may be TV or newspapers. In more niche markets, it may be speciaist sector-based journas. Often a variety of media need to be used. Be specific about indicators Socia marketing is aimed utimatey at increasing demand (ie changing behaviour) but more immediatey it is concerned directy with raising awareness and changing perceptions. Indicators need to be deveoped that assess these characteristics without this there is a danger of socia marketing as a back hoe for resources with itte feedback on their eve of usefuness. Figure 49 Iustrative options for socia marketing in different market situations Low Demand ow Suppy embryonic Iustrative interventions Socia marketing Capacity-buiding Media deveopment Socia marketing appicabe here Demand embryonic Suppy emerging Iustrative interventions Product deveopment Market research Vouchers Suppy Demand very ow Suppy far away Demand emerging Suppy weak Very ow Iustrative interventions Basic education Socia marketing Limited direct suppy support 26 Suppiers, however, are not passive in market systems and are often the eading source of change. 27 Adapted from materias deveoped by Jim Tomecko for the Making Markets Work training programme offered by The Springfied Centre. Iustrative interventions Demonstrations Lead-firm Disruptive innovation Very ow Demand Low GOOD PRACTICE NOTES

126 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Key factors for successfu use A number of factors need to be considered in successfuy using socia marketing. Baance (narrow) individua versus (broader) deveopmenta goa Socia marketing is often undertaken aong with other suppyside interventions, eg to initiate a new service. In these situations, a baance must be struck between benefits for the provider (awareness of them and their service) and for the market as a whoe (awareness of the service in genera). Certainy, if the campaign is focused on the provider the so-caed manufacturer s mode referred to in socia marketing in heath systems benefits can be captured by them at the expense of the (more important) overa market. Equay, however, there must be enough specific benefits for direct organisationa partners. Don t use socia marketing to undermine media deveopment The deveopment of many market systems is often undermined by weaknesses in mass media markets. Deveoping more innovative, diverse and responsive media can potentiay address the information weaknesses in many markets, in particuar by highighting new ideas and practices. Buying awareness through socia marketing runs the risk of further dis-incentivising the media from seeing their roe to be information providers in market systems. If resources permit, therefore, faciitators shoud seek to buid mass media markets as a means of addressing broader information constraints. Emphasise the tangibe benefits from change Messages must be in a form and anguage that is meaningfu to consumers. In particuar, the positive reasons (with evidence) why they shoud change need to be stressed. Deveopmentspeak must be avoided! Identifying and working with appropriate marketing and communication firms is therefore important. Experience suggests that active management of these contractors especiay understanding the nature of the task is required. Don t brand as a deveopment project Whie some providers may beieve that there is extra credibiity to be gained from an association with a faciitator, marking a new product/service as a deveopment initiative is more ikey to ead to deveopment-dependence than norma market behaviour. Be cear about how this fits into systemic change Innovation, cacuated risk-taking, educating consumers and new product deveopment are a necessary continuing eements in vibrant and sustainabe market systems; they are not simpy oneoff activities. There are convincing arguments that can be made for more generic socia marketing interventions to address (essentiay information-based) market constraints. However, continua judgement needs to be made on whether these are spiing into tasks that shoud be undertaken by providers. Further reading Weinreich, N (1999); Hands-on socia marketing: a step-by-step guide; Sage Pubications, USA 118

127 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.17 Anatomy of a transaction What and why? A too to understand the initia factors expaining the dynamics and nature of transactions at the core of a market system. Markets that are functioning effectivey for disadvantaged and poor peope have: high eves of transactions exchange between consumer (demand-side) and provider (suppy-side); and high eves of incusiveness a significant proportion of poor peope incuded on either suppy or demand sides. 28 Understanding transactions especiay if transaction eves are ow is a critica first step in assessing markets and identifying underying market constraints. This too offers a means of gaining an understanding of the dynamics or anatomy of transactions in markets. How does it work? In any market system, suppy and demand-sides exchange successfuy when a number of factors are present. With respect to Figure 50, taking the exampe of sma businesses experiencing under-performance and potentia services to address this 29, from a demand-side perspective ( ), transactions occur successfuy when: a) SME can identify the immediate causes of their underperformance skis, processes, finances, products etc. b) SMEs can identify potentia soutions services, equipment, information etc. c) SMEs are wiing to acquire this soution from appropriate providers businesses, informa networks etc. Figure 50 The anatomy of a transaction (for an SME service market) SME under-performance eg ow profits, high fixed costs, decining saes, etc f) Impact on SME performance a) Causes of under-performance are recognised SME constraints eg skis gaps, poor equipment, inefficient systems and resource use etc Suppy-side fow Demand-side fow b) Soution is required e) Capacity to deiver Sources of soutions eg businesses, govt, associations, networks etc c) Wiingness to acquire a soution d) An offer that SMEs vaue Soutions eg training, advice, recruitment, product deveopment, finance, accounting, etc 28 Athough benefits often come indirecty through interconnected markets. For exampe, the poor may not be direct participants in improved agricuture input markets but benefit as farm empoyees (abour markets). 29 The too can, however, be appied to any market context GOOD PRACTICE NOTES

128 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES From a suppy-side perspective ( when: ), transactions occur d) Providers can deveop and present an offer that SMEs vaue a package that is accessibe and reevant to reach SMEs. e) Providers have the capacity to deiver having reached SMEs, the technica capacity to deiver vaue to SMEs that can positivey impact on their performance. If factors (a) - (e) are evident, fina benefits shoud fow to SMEs (f). If, therefore, strong transaction activity is not taking pace, two concusions foows. First, a range of constraints wi be in evidence in reation to: Consumers unabe to identify the cause of underperformance and unwiing to act to do something about this. Providers without an appropriate offer and without the necessary capacity to deiver this. Second, interventions ogicay need to focus on these identified constraints. Key factors for successfu use Using the anatomy of a transaction too requires a number of steps. Recognise this as a first step Identifying the immediate causes of ow eves of transactions is a necessary step in understanding any market system and in providing an initia guide to what the focus of interventions shoud be. For some markets it may be appropriate to use different consumer research toos to expand this anaysis - for exampe, the demand-side perspective can be subjected to more detaied examination of awareness and understanding and image. Whatever the compexity of methods used, the overa process of understanding market systems can be seen essentiay as a process of continuay asking why? and this too offers a usefu starting point for doing so. Appy to hidden or embedded services The too can be appied to cash-based exchange and to non-cash transactions. In both cases, the genera requirements on demand (recognition of probem and wiingness to activey to do something about it) and suppy-sides (offer and capacity) are the same. Figure 51 Core transactions in the wider market system supporting functions Coordination Finance Inputs Reguations R&D Information Vaues Underying causes of transactions in the core of the market ie in rues and supporting functions Standards Reguations rues 120

129 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Fit transactions into the wider market system Beyond the initia anaysis of transactions, gaining sufficient understanding of markets to guide actions requires that the underying reasons for weak transaction fow are assessed (Figure 51). This means ooking at the supporting function and rues in markets, such as: The quaity, reevance and accuracy of information impinging on consumers knowedge. The services avaiabe to deveop providers capacity. The attitudes and norms infuencing consumer and provider behaviour. The roe of government in shaping provider incentives. Further reading Fied, M, Hitchins, R and Bear, M (2000); Designing BDS interventions as if markets matter; Microenterprise Best Practice Project, USAID, GOOD PRACTICE NOTES

130 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES 5.18 Rapid market assessment What and why? How to better understand compex market systems in a short time with imited resources. Rapid market assessment (RMA) is a generic term referring to use of iterative and interactive research methodoogies. It can be appied in a variety of contexts: As entry point to markets. A way in which reief or deveopment programmes get a first picture of specific markets. RMA enabes a programme to make decisions on whether it shoud engage in a market or not and the direction it might initiay pursue. For this reason RMA is commony used in post-crisis situations, where quick action is required. For product testing and pacement. Businesses use RMA to conduct basic market research before testing or aunching a new product - and agencies have supported SMEs to deveop their capacity to conduct RMA. In other cases faciitators use RMA in piot testing new products/ideas that they wish to introduce to a market system. As intervention strategy. Used as a participatory too in LED processes as a means of enabing oca stakehoders to assess their markets and jointy pan interventions (thus creating a sense of oca ownership). 30 RMA here becomes part of the intervention itsef. As a management too. Used as part of an iterative process by which faciitators refine their understanding of compex market systems on an on-going basis, in order to adapt their interventions (ie monitoring). RMA is a means of testing piot interventions and informing crowding-in strategies, providing a feedback oop from target groups to faciitator. How does it work? The appication of RMA depends on the context in which they are used. However, in practice RMA processes share some common characteristics in the way they are impemented. Process RMA goes through simiar stages, differing in time (for exampe, from 2-3 days in a post-crisis situation to severa weeks in the case of participatory approaches to LED) and scope of research. The main stages tend to be: Stage 1: Setting objectives and framework. This invoves some form of market seection in which the objectives and target group are defined and RMA strategy is outined. Stage 2: Doing the anaysis. The actua RMA itsef is often divided into preiminary mapping and then more detaied (or participatory) research and anaysis through various means of information coection. Stage 3: Moving from anaysis to action. The information derived from RMA can be used for a range of purposes, such as a strategic decision, the aunch of a new product or refinement of intervention etc. Purpose Methods used in RMA can be seen on a scae ranging from forma survey-based research at one end to assessment-bydoing at the other, each fufiing different purposes (Figure 52). The degree to which participatory approaches are used depends on whether the outcome of an RMA is intended for panning purposes or seen as an intervention itsef. Figure 52 RMA methods: a spectrum of options Forma market research Product testing Focus group discussions Participatory approaches Piot actions Research Action research 30 Such as the Participatory Appraisa of Competitive Advantage (PACA) too by Mesopartner, or the Hevetas Guide on RMA (2002). 122

131 The Operationa Guide for the Making Markets Work for the Poor (M4P) Approach 5. GOOD PRACTICE NOTES Toos and sources for RMA RMA encompasses a diverse range of different toos, assessment methodoogies or sources of information (eg vaue chain anaysis, socio-economic studies, iveihoods anaysis, etc). RMA uses these toos and sources within a imited timeframe and therefore does not necessariy caim scientific rigour, but to enabe and inform fast decision-making and action. Specific toos tend to be better suited to understanding specific eements of the market system (ie the core of the market, supporting functions and rues) rather than understanding the entire market system. Key factors for successfu use Four factors need to be considered when using RMA within M4P programmes: See RMA as process eading from symptoms to systemic causes Market assessment needs to be an iterative and affordabe process not just a arge, one-off forma study. RMA in whichever form shoud hep programmes to understand market systems without the burden of forma and timeconsuming studies. The critica point here is that RMA shoud be conducted frequenty throughout the ife of a programme, to buid the depth of anaysis, identifying systemic constraints as we as roes and incentives of market payers, and steering interventions. Trianguation by using different toos Sedom wi a singe too, assessment methodoogy or source of information be sufficient to deveop good understanding of a market system. RMA needs to be seen within the overa M4P diagnostic process (see Figure 53), so that programmes have a cear understanding about what information is needed and which toos can be used to coect this information. In practice the combination of severa toos or sources is ikey to be more effective than a singe too or source in generating essentia information about market dynamics. This is often referred to as trianguation, a method that ooks at a specific market from mutipe perspectives to deveop a more rounded view, testing preconceptions and assumptions and the natura biases of individua toos and information sources. RMA for strategic panning Market assessment needs to guide a faciitators action (ie market assessment is not conducted out of academic interest aone). RMA shoud enabe faciitators to take decisions about market seection, to identify underying causes of market underperformance and narrow down potentia entry points for intervention. RMA can aso be used to deveop a programme s inteigence which can be used to infuence market payers. Faciitators therefore need to be cear from the outset about how RMA are going to be used to shape intervention strategies and actions. Figure 53 RMA within the M4P diagnostic process Potentia RMA toos and sources Symptoms The poor and their context Socio-economic studies, census data, poverty assessments, iveihoods anaysis, investment cimate surveys, competitiveness anaysis, drivers of change Specific market system(s) Causes Systemic constraints Focus of intervention(s) 123 Access frontier, vaue chain anaysis, consumer research, productivity studies, reguatory reviews, organisationa appraisa toos, stakehoder anaysis, participatory and consutative toos Focused interaction with reevant informants: interviews, focus group discussion, brainstorming 5. GOOD PRACTICE NOTES