Market systems approaches address the root causes of why markets often fail to meet the needs of poor people.
They focus on interventions that modify the incentives and behaviour of businesses and other market players – public, private, formal and informal – to ensure lasting and large-scale beneficial change to poor people.
This means that there can never be a ‘one-size-fits-all’ approach; instead, each is shaped and refined through the careful analysis and understanding of a specific value chain or industry.
And yet, while market systems approaches are inherently unique, they share some important features:
- To reduce poverty (including ending extreme poverty in DFID’s mandate)
- To focus on transforming the economic systems or industries (aka market systems) in which poor households could or do participate by buying or selling goods, services or labour
- To catalyse change in how these systems function – making markets more financially rewarding, accessible, inclusive and resilient in the long term.
- They aim to tackle the underlying causes of market failures, rather than just the superficial symptoms
- They recognise that while aid funding can have a powerful yet temporary influence, market systems approaches must ensure that desired behaviour changes reflect the genuine incentives and capabilities of permanent players to succeed in the long-term
- As each market is a complex ‘system’ involving many stakeholders, each with a particular set of unique characteristics, any intervention must take this complexity into account.
- A thorough analysis of how and why systems function as they do – identifying the changes that appear to be key to reducing poverty
- Recognising the limits to initial analysis – committing to on-going review and learning, willing to adapt/revise plans and abandon or make new interventions
- Stimulating replication or ‘crowding in’ by spreading changes in roles, products or behaviours beyond a few initial partners to a wider circle of market players and beneficiaries
- Embracing complexity – recognising that catalysing lasting change is neither straightforward nor predictable. Approaches require time, curiosity and experimentation. They also need flexible and adaptive management and a commitment to ongoing learning.
Features of a market systems approach