To achieve lasting and widespread pro-poor change, we address incentives, behaviors and relationships among actors.
Market systems approaches differ from other private sector development approaches by focusing on promoting a different role for donor agencies, impact investors, governments and other development actors, in bringing about pro-poor change.
The common rationale is to address the underlying causes of poor performance in specific markets that matter to poor people, producing scalable long-term change.
Tackling the root cause of market failure
Supporters of market systems approaches believe that the best way to help people out of poverty is to address the underlying causes of market failure. Rather than focus broadly on macro-economic problems or individually on specific businesses or families, they instead look at the ways poor people and businesses interact in particular sectors. By analyzing and understanding this, they can help make systemic changes that create lasting, inclusive growth.
Supporters also argue that firm-centered approaches are often insufficient on their own. As a result, individual businesses continually hit obstacles that prevent them and their competitors from scaling up to reach large numbers of poor people.
By contrast, market systems approaches seek to address the specific and unique underlying causes of poor performance in particular industries or sub-sectors.
They then stimulate changes in the rules, relationships, barriers and incentives that affect how public and private actors behave, helping important market functions to perform more effectively. If successful, this improves the whole market system – enabling multiple businesses to innovate, grow, reach out and serve wider populations.
As every market system is dynamic, it is essential that market systems approaches build the capacity of players to respond to future changes. This requires careful analysis of key market functions and players, and how they could work more effectively in the future.
A market systems approach aims to align the objectives of a program’s intervention with the private incentives and capabilities of key actors in the system. In some cases, this may partly compromise the immediate poverty focus of activities – but it means that results emerge from lasting changes in the market system itself, and are not just a temporary response to the activities of the program.
By addressing the causes of market failure in this way, a market systems approach ensures that the social and economic benefits for poor people last far beyond the period of intervention.