This short, jargon-free video from the BEAM Exchange explains what the market systems approach is all about: how it differs from conventional aid, and how it can be used to help create widespread and lasting improvements in incomes, access to jobs, products and services for millions of people living in poverty.

Transcript:

If you’ve heard of market systems development, you might be asking what does it mean? What’s business or private enterprise got to do with reducing poverty and how does this compare with more conventional aid?

Let’s shed some light and start with an example: take Petra, a smallholder farmer living in poverty in a hilly rural area. Her family relies on cash from raising animals and selling milk. To take advantage of growing markets for meat and dairy products in cities, Petra needed to increase production but this carried several risks, one being livestock disease which makes animals unproductive. Because veterinary companies saw no profit in providing services to rural areas, the nearest vet service was hours away. Along with other small farmers, the risk of disease discouraged Petra from investing her savings to boost her herd and so they were excluded from the new food market opportunities.

Conventionally, aid agencies and governments tried to help people like Petra directly – no vet services, then let’s vaccinate livestock or even lets hand out cattle to replace any that die. The problem of such solutions is that, first, they inevitably only reach a few people so they lack widespread impact. Second the benefits end when the funding runs out so they are unsustainable. Worse, some handouts may actually block entrepreneurs from creating businesses that could have provided affordable goods and services for years to come.

Market systems development is different. Its practitioners see that even poor people routinely engage in markets to buy goods and services and to earn income. They also recognise that many markets fail to work effectively or fairly but seek practical ways to make them work better. Agencies using a market systems approach look for the root causes of market failure for barriers that disadvantage poor people or exclude them from economic opportunities. Then, with innovations and investment, they help businesses develop viable long-term solutions that can be scaled up. In Petra’s case, lack of access to livestock health services was addressed in three ways:
– helping vet product manufacturers to understand the potential for rural sales
– lobbying for reform of regulations that obstructed affordable services and
– shared investments to test the viability of innovative rural pharmacies that then took affordable services into remote areas

This approach meant working with diverse actors, besides farmers, such as manufacturers, traders, village level pharmacists, vets and government officials. Ultimately this led to a more inclusive market system with ongoing investment and innovation by businesses. As a result, tens of thousands of remote farming households, including Petra’s, are now benefiting from viable local vet services at affordable prices.

Petra’s story is just one example of transforming market systems to realise the economic and human potential of people living in poverty. It exemplifies a development approach that can achieve both large-scale impact and lasting change. Instead of handouts, the approach pursues commercial and social benefits in tandem. By innovating, sharing financial risks and building trust, it transforms how businesses, communities and governments think and work together. Today, market systems approaches are being used in sectors such as agriculture, financial services, energy, health and sanitation so that markets work better for poor people.

This video is from The Beam Exchange and is also available in other languages.

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