This case study is part of the AIP-Rural Learning Series.
Development agencies are increasingly recognising how businesses’ investment, innovations, expertise, efficiency and influence can contribute to development goals. As a result, many have been working more and more with the private sector.
However, the efforts of some development agencies to collaborate with business have resulted in disappointing outcomes. In a rush to embrace the private sector, some development agencies have:
- Given money to firms which share the development agency’s objectives, then treated these firms as contractors whose role is to spend the agency’s money. Here, the firm may feel obliged to “serve” the development agency, distracting them from doing business better with poor women and men, and undermining their own commitment to the relevant development objective;
- Linked private sector firms with target beneficiaries (usually poor women and men) but in such a way that the relationship depends on the ongoing presence of the development agency acting as a broker. At the core of market systems development is the imperative that change must be sustainable after the agency leaves;
- Celebrated token investments from a firm’s corporate social responsibility budget, while missing opportunities to influence its core operations in far more impactful ways;
- Been unclear about how growth in the private sector will benefit those who are disadvantaged by the system, or how development investment will translate into benefits for the private sector;
- Claimed success based on thin evidence or before generating sustainable results;
- Supported single firms without a vision of how this will stimulate wider, lasting change. This creates a danger that development agency support gives particular firms a competitive advantage and thereby distorts the market they operate in.
The market systems development (MSD) approach seeks to learn from these mistakes. A central tenet of MSD is that achieving development goals sustainably and at scale is not only about who a program works with, but why and how it works with them.
This case study presents the lessons from an MSD program – AIPRural – on how to work with the private sector. It starts with the background context, then in Section 2 describes how AIP-Rural sought to avoid falling into the traps described above. Section 3 describes the lessons the program has learned through applying its approach, and Section 4 summarises this case study’s key lessons.
 José Di Bella et al. (2013). “The Private Sector and Development: Key Concepts”; Donor Committee for Enterprise Development (DCED) website. The private sector provides approximately 90% of jobs in developing countries, drives economic growth and supplies many essential goods and services, according to International Finance Corporation (2013). “IFC Jobs Study: Assessing Private Sector Contributions to Job Creation and Poverty Reduction”.
 Rodrik, D. (2006). “Goodbye Washington Consensus, Hello Washington Confusion? A Review of the World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform,” Journal of Economic Literature 44, no. 4: 973–87;
 The Springfield Centre (2015). “The Operational Guide for the Making Markets Work for the Poor (M4P) Approach,” 2nd edition funded by SDC & DFID, p.31.
 The implicit assumption is that when firms are connected they will be willing and able to sustain the brokered relationship and to solve any emerging problems; however, such “silver bullet” assumptions are rarely valid.
 When a development goal aligns with a business’s commercial goals, it is usually easier for the firm to justify investing more towards the development goal. This has been a driving force behind moves in large corporations away from traditional CSR towards ‘creating shared value’. See for example Porter, Michael E. and Kramer, Mark R. (2011). ‘Creating Shared Value’, Harvard Business Review, January–February 2011 issue.
 ICAI, “DFID’s Private Sector Development Work,” 2014; Oxfam, “Aid and the Private Sector: A Love Story.”
 Challenge funds in particular have been criticised for frequently failing to stimulate sector-wide change. See Elliot, D. (2013). “Exploding The Myth Of Challenge Funds – A Start At Least…,” Springfield Soapboxes.