This post originally appeared on CGAP.

Donors and investors advancing financial inclusion increasingly are doing so through a market development approach. This approach to financial inclusion – also known as a market systems approach or M4P (Making Markets Work for the Poor) – begins by identifying market barriers that prevent financial systems from serving the poor. It encourages funders to shape all their investments and interventions with an eye toward developing financial markets and ensuring the sustainability of market actors beyond the length of funding.

In the context of financial inclusion projects, the M4P approach often incorporates a “market facilitation” element. Facilitation focuses on addressing systemic constraints while remaining “outside of the market.” To work through these constraints, facilitators often coordinate activities in the following areas: information, capacity building, incentives, and the enabling environment. Facilitation can be characterized by the temporary nature of its interventions, its flexibility, a reliance on partnerships, and the independence of the actor taking on the “facilitative” role.

The facilitator role can be assumed by different kinds of organizations depending on their capacity and perceived independence. Funders can also act as facilitators either directly or through national coordinating bodies, or they can fund individuals or organizations to do market facilitation on their behalf. Facilitators can focus on a single country market (such as members of the FSD network in Africa), or address a global market (such as CGAP, Better than Cash Alliance, or GSMA).

As donors and investors advance these approaches, they need ways to measure impact. Limited guidance currently exists on how to measure the development of financial markets, however, in part because the approach is relatively new and in part because of how complicated financial markets are.

It is difficult to attribute changes in a market to a specific intervention, given the various external factors and actors influencing the same market over the same time. In addition, interventions occur within dynamic and evolving markets that function within a wider socio-economic and political environment. This means there is a broader range of outcomes associated with any intervention – intended, not intended, positive or negative – all of which are hard to capture.

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