Solutions For Building More Effective Market Systems

This blog post was originally published on the Website of CGAP, an independent policy and research center dedicated to advancing financial access for the world’s poor. The Blog post was part of the Systemic M&E initiative I worked on for the SEEP Network.

Screen Shot 2013-01-14 at 11.07.55There is a controversy brewing among systems and complexity thinkers. Is it useful to define a future goal towards which our initiatives strive? Or is it wiser instead to focus our attention on what we know we can change and trust that this will eventually lead us to a future that is better than any we could have anticipated? While the first feels intuitively right to many development practitioners, proponents of the latter argue that the absence of defined goals and targets may lead to future possibilities that are more sustainable and resilient (and that could not be fully anticipated). So the question is: can we know in advance what the best (or a good) outcome will be?

This is an interesting and highly philosophical discussion. But for the moment, I am going to assume that we are striving to achieve a specific goal in our work. The questions we then need to ask ourselves are: what is the goal and how concretely can it be defined. Is it increased incomes and jobs for the poor? Is it poverty alleviation? Is it financial inclusion? I argue that it is none of these. I suggest that our goal should be a thriving and dynamic market system – and for the sake of this series let me explicitly state that a dynamic financial market would be a subsystem of this overall market – that is able to support enough growth and foster development so that poverty can be eliminated, while being resilient to shocks and able to adapt to a changing environment.

What do we need to achieve this goal? First of all, we have to acknowledge that market systems are complex. I mean complex in a sense that system dynamics make it impossible to predict their future and the outcome of any intervention we take to change them. This means that effects of our interventions can only be assessed in hindsight, but not fully anticipated in advance. Acknowledging this already gives us a sense that we will not be able to define exact targets for a project or design in advance an optimal solution how to achieve these targets.

One of the big challenges for experts designing financial sector projects is that consumer behavior is poorly understood, regulation is either lacking or is insensitive to agent incentives.  Designing a project that can have meaningful impact in a complex financial market also needs a measurement system that enables assessment and, where necessary, adjustment. This means that monitoring results need to be an integrated part of project management. A monitoring system that features short and quick learning loops allows the project management to react rapidly if the interventions are having unintended effects or are not seen to be effective.

Rather than defining exactly what a project should achieve in terms of detailed indicators at the level of our target population, 1) a goal should give the project a sense of direction where it wants to go and allow it to evolve ways to do that in the given context. A commitment to a pre-defined outcome often exerts pressure on implementers to achieve the plan regardless of the consequences. 2) The project can start with small, safe-to-fail interventions and see how they are taken up by the system and adapted. 3) With that experience, it can stimulate the system to evolve its own solutions to a given problem (in contrast to the predominant practice of coming up with a pre-designed solution that is based on limited understanding of the local context). 4) At the goal level, the task of a monitoring system will be to pick up patterns of change so that the project can strengthen favorable patterns and disrupt unfavorable ones.

A typical goal, for example, in a financial sector project may be focused on increasing the number of bank accounts by the poor. Such a goal may result in a large number of new accounts that are not used, as we have seen with experiments with “no frills” accounts in India among other places. A narrow focus on bank accounts may lose sight of what we are trying to achieve: providing poor people with a safe place for savings (to help cope with lean periods or to fund specific events and periodic costs, such as marriage and children’s school fees). A project approach that does not automatically assume the solution – in this case bank accounts – but introduces small interventions that allow the local market to adapt their own solutions is what I am calling for.

With a strong sense of purpose defined by above-mentioned goal and the toolkit that is emerging based on complexity theory and systems thinking, we will be able to design projects that are much more meaningful, effective and in the end more beneficial for the people we want to help. Some of what we do now may remain relevant, whereas in some areas we may require new ideas.

As part of a SEEP Network initiative that explores cutting edge thinking and enquiry around ways to improve the current M&E paradigm and improved practice in measuring impacts in market systems, I recorded a podcast with Dave Snowden, funder of Cognitive Edge. Dave Snowden introduces emerging theories and tools that allow us to embrace complexity and manage our projects in a way that is adapted to reality.

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