Market systems approach to financial inclusion

Guidelines providing emerging lessons on how funders can facilitate the development of inclusive financial services markets.

A market systems approach to financial inclusion means considering all aspects of a market system. It involves working to break down barriers that exclude the poor by nudging market actors to take up missing or weak functions in the market.

Funders need to think of their role not as providers of missing services in the market but rather as facilitators.

These guidelines look at:

• Positioning financial inclusion programmes
  The importance of defining a clear theory of change that explicitly links development outcomes with financial inclusion objectives, systemic change in the market and a funder’s intervention.
• Diagnostic process
  How it is a critical entry point into facilitating market development. It not only serves programme design, but also allows project management to constantly adapt interventions and inform market facilitation throughout the life of a programme.
• Understanding barriers to financial inclusion
  The specific constraints to financial inclusion at different levels within the market system. It explores how a market systems approach requires funders to move beyond supporting providers to address the constraints related to demand, supply, supporting functions, and rules and norms. 
• Facilitating systemic change
  How facilitating systemic change requires funders to play a catalytic role to incentivise and enable market actors to perform their functions more effectively. This involves engaging a range of market actors beyond FSPs and is based on partnerships and strategies for crowding-in.
• Assessing change
  How to measure impact at different levels of the theory of change. How to design monitoring and evaluation systems that both help to prove impact of interventions and improve the facilitation process itself.

This is part of a series of targeted resources for funders of financial inclusion and builds on research from all CGAP initiatives and work done by CGAP members.