Access to markets

It’s widely accepted that, left alone, markets rarely serve the poor. As a result, governments - often influenced by donor support - are inclined to intervene. However, any intervention in markets has an impact far beyond what might be first anticipated. The challenge is to identify appropriate interventions, where the likely gains outweigh the likely costs and potential winners and losers can be identified. Reforms often come unstuck as the likely gainers have limited economic and political capital, whereas the likely losers are strong and well informed.

Without careful planning and foresight, external interventions within markets - no matter how well-intentioned - can create significant long-term problems. One common example is the introduction of agricultural subsidies for specific crops: though this provides farmers with valuable support in the short-term, it can lead to distortions in crop selection and reduce incentives to diversify to non farm enterprises.

The challenge therefore is to identify what interventions would be most appropriate, and what safeguards and monitoring mechanisms need to be in place. This requires rigorous analysis of previous approaches - both in the country and elsewhere - and modelling of the potential market impacts. It also demands an honest appraisal of the real barriers to market access: sometimes the problem is not a technical one, but rather a question of understanding how to use markets and services.

Financial services provide a telling example: a policy requiring banks to enhance SME lending may falter if the loan terms are not viable - as proved the case in Nigeria. On the customer side, problems such as physical and cultural proximity, appropriateness of product features and pricing remain: poorer customers may find the banks daunting in terms of products, pricing and culture and thus may be reluctant to use the services.

By considering any potential intervention fully and from a range of perspectives - a task in which OPM’s experience and approach can prove invaluable - governments can use the energy, capital and insights of the private sector to make markets work better for the poor.

Challenge funds

Many of the most effective approaches to increasing access to markets come from market-based actors themselves identifying new and alternative ways to work with the poor on a mutually beneficial basis. As a result, there has been a growing interest in challenge funds which directly incentivise commercial entities to generate and test such ideas. OPM has evaluated such programmes, including DFID’s Financial Deepening Challenge Fund, giving us considerable insight into how such funds can best be designed and implemented.