Market Systems Development (MSD) in forced displacement contexts: Does it work?
Implementing MSD programs in a forced displacement context can enhance resilience and reduce aid dependency
Written by Dhita Radcliffe, Senior Advisor on Market Systems Development for Employment in Africa
Every year, we see the population of forcibly displaced people around the world rise due to conflict, violence, human rights violations, and climate change. Africa currently hosts 30 million refugees, asylum seekers, and internally displaced people (IDPs), representing one-third of the displaced population in the world. The number keeps growing, putting pressure on the already-strained budget for food distribution and basic services.
Additionally, with reduced aid budgets and program timelines, funders expect a more cost-effective solution to improve displaced populations’ self-reliance and reduce their dependence on aid. This implies a need to shift from direct subsidies to integrating displaced communities into local economies and markets as workers, suppliers, and consumers.
Mercy Corps, and our colleagues from other agencies, have learned that the Market Systems Development (MSD) approach can improve the resilience of displaced people and reduce their aid dependency. It involves working through local market actors (public and private), leveraging and building their incentives and capacities, so they can sustainably (and viably) engage disadvantaged communities.
Nevertheless, this approach can be challenging to implement when run in parallel with direct humanitarian aid activities, as the latter can distort the very markets MSD programming depends on. Further, many displaced communities have settlements in remote areas where markets are thin, characterized by a shortage of market actors, and a limited customer base. Increasing private sector investment to reach and serve displaced communities is difficult when potential customers, suppliers, or employees in refugee and host communities are accustomed to receiving subsidies.
Recognizing this challenge, there are opportunities to design development support that can instigate transformative changes within displaced communities. This journey begins with increased coordination and knowledge-sharing among development stakeholders.
This blog highlights:
- Reflections from the recent conference hosted by the International Labour Organization (ILO) on working with the private sector in forced displacement contexts
- Three Mercy Corps projects working in forced displacement contexts in Africa, which blend what the conference called ‘push’ and ‘pull’ approaches
- Opportunities for applying MSD in forced displacement contexts, emphasizing the importance of valuing the agency of displaced people, setting the right expectations with private sector actors, considering systemic change during a crisis, expanding recruitment pools, and building evidence for donors.
Key lessons:
Humanitarian and MSD approaches in forced displacement settings do not have to conflict.
In thin markets, where most of the supporting functions are underperforming for displaced communities, layering interventions for a particular group of people can lead to deeper impact.
Conducting a segmentation analysis in the initial stages of the project is essential.
ILO Conference on engaging private sector in forced displacement contexts
Recently, I had the opportunity to participate in an ILO conference in Uganda where I heard about experiences from various organizations, local government representatives, and private sector actors involved in implementing and collaborating on market-based projects in displacement contexts. We gained valuable insights into the multifaceted challenges of fostering sustainable livelihood opportunities for displaced people. These include market distortion from direct humanitarian aid, poor access to capital for private sector actors looking to expand operations to reach displaced communities, and difficulties obtaining work permits and identification documents for displaced people. Nevertheless, one encouraging aspect was the consensus among the private sector actors present that displaced people represent a viable market for them as consumers, suppliers, and workers.
The conference highlighted a recent publication from ILO and UNHCR, which maps a sample of projects on a continuum according to the approach they use, to reflect the variety of market-based approaches in forced displacement contexts. On the one end of the continuum are projects using market systems development and other market-oriented approaches (or the pull approach). On the other end of the continuum are humanitarian approaches, where projects directly provide goods and services to displaced populations and host communities (or the push approach). An interesting takeaway from the mapping and the conference discussions was the increasing number of projects that employ approaches from both ends of the continuum, due to a growing recognition of the need to complement humanitarian with market-oriented approaches. Integrating these approaches carries inherent risks, particularly as humanitarian aid might potentially disrupt the incentives needed for catalyzing enduring transformations. However, with careful execution, a blended approach has the potential to mitigate such distortions, paving the way for enhanced economic inclusion and self-reliance among displaced populations.
Mercy Corps projects applying MSD in forced displacement contexts
In Africa, Mercy Corps has implemented a range of programs in displacement settings that use both push and pull approaches, for example:
- The STEDE project in Ethiopia aims to stimulate economic opportunities for refugees as well as host communities in the Somali Region. This was the first project implemented by Mercy Corps Ethiopia in a forced displacement context which drew on the MSD approach in its design. It focuses on three main sectors: agriculture, financial inclusion, and the labor market. The program engages closely with refugee and host communities by working with cooperatives and VSLA groups, while also engaging with a range of market actors, including input suppliers, skill training providers, financial service providers, and local governments.
- The Trade4Peace project, implemented in the Gambella Region of Ethiopia, recognizes the importance of peacebuilding between refugees and host communities to ensure a lasting impact on economic development. In addition to working with local institutions and government to promote self- and wage-employment opportunities that collectively benefit both refugees and host communities, the project also focuses on supporting local institutions to facilitate peace dialogues within and between communities to resolve conflicts peacefully.
- In Uganda, the Delivering Resilient Enterprises and Market Systems (DREAMS) project layers the poverty graduation approach and MSD to enable the poorest refugee and host households to improve their income and well-being. The graduation approach — with the push factor — provides capital and skills to support the refugees as they establish their businesses, while MSD components — with the pull factor — build market access pathways to ensure those businesses can be successful. By promoting the economic self-sufficiency of refugees and their host communities, these layered approaches not only seek to encourage self-reliance and resilience, but also aim at improving social cohesion between refugees and their hosts.
Opportunities of using MSD in forced displacement contexts
Despite its challenges, it is not impossible to implement MSD in a forced displacement context, or to shift project efforts towards the more sustainable, market-oriented end of the spectrum. We need to be aware of the complexities of implementing such an approach, and most importantly, be confident that it can work if we build on lessons learned to address these challenges intentionally.
1. Valuing the agency and strengths of displaced people can support self-reliance.
During field trips to support the STEDE program in Ethiopia, I encountered refugees who had previously received free livestock inputs and expected Mercy Corps, as a development actor, to provide more free inputs. I also met others who had been provided with a start-up business grant, who now successfully run a waste management business, and at the time of the visit were in the process of accessing a commercial loan to expand it. This latter group showed that taking a strengths-based approach — focusing on identifying strengths, and recognizing displaced people’s economic agency, while considering the available economic opportunities, can lead to interventions that increase self-reliance. This requires looking for opportunities early in the program design, especially during the initial labor market assessment.
2. Displaced people’s needs for services, goods, employment, and new markets can be met sustainably when private sector actors recognize their business incentives to invest.
MSD operates by co-creating market-based solutions together with market actors — such as firms, government agencies, and community-based organizations. For example, an MSD program might partner with a private sector firm to reduce their risks of operating in new and often unfamiliar markets, or of piloting a new business model to reach new (previously marginalized) customer segments. This involves market actors investing their resources, often up to or more than the development project’s investment.
Firms that are accustomed to receiving grants and subsidies from aid actors are often reluctant to invest their own resources, but as the private sector representatives at the ILO conference affirmed, there are real business opportunities to be found in serving or sourcing from displaced populations. Hence, it is crucial for programs initiating partnerships to provide concrete evidence of market viability (such as market size, potential demand and affordability, and potential revenue), typically through sharing data from comprehensive market assessments.
There is no hard and fast rule of an ‘ideal’ co-investment value or ratio from a market actor in MSD for an initial pilot. What truly matters is their vision and commitment to take on (and even expand) the new business model and integrate it into their business operations and strategy once the partnership concludes, at which point they will need to be able to bear all the costs independently. These expectations need to be established from the outset, especially for businesses used to receiving grants from aid actors. Crucially, new investments should not be seen as a favor, but should be made because the market actor truly recognizes the market potential.
3. Even where a market is in crisis, designing programs with the long-term functioning of market systems in mind can pave the way to early recovery.
In some contexts, such as during a humanitarian crisis, or in contexts where markets are highly vulnerable to frequent shocks and stresses, it is not feasible to catalyze change through ‘light touch’ interventions that are driven predominantly by market actors’ investments. In such settings, a program may need to either provide direct support to communities to meet immediate, urgent needs, or provide intensive support to the market actors that serve displaced populations to build capacity and resilience. In either case, a vision for systemic change and the long-term functioning of the market systems should underline the intervention design, with the program carefully considering the least distortive and most participative intervention approach in the context. For example:
- Where the priority is getting food and hygiene products to people affected by the crisis as quickly as possible, consider providing cash, to enable people to purchase products from local suppliers. Not only does this increase people’s choice and ability to prioritize, but it also keeps local markets functioning.
- Where displaced entrepreneurs have lost their business assets, small business grants may be an appropriate and targeted intervention for them to restart operations and build up sufficient transaction history. This can enable them to then access commercial loans or other financial services.
- Where actors are reluctant to invest and expand their reach in remote areas, where there is a strong need for improved agricultural inputs, a program might pay for the costs of trialing a sales-agent model for six months to test and (hopefully) demonstrate the viability of the market, increasing input suppliers’ willingness to invest.
Whilst such interventions fall towards the more direct end of the continuum, they may be necessary in some contexts in the short term. The underlying principle is to retain a vision for the long-term functioning of the market and use the least distortive intervention possible, identified by a rigorous assessment of what is feasible.
4. Expanding recruitment pools and technical networks has the potential to foster innovative and unconventional ideas.
Teams are often most familiar with implementing direct assistance projects, which have been the norm in the area. Exposure to other MSD programs in a similar context can raise teams’ confidence. We also need to increase efforts to diversify recruitment beyond the usual circles. Having team members from different backgrounds can foster innovative approaches to the complexities of MSD programming.
5. With sufficient evidence to counter common misconceptions, donors are often willing to trial MSD instead of defaulting to direct assistance programming.
Even though MSD has been applied and tested in many programs globally, its application in forced displacement contexts (and non-agricultural sectors) remains nascent. There is also a ‘myth’ that MSD only reaches people who already benefit from the market, leaving the most vulnerable overlooked. There is a misconception that MSD only analyzes markets; while in reality, target participants — such as refugees, IDPs, and host communities, should be the center, and the starting point of all market analysis.
Key takeaways
Humanitarian and MSD approaches in forced displacement settings do not have to conflict.
The context, including the market readiness of the displaced and host communities, may push a program towards one approach or another. Whatever approach is taken, the long-term vision is for displaced communities to be meaningfully included and engaged in the systems that most affect their lives. For further information and evidence on layering direct and market-oriented approaches, read Mercy Corps’ report “Making Markets Work in Crisis”.
In thin markets, where most of the supporting functions are underperforming for displaced communities, consider layering interventions for a particular group of people for deeper impact.
This involves addressing multiple constraints through a set of related and complementary interventions. For example, a refugee might be trained in business development skills by market actors and then linked to a financial institution to access startup capital. She would then also be linked to a One-Stop center to help her register her business and obtain refresher training on financial management skills. To achieve this, a program has to design interventions that improve the skills system, finance system, and formalization system, and work with a partner to improve the way services are coordinated. This approach to interventions may not seem (at first) to benefit as many individuals, but by addressing multiple critical constraints for entrepreneurs to start, sustain, and/or grow their businesses, we are reducing the risk of limited impact when we only address one constraint.
Conducting a segmentation analysis in the initial stages of the project is essential.
Interventions may not have the same impact on displaced people with different characteristics. For example, linkages to banks offering credit may work better for entrepreneurs who are located closer to urban centers and have already started their businesses. For individuals with strong business ideas but unable to secure start-up capital from formal institutions, working with a government agency to enable their access to small business grants, or loans from an online micro-finance institution, may be a better option.
Despite varying degrees of market-based approaches, the ultimate goal of development programs remains consistent: to foster lasting positive changes for displaced communities. The important thing is having systems change informing the design, to ensure that the markets and systems surrounding displaced communities can meaningfully and productively engage them, promoting economic self-reliance.
