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Development cooperation is a relatively recent phenomenon and emerged in the mid-20th century. Since then, donor agencies have been developing numerous approaches and methodologies towards achieving sustainable development.
A unique approach introduced and applied by many development programs is the so-called Inclusive Market System Development (IMSD). This approach recognizes markets as a system consisting of a set of specific behaviors exercised by different actors and stirred by different incentives. At the center of this approach lies the aim of addressing the root causes of market failures, hence producing long-lasting change with relevant impact.
More recently, development cooperation organizations have recognized IMSD also for its significant potential to improve and develop market systems so they can perform more sustainably and effectively by offering equal opportunities to poor women and men, with the aim to increase their income, improve their livelihoods, and, ultimately, reduce poverty.
The main distinguishing point of IMSD is that it not only facilitates change indirectly by intervening at the macro level, but also simultaneously designs interventions that empower marginalized groups, so they can effectively engage in, and benefit from, markets. Rather than focusing on purely macro-economic problems or targeting individual businesses, the IMSD approach analyses how disadvantaged groups of women and men interact with market systems, and the incentives for market actors to introduce a systemic change that promotes inclusive growth.
When markets are not inclusive, only well-established and integrated participants benefit from economic development and growth but not necessarily those who depend on them most for their livelihoods, such as poor and young women and men, non-majority groups, and other marginalized groups that face significant barriers in effectively participating in conventional market systems.
An IMSD intervention is typically based on an in-depth understanding of the dynamics of the market system. This includes analyses and market assessments of key market functions and market players that can enable a change in behavior by introducing specific incentives. It also involves capacity building of partners to adequately respond to market dynamics, and continuous monitoring and evaluation measures. Importantly, IMSD interventions imply that there is no “one size fits all”-approach, since every market system has its own contextual uniqueness.
The literature in this field recognizes the following main principles of the IMSD approach:
o Systems thinking. The approach recognizes that market actors, from large-scale businesses to informal sector operators and poor consumers, do not operate in isolation from each other, but are part of an interacting adaptive system;
o Scaling for impact. IMSD aims to change the way industries and whole sectors of the economy work for poor and economically marginalized women and men. Interventions may start small, targeting specific market actors, but will gradually become part of a broader strategy to make markets work better for a larger number of poor and disadvantaged women and men;
o Facilitation. As a market-based approach, IMSD focuses on facilitating change that improves the way markets work for poor and marginalized women and men, rather than directly delivering solutions. The aim is to stimulate change in the market system through partnerships with Private Sector Partners and Intermediary Service Providers, without taking over their roles or becoming an integral part of the system;
o Iteration and adaptive management. The approach is pragmatic and recognizes that market systems are complex and do not always respond as expected or foreseen;
o Sustainability. The focus is on ensuring continuity of market services provision that benefits poor and marginalised women and men rather than just the sustainability of individual market actors within a market system, thereby supporting social wealth and inter-generational well-being.
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