Inclusive Market System Development – A unique approach toward sustainable development


Development cooperation is a very modern phenomenon, which emerged in the middle of the 20th century. Since then donor agencies have developed 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 improvement of lives of the poor. IMSD addresses, in particular, the root causes of market failures in specific markets that are important for poor people, hence producing long-lasting changes with relevant impact.

More recently, development cooperation organizations have recognized IMSD also for its potential to improve and develop market systems so they can perform more sustainably and effectively, by offering opportunities to the poor to improve their livelihood and ultimately getting lifted out of poverty.

The main distinguishing point of IMSD is that it not only facilitates change indirectly by intervening at the macro level but it also simultaneously designs interventions that empower marginalized groups. Rather than focusing on macro-economic problems or targeting specific businesses, the IMSD approach tends to understand how excluded groups interact, and what are the core incentives influencing their behavior in order to introduce a systemic change that promotes inclusive growth.

If the markets are not inclusive, only well established and integrated participants will benefit and not those who need them the most, such as the poor, women, non-majority groups, youth, and other marginalized groups frequently excluded from traditional 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 players that can enable changing a set of behaviors by introducing specific incentives. This involves building the capacities of partners to properly respond to future 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 of 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 the poor. Interventions may start small, targeting specific market actors, but will be part of a broader strategy to make markets work better for a larger number of poor people;

o   Facilitation. As a market-based approach, IMSD involves facilitating change that improves the way markets work for the poor 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 becoming part of it;

o   Iteration and adaptive management. The approach is pragmatic and recognizes that market systems are complex and do not always respond as expected;

o   Sustainability. The focus is on the continuation of market services for the poor rather than just the sustainability of individual market actors within that market system, maintaining social wealth and inter-generational well-being.

Photo by Ravi Roshan on Unsplash.