2.1 In a nutshell: How MDF works and why

Timor is so new that anything seems possible.

Staff of the Balibo Fort Hotel, through MDF support, received training in hospitality and tourism. Here they receive their certificates after stage 3 of the training was completed. All these staff come from the village of Balibo.

In a heavily aid-dependent environment, where a large share of programmes deliver training, cash or goods directly to the poor, MDF promotes a fundamentally different approach: It only works with and through businesses and other partners to catalyse lasting changes in the economic systems in which impoverished people live. The following steps and principles are central to this approach:

  • Understanding the economy and potential sources of growth: MDF assesses which parts of the economy have the strongest growth and poverty reduction potential, and what holds back their development. It then drafts engagement strategies which set out pathways for tackling these constraints.

  • Identifying partners that can act as agents for pro-poor change in key parts of the economy:  MDF works with private sector or government organisations where appropriate, but most MDF partners are private, profit-driven businesses. Specifically, MDF reviews whether a business innovation has a potential ripple effect on the functioning of the local economic systems. Partners also need to be willing and able to share the costs of activities with MDF. Such ownership is seen as critical to achieve lasting solutions that continue to benefit the poor after the end of the partnership.

Learn more
For more detailed information on each step of MDF’s approach – including sector and poverty analyses, partner selection criteria, partnership agreements and results monitoring, please refer to an earlier case study of MDF in Fiji, Innovating Private Sector Engagement in the Indo-Pacific Region (2015), available for download at www.marketdevelopmentfacility.org.


  • Implementing tailor-made partnerships: As there is no single solution to the constraints on all its business partners, MDF designs individual support packages, rather than implementing ready-made plans and standardised forms of assistance. Partnership agreements specify the terms and objectives of MDF’s assistance. These can be adapted later on because the market environment and business constraints frequently change. MDF regularly monitors business performance, and the impact on beneficiaries and economic systems as a whole, to see what works and what doesn’t; and it invests significant staff time to develop close and responsive relationships with partners.


MDF’s use of partnership agreements and MoUs
Written agreements are part of any substantive MDF work with other stakeholders. There are, however, practical and legal differences, depending on the partner. Formal partnership agreements are used for projects with businesses: They articulate a budget, financial contributions as well as the legal obligations of each partner. Memoranda of understanding (MoUs) are used for generic agreements with institutional partners. They don’t involve a specific budget, include only a few legal provisions, and outline shared objectives, areas of collaboration and commitments