What is the Market Development Facility?
Summary
The Market Development Facility (MDF) is a multi-country Australian government aid program that partners with the private sector to achieve lasting growth and create sustainable jobs for poor women and men. MDF does this by using a Market Systems Development (MSD) approach.
MDF is funded by the Australian Department of Foreign Affairs (DFAT). It is implemented by Palladium in partnership with Swisscontact.
Objectives
MDF’s guiding principle is to support the Australian Government’s objectives of promoting sustainable economic growth, enhancing women’s economic empowerment and reducing poverty.
How it works: markets and systemic change
It is widely agreed that economic growth has helped hundreds of millions of people escape poverty throughout the world. However, not all kinds of growth are equal. The full potential of the economy to lift people out of poverty is only realised when growth is sustainable, and the benefits are enjoyed by a broad section of the community. MDF is not focussed only on economic growth, but growth that is more evenly distributed. How do we do this in practice?
Most private sector development programs work with governments and policymakers to improve the ‘business enabling environment’ in what can reasonably be described as a top-down approach. In contrast, MDF works directly with businesses and entrepreneurs to achieve change. It’s more of a bottom-up approach.
MDF starts by scouring the economy for markets that could work better but, for a variety of reasons, don’t. We specifically look for markets in which large numbers of poor people are active – for example, agricultural markets involving large numbers of poor farmers or urban industries that employ large numbers of poor women. We then work very hard to understand the underlying reasons that the market is not working as well as it could. This is critical. True understanding only comes by spending time with the market actors (buyers and sellers) to understand why they do what they do; and understand incentives.
For markets to work well for everyone (not just those at the top) there are a range of things that need to be present. These include information, technologies, infrastructure, finance, standards and regulations. If these things are absent or sub-optimal, they tend to inhibit the performance of the sector or, in other words, mean that no one earns as much as they could. A simple example is farmers who don’t know how or when to use fertiliser.
They may be using too much, too little or applying it at the wrong time of year. In poor farming communities, this is a very common phenomenon. Incorrect use leads to lower yields and quality, resulting in lower prices from farm gate to consumer. Everyone loses.
MDF tries to find entrepreneurs and farmers who would benefit from a better-functioning market. Using the example above, farmers might be given advice from the fertiliser salesman on when to use fertiliser and how much to use – this in turn increases yields. If the farmers are happy with the advice, they are more likely to be repeat customers. The farmer earns more when they sell their produce and the fertiliser salesman gets repeat business. Everyone wins.
