Worldwide it is estimated that 700 million people live on less than $1.90 a day, the World Bank’s line for extreme poverty. Over one billion lack access to clean water, 1.6 billion lack access to electricity, and malnutrition is still a leading cause of poor health and death worldwide (Lifewater, 2020). These dismal statistics result in less than stellar human development metrics despite numerous resources to reduce poverty. Those living in poverty experience a lower life expectancy, are less educated, and see a lower gross national income per capita. In the Middle East and North Africa region, poverty rates nearly doubled between 2015 and 2018 (World Bank Group, 2020).
82.4 million people worldwide are currently displaced. Of this population, 86 percent are hosted in developing countries (UNHCR, 2021). Refugees, displaced persons, and the communities that host them often face extreme poverty and lack paths to economic prosperity. Moreover, most refugees worldwide are displaced for five or more years, making them far more amiable to long-term solutions than short-term humanitarian aid.
There is a high reliance on traditional donor-driven funding schemes in today’s humanitarian development sphere. Current trends focus on enabling institutional environments rather than direct initiatives to reduce poverty. As a result, development aid and humanitarian interventions often fail to stimulate economic growth, the only long-term solution to endemic poverty.
The unrelenting toll of poverty, the ineffectiveness of traditional approaches to poverty reduction, and the rise of new investment funds and activities have pushed donors and investors to support solutions that address the causes, not just the consequences of widespread poverty. Many of the world’s poor rely on private markets for their livelihoods; due to inadequate state services, individuals make up both the consumer, by receiving food and other essential services. And as the employees or producers, by selling goods or participating in the labor force. However, entry into these markets is difficult and costly, limiting access to many poor people. Thus, these market systems must be adapted to work more effectively and inclusively for the poor, improving their livelihoods and providing a route out of poverty.
One tactic is a Market Based Approach (MBA), which is a way of doing business that improves the lives and livelihoods of those traditionally boxed out of participation in the economy. The basic notion of MBAs is that the vulnerable communities are dependent on the markets for their livelihoods (ILO, 2022). Therefore, adapting those markets to work more effectively and sustainably for them will improve their livelihoods and, in return, reduce poverty. More inclusive markets have wider economic benefits as well. Economic growth is the lynchpin of poverty reduction and represents the best exit strategy for humanitarian interventions. With sound business models, MBAs can function independently, removing the reliance on investors and donors.
MBAs must be based on a thorough analysis of the existing demand for labor, products, services, and the environments in which the targeted population can make a living. Without a sound and comprehensive understanding of the existing markets and private business sectors within the targeted domain, MBAs will fail to make a meaningful impact on the livelihoods of the targeted population. For MBAs to be successful, it needs to fulfil three main criteria:
- It needs to be financially self-sufficient; if not, it is no different from other humanitarian interventions that rely on continuous aid and donor funding.
- It must be scalable; the reach of global poverty is vast; thus, the MBAs must reach significant numbers of low-income people.
- It must provide tangible social benefits; this can be in the form of food, education, energy, etc. (Kubzansky M. et al., 2011).
Understanding the advantages MBAs have over traditional aid programs in combating poverty is critical. They are self-financing and more sustainable in the long run. They generate income and continue to provide goods and services to improve the livelihoods of those in the targeted community. Most importantly, they empower low-income persons to make their own choices and assume responsibility for their economic prospects instead of becoming and remaining dependent on aid and donor investment (Cooney K., Williams Shanks T., 2010).
While MBAs cannot alleviate every hardship the most vulnerable shoulder, they complement and bolster other anti-poverty interventions. MBAs have the unique ability to help individuals climb out of and remain above poverty. Yet knowledge of implementing successful MBAs remains underdeveloped and not widespread. Debates in humanitarian aid circles often focus on whether private sector involvement is appropriate or helpful in the fight against poverty. It is beneficial to advance beyond that and demonstrate and increase the impact of sound MBAs. Through increased exposure and training, humanitarian and development actors can gain a more robust understanding of MBAs that allows them to increase the impact of their organization by enhancing the performance, influence, and sustainability of the services they offer.
Trust Consultancy and Development is pleased to provide a training opportunity for professionals interested in exploring the market systems principles existing in their programs and in using the market-based approaches to improve the performance, impact and accountability of their programs.
Our upcoming course “Introduction to Market-Based Approaches” will be delivered online in May and June 2022. For more information, visit our page Introduction to Market-Based Approaches Training.
Written by Carly Cussen
