Market systems development in forced displacement contexts: does it work?

Even in forced displacement contexts, MSD's market-oriented approach can increase the self-reliance of displaced people and reduce their dependence on aid.

Globally, the number of forcibly displaced people rises yearly due to conflict, violence, human rights violations, and climate change. Africa currently hosts 30 million refugees, asylum seekers and internally displaced people (IDPs), representing one-third of the world's displaced population. This increases the budgetary pressure for food distribution and essential services, leading funders to seek more cost-effective solutions to reduce aid dependency among displaced populations.

The MSD approach can improve the resilience of displaced people and reduce their aid dependency. However, when implemented alongside direct humanitarian aid, the markets MSD relies on are sometimes distorted. Additionally, attracting private sector investment is hard when communities are remote and used to receiving subsidies.

Implementing MSD in a forced displacement context, or redirecting project efforts towards a more sustainable, market-oriented approach is achievable. The challenge can be addressed by understanding the complexities of this approach and being confident in applying it.

Opportunities for applying MSD in forced displacement contexts

1. Value the agency and strengths of displaced people to support self-reliance
At Mercy Corps, I provided technical backstopping to the Strengthening Socio-Economic Development and Better Employment Opportunities (STEDE) programme in Ethiopia. On my field trips I encountered refugees who expected Mercy Corps to provide free livestock inputs. I met others who had received a start-up business grant and now successfully run a waste management business and are applying for a commercial loan to expand it.

This latter group showed that a strengths-based approach - recognising the economic agency and strengths of displaced people - can boost self-reliance. It requires early identification of economic opportunities, particularly during the initial labour market assessment.

2. Displaced people’s needs can be sustainably met when the private sector sees business incentives
MSD co-creates solutions with firms, government agencies and community-based organisations. For instance, an MSD programme might partner with a business to reduce risks in unfamiliar markets or pilot new business models to reach marginalised customers. This often involves market actors investing as much as, or more than, the development project.

Firms used to development subsidies may be reluctant to invest their resources. However, some see real business opportunities in serving, or sourcing, from displaced populations. So, programmes should provide concrete evidence of market viability through comprehensive assessments - demonstrating market size, affordability, potential demand and revenue.

There’s no set rule for an 'ideal' co-investment value or ratio in MSD. What matters is the market actor's vision and commitment to expand and integrate the new business model into their operations independently once the partnership ends. This should be clear from the start, especially for businesses accustomed to development subsidies.

New investments should not be seen as a favour, but as a promising opportunity.

3. Designing programmes with the long-term functioning of market systems in mind can lead to early recovery, even where a market is in crisis
In humanitarian crises, or where markets are vulnerable, influencing change through ‘light touch’ interventions – solely relying on market actors’ investments – is difficult. Programmes may need to provide direct community support for immediate needs, or intensive support to market actors to build capacity and resilience. Interventions should aim for the long-term functioning of the market systems, using the least distortive approach - and be informed by rigorous assessments.

For example:

• Providing cash enables communities to buy from local suppliers, keeping markets functioning while increasing people’s choice and ability to prioritise
• Small business grants help displaced entrepreneurs restart operations, build transaction histories and eventually access commercial loans or other financial services
• Using the sales-agent model - when businesses hesitate to expand to remote areas, programmes might initially fund a six-month trial to test and demonstrate market viability

4. Expanding recruitment pools and networks have the potential to foster innovative and unconventional ideas
Programme teams are typically most familiar with implementing direct assistance projects. Exposure to other MSD programmes in similar contexts can boost team confidence. A diverse team is also key – team members from different backgrounds can foster innovative approaches to the complexities of MSD programming.

5. With sufficient evidence to counter common misconceptions, donors are often willing to trial MSD
Even though MSD has been applied and tested globally, its application in forced displacement settings remains nascent. There’s also a ‘myth’ that MSD only reaches people who already benefit from the market, and that it only analyses markets; in reality, target participants - such as refugees, IDPs, and host communities - should be front and centre of all market analyses.

Recommendations

• Harmonise humanitarian and MSD approaches in forced displacement settings. The market-readiness of displaced and host communities can influence a programme’s approach. Regardless, the goal is for displaced communities to be meaningfully included and engaged in the systems that most affect their lives. Read Mercy Corps’ Making markets work in crisis for further guidance on layering direct and market-oriented approaches.
• Consider layering interventions for deeper impact in thin markets. This involves addressing multiple constraints through a set of related and complementary interventions. For example, a refugee trained in business development skills could be linked to financial institutions for startup capital and to One-Stop centres for business registration. This implies multiple interventions around skills, finance and formalisation – and teaming up with a partner to improve how services are coordinated. 
• Conduct a segmentation analysis during programme inception phase. Intervention impacts may vary depending on displaced people’s characteristics. For example, linkages to banks offering credit may work better for urban entrepreneurs with operational businesses. But for those with promising business ideas who struggle to secure start-up capital from formal institutions, partnering with a government agency to help them obtain small business grants or loans from a micro-finance institution may be a better option. 

The aim of development programmes is to foster lasting positive changes for displaced communities, regardless of what approach they take. Their design should be guided by systems change to ensure that the markets and systems surrounding these communities can meaningfully and productively engage them, thereby promoting economic self-reliance.

This blog has been adapted from a more extended version on Mercy Corps' Medium site