improving business improving lives

Major Learning

Katalyst was a pioneer project designed to ensure that the ‘making markets work for the poor’ (or M4P) approach – developed in the 1990s and based on the Bottom of the Pyramid theory – worked for the lowest socio-economic groups in Bangladesh. A number of tools were developed as part of partnerships with private companies,  public agencies and institutions to achieve success. These became good practices among the international development community.

This document is based on practice-based knowledge and is purposed to show development specialists the important aspects of a major market systems development (MSD) project and how it can work on the ground.

In 2000, Swisscontact started working in Bangladesh to increase the income of poor producers in urban and rural areas. It did this by identifying constraints in the market – locating the bottlenecks, and linking private partners with producers and the public sector to address them.

About eighty per cent of Bangladesh is low-lying land which, although fertile, is prone to flooding and susceptible to the adverse effects of climate change. More than two million people live on chars – shifting river islands – where economic opportunities are impeded by geographical isolation, lack of access to basic services, weak markets, and the effects of hazardous climate conditions. At around 166 million, Bangladesh’s population is about twenty times larger than that of Switzerland, in a country just three times the size. The resulting pressure on land resources and the need to feed an ever-growing population mean that despite steady economic growth over the last decade – around seven per cent in 2016 (IMF) – at the start of the project, 63 million people in Bangladesh were living in extreme poverty. Climate change, traditional views of gender roles, and a history of public sector control over industries mean that innovation – the lifeblood of business – can be slow to take root.

Working with farmers and small businesses, Katalyst engaged the private and public sectors, and linked them with poor producers who all want the same thing – to improve their livelihood. Although the project followed a number of approaches over its lifetime, the basic principle remained the same: to act in a facilitating role to achieve systemic change which would impact the lives of the beneficiaries even after the project’s end.

The project underwent several significant learning experiences, both at a portfolio and an operational level:

Measuring systemic change output and outcome levels requires multiple tools and frameworks

Katalyst’s mandate was to deliver systemic change in selected sectors. Initially, the systemic change measurement framework focused on interventions and was measured at the output level. However, further studies indicated that systemic change takes place as an effect of multiple interventions.Capturing systemic change therefore required a tool which would take account of the complexity of the market systems operating in Bangladesh and be able to assess behavioral changes among market actors at a higher level of the impact logic. Measurement of systemic change was thus done through multiple measurement frameworks and tools which Katalyst developed. As per project’s understanding scale and sustainability matrix were designed to measure systemic change at output (meaning project’s log frame output) level, whereas SenseMaker was looked more at impact level. These measurements were complimented by SenseMakerstudies, which examined three different dimensions of change: transformation, scale and institutionalisation. The findings indicated clear steps of systemic change occurring at the outcome level. Feedback from external experts, such as the Springfield Centre and Katalyst’s Strategic Review Panel, were instrumental in driving Katalyst’s work on systemic change forward during the project’s final phase.

Anchoring inclusive business models needs a long-term strategy

The success of a market development project depends on the characterof its partners, the market characteristicsspecific to the country in which it is working, and therelationshipsit develops over time withrelevant stakeholders. Identifying key actors in potential partner organisationsand building up trust with themresults in a stronger buy-in and makes anchoring more likely.Also being able to present them with strong evidence of successful inclusive business models and tools is likely to generate a better response and more credibility.However, this process of engaging with public institutions should not be under-estimated – it takes time and can be challenging. For example, over the lifetime of a project there can be frequent changestokey decision-makers who had been identified as high-potential scale agents, meaning that relationships need to be built up again from the start.

Anchoring: a slow buildleads to strength and depth

Katalyst’sLocal Agribusiness Networks (LAN)cross-sector(founded in second phase andtheCapitalisationas an overarching topic set up in the third phase of the project. In third phase, LAN and CAP worked togethertoanchor inclusive business by establishinga private-publicpartnership at the institutional level with the Bangladesh Government’s Department of Agriculture Extension(DAE). This relationship led to a decision to revisethe DAE’s extension manual,to make amendments whichincorporated operational instructions.This led to a slow learningcurve for bothKatalyst and the DAE, and took more time than initially planned. First, seniorlevel DAE management had to be sensitized, and then the lengthy amendment process began.Concerted efforts by both parties led to the publication of therevised manual. However, one of the key objectives of the project was to drive towards achieving systemic change – and this does not usually happen by simply introducing a new product into the market. For the revised manualto be a success, both central and regional level staffwill have to be orientated to the new operational processes it contained. Both Katalyst and the DAE learned from the experience of working together on this intervention, which from start to finish will take around eighteen months.

Developing a culture of innovation in private businesses takes time

About ten years into the project, Katalyst set up the Katalyst Innovation Fund (KIF). The idea for this had evolved as a means to address certain constraints. The main assumption was that the innovation fund (which invited private companies in Bangladesh)would motivate key market players to think about how inclusive business solutions could work for them, and that the wider anchoring that resulted would bring aboutadditional innovative business models. The core idea of KIF was to share constraints of market systems with private sector partners so that they would use their know-how and capacities to develop solutions, turning these constraints into business opportunities. The KIF delivery mechanism therefore was introducedto foster the development and introduction of innovative business models. However, while working with potential partners on the detail of grant modalities, it became clear that the majority were more interested in Katalyst’scapacity in business modelling rather than in the financial supportthat the grant would provide. Katalyst’spartnership grant experience suggests that developing a culture of innovation with private businesses takes more time than a project’s lifespan and requires further mentoring.

Engaging government at all levels of programme management induced a sense of ownership bythe Ministry of Commerce (MoC)

The capacity building of government staff and development of project ideas with the Bangladesh government’s Business Promotion Council (BPC) shifted the way in which Katalyst engaged with the host government; as a result, the BPC now coordinates the services for enterprises it provides to its member associations in a more market-oriented way. For example, BPC started to promote contract farming in the maize sector to its exporter member companies.

Over the lifetime of the project, the relationship with the government improved significantly. This was due in part to the better alignmentofKatalyst’s sector activities with the mandate of the MoC, and also through coordination and activities with the MoC and BPC. Joint field visits and monitoring of the project with the involvement of multiple government officials have contributed significantly to the project’s development and improved government relations.

Extensive monitoring of the financial process is necessary to ensure compliance with donor requirements

In recent times and on a worldwide level, an increasing public awareness and scrutiny of development initiatives has led to a closer monitoring and assessment on the part of international donors. A project like Katalyst, whose role is strongly facilitative, puts as much responsibility for implementation as possible on toitspartner organisations, including the management of funds – a shift which carriesrisks in terms of quality management as well as the administration of finances.

In Katalyst’sthird phase (2013-17), the projectintroduced several innovations largely based on its learning from the previous phase. Firstly,an initial assessment of the financial system of an implementation partner was carried out before the signing ofany implementation contract. Through careful assessment of a sub-contractor’sfinancial and accounting system before finalizing a contract, the project has enhanced its own systems and as a result reduceditsfinancial and fiduciary risk. On the administrative side, several innovationswere made to the procurement process. These included an initial audit of the financial systems of Katalyst’sco-facilitators, to ensure that each fulfilled the requirements of the project.Katalyst also introduced a monitoring of the total value of contracts per facilitator,and a maximum limit of that value, limiting inherent risk. Finally, the SDC procurement manual was integrated intothe project’sprocesses to ensure full compliance with donor requirements.

Throughout the project, Katalyst regularly adapted the management information system, to reflect changes to the processes. This supported the project management in its timely follow-up of contracts, and ensured an efficient audit trail.Compliance with financial and procurement requirements needed additional resources, and these increased over the final phaseof the project.

Which external factors favoured respective market changes?

The context of Bangladesh was extremely favourable for both the nature of the project and its success. Important factors included the largenumber of small farms and enterprises with a high incidence of poverty in relative geographical proximity, their high levels of competition and developed entrepreneurial spirit, the availability of well-educated project staff, the country’s continuous economic growth, and the government’s poverty reduction strategy. Moreover, the agriculture sector of Bangladesh, lagging in comparison to neighbouring countries, was (and still is) on its way to greater modernisation and was thus likely to be more receptive to the changes Katalystwas working to initiate.

Cooperation among the donors (with SDC and UKAidas core donors plus additional donors which changed over the course of the project) and their decisions to approve the three project phases without recourse to public tender provided the basis for the continuous learning and improvement process of the project team. However, resources in the donor country offices were scarce, limiting their steering capacity and the extent to which they were able to support in the project’s dialogue with the national counterpart, theMoC. In addition, a better resourced donor secretariat could have reduced issues which Katalyst encountered in terms of the formal registration of the project with the Government of Bangladesh.

Which objectives and strategies did the projectpursue?

An important breakthrough came in 2004, with the consensus among donors that the project was responsible for achieving positive impact on the poor. Implicitly, this meant the provision of the project with a) the flexibility to select and adapt its strategies for optimising impact, and b) less strong steering by the donors.

The phases of “innovation and testing”, “scaling-up” and “capitalisation and consolidation of systemic changes” have been proved over the course of the project to be a logical sequence, and should be adopted as part of the long-term planning of any MSD project.

Which approaches and instruments were suitable in which markets and sectors?

Systematic market analysis, the identification of key constraints and market actors, and an iterative approach to defining strategy and making deals with partners have become an established process within MSD projects. Another key ingredient is a consistent monitoring and results measurement (MRM) system which employsappropriatemeasurement methods and instruments,and with the DCED standard providing suitable guidance. The integration of monitoring and results measurement into the strategic management of interventions is essential.A regular, planned DCED audit can provide useful motivation to the project team in this regard.

Although three DCED audits confirmed the robustness of Katalyst’s MRM system, the presenceof an external evaluator assigned by the donorsduring the results measurement activities would have added value and provided better alignment with the donors’ reporting of results.

Alternative methods (such as randomised control trials, beneficiary assessments, and analysis of systemic changes using SenseMaker) are promoted by academia and consultants worldwide and were tested in Katalyst. However, these make heavy demands on resources and should not be seen as replacements for the establishment of business models with results chains and indicators and their continuous measurement.

Which were the most conducive management principles and resources?

Early and continuous investment in staff skills proved to be a key to Katalyst’s success. At the beginning, relevant management resources were missing within the implementing consortium. Swisscontactresponded by investing heavily in appropriate instruments, and over the course of the project developed a systematic process with appropriate tools and resources. If applied, these will ensure a steep learning curve in new MSD projects. A generous project budget with a flexible structure allowed for such investments.
A high degree of delegation of responsibilities to implementing teams(guided by a set of key questions) and a separate MRM unit (mandated to support the implementation teams) proved a successful model.
A flexible budget structureallowed the project to work with a portfolio of different sectors and interventions.Working towards systemic change involves a continual assessment of the accuracy of the intervention in terms of the current environment it is operating in; deciding to drop (or modify) an intervention was thus seen as a positive response to local conditions. This flexibilitywas essential, particularly considering the degree of high staff input compared with the co-finance provided by partners. This differed from ‘traditional’ projects and conflicted at times with the need of donors to present precise plans and budget lines to their constituencies. In response, the donors devised a balanced method of steering based on a few key indicators and avoiding micro-management. Although they did thus grant the flexibility needed (particularly during the first two phases of the project), this had to be ‘compensated’ for by an enormous number of external reviews, evaluations and intensive reporting. This absorbed considerable project team resources.

What have we learned from the way the project managed partnerships?

Over time, Katalyst learned the best wayto approach private sector partners and cooperate with them. Based on proven successes, the image of Katalyst as a reliable partner – not only in business but also withgovernment institutions – was consolidated. Early branding and perseverance in equal measure allowed Katalyst to appear to be a co-investor rather than a donor-funded project. Such positioning takes time to achieve and is not always easy to maintain in the face of other projects which profile themselves more as ‘helping hands’.
Doing business in a context like Bangladesh involves inherent risks. To mitigate against these, a resource-intensive system of controls with, among others, regulations, well-established processes, audits and monitoring is required. However, even with all these controls in place, there is no 100% guarantee of success. It would be a pity if this reduces the readiness of the donors or implementing agencies to implement similar projects. Making markets work for the poor – or to use the more commonly-used term, ‘inclusive business’ – would not be as well-regarded as it is today without the knowledge gained and shared by projects such as Katalyst.
An important element of Katalyst’s implementation strategy was the project’s cooperation with co-(and later sub-)facilitators. Although these brought with them sector knowledge, implementing capacities in specific locations, and more flexibility in terms of allocation of resources, at the same time the capacity building required by their staff, the need for Katalyst to oversee their implementation (including MRM) and their own overheads, did not lead to a reduction in project costs. Analysis of whether the cost of building-up the additional capacities needed to implement MSD interventions justifies the additional costs of the project has not been conducted.

Acknowledgements

The success of such a project could only be possible with the high degree of engagement of a multitude of national and international actors. Firstly, thanks are due to the project’s donors, notably SDC and DfID throughout the three phases, SIDA (first phase), CIDA and EKN (second phase) and Danida (third and final phase) for their consistent support, and to the Government of Bangladesh for its interest and commitment on every level, through its different ministries and institutions, notably the Ministry of Commerce, Business Promotion Council and the Department of Agricultural Extension.Thanks also to all the project’s co- and sub-facilitators who made such tremendous outreach alongside high quality possible. Thanks to all the private sector partners who received us positively and discovered Katalyst’s potential for market research and business modelling. Thanks also to a fantastic team for their enthusiasm and spirit, on top of their thoroughly professional work. Special thanks to the Strategy Review Panel, as well as to the contributions of all the short- and long-term experts involved over time, who often acted as a sounding board and provided reflections greatly valued by the project.

Katalyst
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