In the following post, Jessan Catre lays out an important case for housing, and especially housing for lower income populations, as needing to be a central organizing node for recovery efforts. While not explicit in the blog, he also highlights the importance of how relief efforts are organized to make sure they are catalytic and maintain/enhance the diversity of market systems. Often the knee-jerk reaction of recovery efforts are to give things to vulnerable populations, and often do this via large contracts to big firms. Such effort, while unintended, can do substantial damage to systems as they push out SME and informal firms, shifting power to larger firms, as well as redirecting these firms to focus on donor customers. The emergence of providing cash directly into the hands of the vulnerable population has been a welcome mechanism to inject resources that can be more effective at catalyzing greater positive knock effects. As Jessan recommends, recovery should not just be about getting back to where the system was, but taking the opportunity to lay the ground work coming out of a shock like Covid-19 that allows for a quickening pace of positive systemic change.
The COVID-19 pandemic has completely upended the life that Arfel Aljohon, a carpenter, worked so hard to build for his family in the heart of the Philippines.
In late March, all of Cebu island was put under "enhanced community quarantine," an almost total lockdown, including the temporary closure of non-essential shops and businesses. These restrictions, while necessary to minimize spread of the deadly virus, meant the pipeline of work he had lined up came to an abrupt halt, and with it the $8 to $10 he expected to earn daily. One of his daughters was a teacher at a private school, and she also contributed to the family purse. When the school closed, her salary stopped too.
Overnight, Aljohon and his family went from feeling comfortable to wondering how they were going to survive, let alone support their four aging parents and other relatives near their home in Bogo City, Cebu Province. To make matters worse, Aljohon was about to complete repairs on their house but now can’t afford to, so the family feels particularly vulnerable to COVID-19.
Aljohon’s ordeal is tragically common, not only across the Philippines but also in the other middle-income countries where Habitat for Humanity works to improve the resilience and inclusiveness of housing markets and help people gain access to a decent place to call home. So as governments and development organizations around the world consider how to prevent an economic and social catastrophe, it’s extremely important that they understand how local building and local housing markets really work.
Many of the 1.6 billion people who lack adequate housing make do by building and repairing their homes incrementally as family finances allow. Houses built in this way comprise from 20 to 70 percent of housing stock, depending on the country, in the Global South. The informal housing markets that caters to these builders are massive as well.
But shocks to the housing sector produce far-reaching ripple effects, starting with informal businesses like Aljohon’s. They are some of the most vulnerable to the effects of COVID-19. We are already seeing low-income families worldwide postponing construction projects and using the money for even more basic needs, such as food and medicine.
As a result, masons and carpenters stop working. Demand for materials decreases, hitting local building material retailers. Upstream, this affects construction materials manufacturers, with paralyzed supply chains disrupting the flow of raw materials. The disruption spans the entire construction supply chain. With manufacturing halted in many countries, critical building materials are unavailable to households. So even if and when families are ready to improve their homes, they are unable to do so.
Similarly, the financial sector also is in lockdown. Banks are deemed essential businesses but the microfinance institutions that most low-income homebuilders turn to for external funding are not. Without regular repayments, their survival is in jeopardy.
Fortunately, there is an upside to this complicated web of interdependence. A well-functioning housing market can serve as the foundation to the economic recovery needed to create prosperous and resilient societies. Under normal circumstances, the construction sector, of which housing is an important segment, is one of the largest in the global economy, representing $10 trillion in spending annually and employing millions of people such as Aljohon. Many governments, from the Philippines and Peru, realize this. They are already using investments in the construction sector, of which housing is a part of, as a driver for economic recovery from COVID-19.
But the devil is in the details. Incorporating housing into relief packages will mean little if those plans overlook the needs of low-income homebuilders and households. Three actions, in particular, will keep them at the center and truly strengthen the resilience and inclusiveness of housing markets:
First, as governments begin to invest in the housing sector in order to spur economic recovery, they must design bailouts with the informal sector in mind. In addition to working with large or mid-size developers focusing on new construction, they must ensure that funds flow to small-scale developers and businesses or microfinance institutions that can channel capital to people seeking to upgrade or expand existing homes.
Second, it is crucial that aid does not displace local market actors—including construction material companies, hardware stores, training providers, media entities and financial institutions—who will be irreplaceable in providing those services and products into the future. Financial relief should be channeled through these local housing market actors and when possible, through cash-based programming to make their homes safer during the pandemic.
Finally, as governments take steps to designate construction and housing as essential services, we must focus on the safety of the people who will be building back our communities and our economies. Construction laborers need access to personal protective equipment and training in how to use it. They also must be familiar with appropriate physical distancing guidelines and good hygiene habits to keep themselves, their clients and their own families safe.
Taking action now will help ensure the survival and resilience of informal housing markets that are so crucial to economic recovery. More importantly, they can help reverse the fortunes of families such as Aljohon’s who can once again feel secure in their own homes. That will allow them to begin building back their neighborhoods and, along with it, the hope that everyone in their community can house themselves safely, securely and sustainably.
Jessan Catre is the Philippines Country Manager at Habitat for Humanity’s Terwilliger Center for Innovation in Shelter
In the post below, the authors discuss the use of a contest/competition tactic in raising awareness around a specific challenge. The use of contests and/or competitions have been around for a long-time outside development. As a tactic it has shown to be useful at raising awareness and focusing attention on a specific issue, challenge or product. From a market systems perspective, when using such tactics a project should consider a few lessons that have emerged over the years. One important lesson has been that throwing money at a complex development challenge has not been effective. Interestingly, the phrase ‘pay for results’ seems to be a the wrong way to describe the use of competitions. The project seems to be raising the importance/value of certain technologies that for some reason have been undervalued. In this context, the project is not paying for results, but catalyzing local actors to rethink the value proposition of that technology that they can then take forward in pushing adoption as appropriate in their contexts. Another lesson is around sustainability. For a country to continue on a journey to self-reliance, adopting a discrete technology is necessary, but not sufficient. A country has to develop the capacity to effectively identify, prioritize and allocate resources in response to various threats and opportunities. As a result, systems thinkers are keen to understand why such practices and products were not taken up previously, as well as how the system would come up with the next innovation without a donor project. In this context, raising awareness and focusing attention on a specific issue/challenge is an important skill that needs to be resident in a system. Longer term sustainability suggests that a project might want to shift from using such tactics directly to catalyzing local actors including market, civil society, government, etc. actors to learn how to use contests and competitions as a tool to help raise awareness and focus attention on issues they find important.
COVID-19 has dramatically altered the landscape of international development. As the world grapples with how to address this crisis, resource shortages hamper many potential responses. These gaps can shift national priorities, altering the trajectory of the development sector along the way. Host governments, development donors, the private sector, and everyday citizens are all struggling to balance the immediate need to quell the spread of disease with long-term development goals. Given this lens, the development community must adopt innovative approaches to sustain pre-COVID efforts. Now more than ever, it is crucial to leverage private sector investment to complement public resources.
Using Pay-for-Results Competitions to Strengthen Resilience
With an emphasis on engaging the private sector, motivating innovative solutions, and strengthening linkages between market actors, Pay-for-Results (PfR) mechanisms can be a powerful tool in the coming months and years as the development sector moves forward in the wake of COVID-19. PfR approaches, such as AgResults’ prize competition model, help build resilience because they tackle problems with contextualized solutions and encourage local actors to develop linkages with others along the value chain. Rather than providing funding up front, PfR prize competitions incentivize private sector actors to develop and deliver solutions to market challenges that disproportionately affect vulnerable populations such as smallholder farmers. As they achieve prescribed criteria, these “competitors” receive prize payments. The result is economically driven changes in behavior that provide vulnerable populations with access to resources that they could not previously afford.
Although PfR prize competitions do not work directly with vulnerable populations, they engage the private sector to interact with these groups to drive long-term shifts in behaviors. During crises, vulnerable populations are often the hardest hit, and it often takes the longest time for them to fully recover. By encouraging solutions that increase farmers’ access to new markets and strengthening relationships along the value chain, prize competitions can strengthen resilience – an important outcome during a crisis like COVID-19 and in the long run. In this way, prize competitions have the potential for critical short-term and long-term development impact.
Encouraging Sustainable Value Chain Linkages in Kenya
AgResults’ successful work in Kenya to drive smallholder farmers’ uptake of on-farm storage technologies shows how an approach that engages the private sector can effectively address a market failure and encourage resilient linkages. The competition, which incentivized companies to develop, market, and sell on-farm storage devices to smallholder farmers, had significant economic and food security benefits: More than 300,000 farmers benefited through sales of 1,390,777 devices that created 413,265 MT of improved storage capacity. Looking through a lens of market systems development, the competition encouraged private sector actors to invest in new relationships with vulnerable populations, strengthening the overall market. The stakeholders who participate in these value chains are now better positioned to deal with future food security threats or other crises in coming years. (AgResults plans to examine the long-term sustainability of this competition through its External Evaluator in the future.)
Boosting Farmers’ Ability to Respond to Economic Shocks in Vietnam
In Vietnam, AgResults’ aim to reduce greenhouse gas (GHG) emissions by incentivizing improved cultivation practices in rice production is strengthening the value chain and farmers’ resilience to economic shocks. The competition incentivizes grain traders, seed producers, and input suppliers to implement innovative agronomic practices, such as advanced irrigation techniques, with specialized inputs to increase productivity while lowering GHG emissions. Initial results from the first two growing seasons have been scaled up in Seasons 3 and 4 to reach over 20,000 smallholder farmers. Broadly, the competition is cultivating new linkages between the private sector and smallholder farmers, changing long-term behaviors so these populations can better respond to climate change and other threats.
COVID-19 has rattled the entire global system, with economic impacts cascading into developing markets and hitting vulnerable populations especially hard. When designed to intervene in the right contexts, PfR prize competitions can effectively target market failures and motivate new types of relationships that strengthen the whole system. As the development sector reflects on its new role in the wake of the COVID-19 pandemic, exploring newer development financing approaches such as Pay-for-Results may carve out opportunities that drive both immediate response and longer-term resilience.
Rodrigo Ortiz is the lead consultant for the AgResults program. He has worked in 86 countries and draws upon over 30 years of development experience.
In the post below, Bidowra and Mark provide an interesting example of how to support a single firm as they adapt and grow their online delivery business model. The case raises important and often ignored elements of good systems thinking, including systemic resilience. It highlights important insights and guidance on how to engage with a firm, which is certainly necessary, but not sufficient. Good systems thinking needs to also include how an initial interaction with a firm catalyzes other firms to see such behaviors as attractive, as well as how the system becomes more diverse. While Chaldal is demonstrating good behaviors, systemically, the online delivery market segment can only adapt and grow over time if it includes a diverse set of lead firms that invest in developing competing supply chains. Additionally, from a systemic resilience stand point, there would be concern from focusing too much on a single lead firm to gain scale as that would likely increase fragility, as structures that rely on a single node can easily fail if that node/firm stumbles. A real challenge when applying systems thinking is the importance of maintaining multiple perspectives using different analytical lenses so the project can catalyze ongoing improvements in and alignment of the competitiveness, inclusiveness and resilience of the market system.
Based in Dhaka, a densely populated city of nearly 22 million, Chaldal is the largest online platform for grocery delivery in Bangladesh, capturing roughly 80 percent of the country’s market shares of online grocery and retail sales. When the COVID-19 crisis hit Dhaka in March, more households relied on grocery delivery services to social distance and prevent the spread of the virus. Chaldal’s average deliveries rose from 3,000 to 15,000 per day.
This growth opportunity also presented a dilemma. While the company already sourced rice and grain products from wholesale markets, the fivefold increase in demand for their products from urban customers meant they needed to significantly grow their supply without sacrificing quality. They did this by sourcing aromatic rice, pulses, and oilseeds from aggregators who procure from farmers supported by Feed the Future. New warehouses, an expanded workforce, and additional motorcycles for deliveries boosted their operational capacity, but this alone wasn’t enough.
Technical support from the Feed the Future Bangladesh Rice and Diversified Crops (RDC) Activity aided Chaldal in developing a more agile supply chain and new products. Recognizing the market opportunity, Chaldal developed a “know your rice” campaign to highlight the benefits of locally produced premium rice varieties. The campaign allowed Chaldal to market its products sourced from rural Feed the Future areas to urban areas. It also allowed Chaldal to expand its supply chain portfolio, ensuring food availability for the urban poor, with a focus on marketing nutritional products, such as zinc rice, to women and children. Existing customer databases allowed the company to target these market segments with promotional campaigns through bundling fast-moving consumer goods and promotional packets of nutritional products.
The RDC Activity, which is funded by USAID and implemented by ACDI/VOCA, helped the company fast-track their hiring process using virtual trainings for new delivery employees. The RDC Activity also helped Chaldal develop a network of procurement agents and millers, set up stricter hygiene protocols, supply employees with face masks and soap, and impose regular cleanings of its vegetable sourcing, processing, and packaging facility. As a result, Chaldal is on track to meet delivery demands. The company plans to use this supply chain infrastructure to create trade efficiencies and expand its sale of fresh vegetables and perishables. Although Chaldal had the resources to make this transition on its own, the RDC Activity’s support redirected the management of these resources and made them a priority for the business to adapt and respond to COVID-19.
The successful shift in business operations shined a light on how global development entities should engage with the private sector. To increase the agility of enterprises to adapt to market shocks, development organizations must understand the context of the problem, co-create a solution with the company, adapt to rapid changes, and use data to inform responses for both the donor and the enterprise.
Adjusting how we think about partnerships requires major behavioral shifts and acceptance of that fact that there will be failures. In 2019, USAID launched a policy that began the process of institutionalizing private sector engagement as a core part of its operating model. ACDI/VOCA’s own private sector engagement approach explores how to incentivize the right enterprises in the right ways to weather a storm — not only for their own gain, but also to strengthen the broader market systems.
Understanding the Problem
Understanding how and why businesses behave the way they do is the first step toward engaging the right partners to strengthen local economies and contribute to development objectives. It is an approach that begins with analyzing the market to discover the root causes of poorly performing sectors. Better understanding can come through identifying business and decision-making norms, highlighting gaps in financing, defining problems or opportunities rooted in gender and social inequalities, or gauging openness to inclusive business methods.
The RDC Activity drew upon its previous Chaldal partnership, which focused on marketing, as well as its COVID-19 analysis to identify ways in which the company was already resilient and to determine the new challenges it faced. This created an opportunity to develop a mutually beneficial partnership focusing on expanding opportunities targeting the urban poor with nutritional products. Through this process, the RDC Activity also helped Chaldal identify promotional campaigns at schools where mothers pick up their children. This proved to be a very effective channel for push marketing.
Co-Creating the Solution with the Private Sector
When a development organization approaches a company with a predetermined plan for how to partner, the company can only accept or reject it. By shifting the conversation to say “Here is what we are seeing on the ground. What are you seeing?” we open up the terms of engagement and increase the likelihood of partnership. Through this process, there is an opportunity to collaborate and co-create with the private sector.
The RDC Activity started working with Chaldal in 2019 to promote fine and aromatic rice varieties through innovative marketing. This involved facilitating meetings to introduce Chaldal to millers and procurers of rice. Based on this previous experience, it was clear to Chaldal that the opportunity to source its products from the Feed the Future zone would add value to their market in Dhaka. The RDC Activity brainstormed with Chaldal’s CEO on how to respond to the increasing demand, while also meeting the mandatory safety protocols of warehouse and delivery systems. Based on this discussion, Chaldal co-created the proposal with technical assistance from the RDC Activity.
Responding to Rapid Changes through Adaptive Management
Investing time, energy, and trust-building resources into partnerships with the private sector allows for more flexibility when changing circumstances, such as COVID-19, disrupt supply chains and business models.
Since the COVID-19 crisis began, ACDI/VOCA programs around the world have been helping enterprises pivot through adaptive management. As was the case in Bangladesh, sometimes that means lowering the barriers and simplifying the process for engaging with enterprises to become more agile.
In an article published by USAID, Anar Khalil, the RDC Activity’s agreement officer’s representative at USAID’s Bangladesh Mission said, “We looked at past programs and realized that the traditional design process — from the moment we put together a concept idea to procurement — takes 18 months to two years. So, by the time the project is awarded, these ideas are old.”
For the RDC Activity, adaptive management meant quickly moving forward with applications that had the most potential to create both immediate and long-term solutions resulting in more resilient systems that are better equipped to cope with shocks. This flexible approach allowed Chaldal to address self-recognized pain points and make a quick pivot to its business model. It also allowed the company to expand its capacity to increase sourcing and offer farmers market opportunities in the middle of unprecedented shocks in demand for their products. The RDC Activity’s streamlined grants process identified key evaluation criteria and removed barriers to participation. Recognizing the urgency of addressing COVID-19 constraints, USAID waived its one-to-one fund matching requirement for sub-grants related to COVID-19 responses. This allowed the RDC Activity to pivot its approach and turn applications around much faster. The RDC Activity co-created their final agreement with Chaldal to ensure any proposed solutions were realistic and could address the challenges the company faced.
Measuring and Learning from Results
Data informs both companies and programmatic decision making. Based on their learning from annual performance surveys and rapid situational analysis, the RDC Activity was able to better understand which business models and interventions could lead to systemic changes in the agriculture market system. This informed how the RDC Activity worked with Chaldal, especially supporting the company’s ability to decide where to expand and to focus on the investments needed to meet demand. Mutually beneficial data increased the capacity of Chaldal to identify, prioritize, and allocate resources more broadly into their supply chain operations.
Agile Responses Lead to Systemic Change
ACDI/VOCA’s portfolio approach to private sector engagement recognizes the needs to shift thinking beyond firm-level investments and, instead, to look at the broader group of firms supported and their contribution to a stronger system. The RDC Activity’s systems approach is predicated on collaboration within the market system through facilitating connections between enterprises and creating incentives for multiple firms addressing a common challenge. Its partnerships are also linked to the activity’s systemic change objectives.
This has resulted in a stronger supply chain and distribution model that is improving the competitiveness and resilience of the agricultural market system. For example, the RDC Activity facilitated connections between agriculture mechanization providers and rice companies to develop branded “franchise service operators” who provide services to thousands of farmers in their network. That led to continuous maintenance support, established farmer databases, and scheduling and training programs for equipment operators with new companies entering the market.
Chaldal’s aggregators target these farmers as part of their increased sourcing from the Feed the Future zone. The company intends to increase rice procurement from rice mills that are dependent on a pool of farmers, including female farmers, who produce single variety rice. This will happen once they establish quality and pricing standards and develop partnerships with regional seed input providers.
The RDC Activity is making the inclusive business case for Chaldal to invest in women both as producers and consumers. To date, the RDC Activity has invested in 37 enterprises with 54 unique interventions, resulting in $3,182,462 in sales and procurement to 344,654 farmers who have accessed improved services.
From the private sector perspective, having the ability to adapt and innovate during challenging times leads to more inclusive, sustainable, and agile responses.
“When the COVID-19 crisis hit, we were flooded with orders,” Chaldal CEO Waseem Alim said in an interview. “USAID and RDC came in with COVID-19 emergency support, which was used to help adapt and expand our business operations while ensuring continued safety of our employees.”
Adaptive approaches lead to increased sales and a strengthened ability of firms and the broader system to not only increase food security but also respond to future crises. The result is more sustainable and scalable opportunities benefitting farmers.
Bidowra Khan, Market Systems and Social Inclusion Specialist for the Feed the Future Bangladesh Rice and Diversified Crops Activity
Mark Sevier, Technical Director of Market Systems and Partnerships for ACDI/VOCA
Do successful housing microfinance portfolios spur similar loan products? Lessons from the Republic of Georgia.
In the piece below, Monica Raskin from Habitat for Humanity’s Terwilliger Center for Innovation in Shelter describes the outcomes from an internal assessment of the systemic impact of their financing efforts. The post lays out some interesting outcomes that they identified from the assessment. In reading it, an important systems-thinking concept stood out for me as needing to be raised. Systems change over time is tied to the when/how certain signals or feedback emerge as either more or less influential. As Monica points out, microfinance organization to microfinance organization signaling, at least related to this segment, has had very little influence on the overall financial service system. It would be very interesting to learn more about why this firm-to-firm feedback is not influential, including how the Fund could amplify such internal signaling.
Habitat for Humanity’s Terwilliger Center for Innovation in Shelter launched the MicroBuild Fund in August 2012 to increase access to affordable housing finance products and services for low-income households globally. The fund bundles capital and technical assistance to financial institutions to demonstrate housing microfinance’s value to the broader industry. In doing so, the Terwilliger Center aims to shift the global portfolio allocation for housing finance from 2 percent to 10 percent of the general gross loan portfolio, among microfinance institutions (nationwide) in the countries where MicroBuild has investments.
As of July 2020, the fund had disbursed USD 136.9 million to 55 institutions across 32 countries, and helped nearly 930,000 households improve their shelter. Additionally, MicroBuild has seen success with many investees scaling up their housing portfolios after receiving capital and technical assistance from the fund.
While the fund has accomplished much to date, in 2019 the center decided to assess whether it was creating true market systems change. Specifically, we wanted to understand if MicroBuild’s investments in financial institutions were resulting in non-MicroBuild financial institutions adopting and scaling housing microfinance products. And, we wondered, was such a strategy to encourage broader product adoption the best way to scale housing microfinance offerings in a given country?
A three-week field study last year in the Republic of Georgia provides one answer. Habitat for Humanity’s Terwilliger Center selected Georgia for many reasons: the high country exposure within the MicroBuild Fund portfolio; substantial market share held by investee institutions; growth of local investees’ housing microfinance portfolios; and the high degree of openness to obtaining microfinance data. Further, the fund had been invested in Georgia for many years. It invested in JSC Credo Bank in 2013 and in JSC MFO Crystal in 2016. Finally, both MicroBuild investee institutions were market leaders within Georgia’s microfinance sector and thus potentially influential to other institutions within the country.
The field visit produced several key findings:
These findings, while offering specific insights into the Georgian market, also have informed the Terwilliger Center’s global approach to scaling the MicroBuild Fund and achieving market systems change. Based on the findings, the fund adjusted its scaling strategy to a more nuanced approach in certain markets where a small subset of financial institutions held the majority of the microfinance sector’s market share. In such countries, the fund would aim to either scale exclusively through MicroBuild investee(s), or by also crowding in a limited number of other financial institutions (in markets where approx. three to five institutions held over 70 percent market share). For countries where scale would be expected beyond MicroBuild investees, the center is now looking to develop a sector influence strategy to ensure that program initiatives provide clear, actionable information to target institutions on how to develop, refine and scale housing microfinance products.
In doing so, the Terwilliger Center can pursue a more nimble (and often more efficient) means of scaling housing finance within MicroBuild’s countries of investment to reach 10 percent of the general gross loan portfolio nationwide. Finally, the center will continue to make the case to the broader financial sector to further crowd in capital in countries and institutions where MicroBuild has proven that housing microfinance can be a good investment.
Read the full report from Habitat for Humanity’s Terwilliger Center here, under the title Exploring the adoption of housing microfinance within the Georgian market.
Stay in touch! Follow the Terwilliger Center on Twitter at @TerwilligerCtr and sign up for the center’s quarterly newsletter here.
The MSDHub Blog Series is authored by respected implementers and donors of market systems projects globally.