90953 FOCUS NOTE Facilitating the Market for Capacity Building Services I n markets with high levels of financial exclusion, service providers (see Box 1). Drawing on examples, actors in the financial system—financial service this Focus Note addresses the question: what does providers (FSPs), consumers, providers of it take to facilitate a sustainable, commercially viable financial system infrastructure and other market market for capacity building services delivered to supporting functions, regulators and other policy 1 FSPs? makers—often face capacity limitations. These include insufficient or inexperienced staff, lack of Because every market is unique, the specific steps knowledge or understanding of the market, and to be taken by facilitators or funders (some of whom limited financial literacy. Building sustainable and act as facilitators themselves) will vary from one inclusive financial markets will require building market to the next and will change over time with the capacity of these actors. Funders that work to the development of the market. Thus, this Focus promote financial inclusion can play a very useful Note is not intended to be a “how to” manual but role in tackling capacity challenges, particularly rather it sketches out, for illustrative purposes only, if they provide support in a way that facilitates three general scenarios for capacity building services the development of a capacity building services markets—little demand, weak supply, constraints market. This approach can benefit the whole resulting from inadequate supporting infrastructure or financial market as opposed to the more common a weak enabling environment—and the approaches approach of providing direct support to one or a that could be taken to facilitate the development of few actors in the market. such markets. This Focus Note builds on the ideas discussed in Why focus on capacity building of FSPs? There “Facilitating Market Development to Advance are two reasons. First, while all market players are Financial Inclusion” (El-Zoghbi and Lauer 2013) and 2 important to the development of a market, the addresses the capacity issues faced by retail financial fundamental basis for success of any significant and meaningful financial inclusion effort is the presence of sustainable financial service providers. Second, providers of capacity building services for FSPs can Box 1. What are capacity building services for financial service providers? become commercially sustainable. In contrast, a Capacity building services refer to activities that sustainable capacity building services market for strengthen the managerial and operational capacity poor consumers and/or policy makers typically of institutions. They include services that can help relies on long-term subsidies, either by government clarify an institution’s strategic vision, strengthen or donors. leadership skills, support managerial growth, develop and hone technical skills, streamline operational systems, improve organizational While there has been significant attention given to processes, and help with innovative work to develop capacity building of FSPs, too often support has led new products. No. 97 to inefficient delivery or has addressed those needs September 2014 Capacity building services may also be focused identified and prioritized not by FSPs but by funders. on individuals directly by improving leadership, managerial, and technical skills of individuals The market for capacity building services continues Mayada El-Zoghbi serving a particular sector. to be hampered by inappropriate subsidies that can and Kate Lauer Often capacity building is equated with training, distort the market. Specifically, such subsidies may but it is far more than this. Training is one method dissuade capacity building providers from trying to by which capacity can be strengthened, but other build sustainable businesses and may reduce FSPs’ mechanisms include secondments, coaching, consulting services, and higher education. interest and willingness to seek services without donor subsidies. 1 Examples include payment systems, credit bureaus, and collateral registries. 2 This paper identified capacity building as one of the key areas for a market facilitator and therefore may be useful background for this Focus Note. 2 What would a dynamic and adaptable market for in this particular society may have them. Efforts to capacity building services for FSPs look like? FSPs encourage financial institutions to serve women would (1) know what their capacity building needs are, may miss this fundamental problem. (2) have access to information about capacity building providers and their ability to serve the FSPs’ needs, Analyzing the market. Applying a market development (3) value the services that meet their organizational approach to capacity building services requires first needs and strategies, and (4) be able to afford those analyzing and understanding the demand for and services. Today, most capacity building markets do supply of capacity building services. A key element of not function this way. this analysis will include understanding the underlying incentives—both for FSPs to use such services and Using a Market for capacity building service providers to offer them. Development Approach A market development approach also involves understanding the constraints, which may be due to A market development approach focuses heavily inadequacies in the market support infrastructure or on diagnosing the underlying causes of a problem the enabling environment.4 rather than fixing only the symptoms and is therefore fundamentally different from “traditional” ways But who should undertake this market analysis and of delivering aid. Typically, aid programs identify 3 engage in the necessary data collection? It is critical a problem and deliver a solution that solves this that this work be done by those who are engaging in problem. As an example, let’s assume the problem facilitation: this is the means by which the facilitator we identify is women’s lack of access to savings becomes known to and trusted by the market actors services. A typical aid program would look for and acquires a deep understanding of the market.5 ways to deliver savings services to women: create savings groups, provide a grant or loan to a financial Nudging and making adjustments in a dynamic institution to offer savings services for women, or market. In addition to analyzing the problem—which train women on the importance of savings. This requires data collection and market analysis—and traditional approach focuses on providing savings analyzing how a market may evolve, facilitation services to women. involves “nudging” market actors to take certain actions. The tools used to nudge vary depending A market development approach would identify on market dynamics, actors in the market, and the the reasons women lack access to savings services historical precedent in the country. Because each by asking a series of “why” questions: Why do market is unique, over time the facilitator(s) will need financial institutions not serve women? If financial to adjust the interventions, the partners, and the institutions do not see demand for these services, expectations of how the market will change. why is there no demand? If women are offered these services, why don’t they use them? And The facilitation process can be roughly divided so on. The result of this analysis may reveal into the following stages: entry, trial and error, a completely different problem from the one crowding-in, expansion, and exit (see Figure 1). For identified originally. For example, it could be that example, let’s assume we are in a market where regulations require financial institutions to serve FSPs do not innovate with products tailored for low- clients with unique identity cards and few women income consumers. 3 The concept of facilitation has been addressed in other publications. See DFID and SDC (2008), El-Zoghbi and Lauer (2013), and Koh, Hegde, and Karamchandani (2014). 4 The term “enabling environment” refers to formal and informal rules and norms. This would include applicable law, regulations, industry standards, codes of conduct. 5 See El-Zoghbi and Lauer (2013). 3 Figure 1. The facilitation continuum Entry Trial and error Crowding-In Expansion and Exit evolution Market Adapt interventions to Ensure service is viable Work with early Analyze market needs of other actors commercially, document adopters to “crowd in” evidence of take up and crowding in Entry: The facilitator conducts the analysis and Crowding-In: The facilitator no longer is trying to discovers that the underlying problem is that most prove that consulting for product development works, FSPs do not undertake client research and then but is now working with a larger number of actors apply it to product development. In mapping the who can adapt their business to offer new product market, the facilitator sees that FSPs do not know design techniques. This second set of partners or appreciate that getting consulting support on may differ from the early adopters and may have a new product development can add value to their different set of challenges. For example, the capacity business. The facilitator also realizes that it needs to of this second set of partners to deliver services to show capacity building providers that there may be FSPs might be more limited than that of the early sufficient interest from FSPs to warrant investment adopters. The facilitator would need to address this into this product line. constraint before “crowding in” will occur in the FSP product development service market. Trial and Error: At this stage, it makes sense for a facilitator to work with FSPs and capacity building Expansion and Exit: As FSPs increasingly hire providers that are willing to use client research and capacity building providers for product development, product development services. These “early adopters” the facilitator once again needs to shift focus to are selected based on their having demonstrated an address remaining constraints to enable expansion interest in experimenting, the commitment—of both of the market beyond the partners with whom it has time and leadership—to undertake the work, and the worked so far. In this expansion phase, the facilitator resources to invest internally. The facilitator would may focus on interventions that could improve the broker a relationship between an FSP and a capacity information channels used by FSPs to learn and building provider to develop products relevant for hear about capacity building services. For example, low-income consumers. Depending on the capacity of during this expansion phase, the partner may be each of the actors, the facilitator may provide technical a trade association or other source of information support to one or the other or both. Once there is for referrals and information on capacity building some initial success with early adopters—both FSPs providers. Essentially this phase needs to cement the and capacity building providers—the facilitator will commercial viability and long-term sustainability of need to shift focus. the service. 4 As part of this final phase, the facilitator documents requires a high level of expertise at the capacity evidence of market actors responding to the set of building provider. But even consulting services have interventions used to crowd-in market actors. This degrees of standardization. evidence is used by the facilitator to demonstrate to stakeholders that interventions have yielded systemic The Harvard Business Review6 offers a framework that changes in market behavior, representing a clear captures three types of business models for traditional signal that the facilitation for this particular problem consulting service firms: the solutions shop, the value- is done and the facilitator should exit. added process business, and the facilitated network model. In the solutions shop model, the consulting Capacity Building firm is structured to solve complex problems by Services Types and Their delivering a high-caliber set of consultants that use Commercial Viability their judgment to solve problems. This type of service is not repeatable but is highly tailored and becomes The market for capacity building is broad: there commercially viable through a high-priced fee-for- are many different services that may have different service model. In the value-added process model, the constraints and opportunities. Table 1 provides consulting firm focuses on more standard business a simple typology of the services that are used to problems within a defined scope using more standard strengthen the capacity of FSPs and their staff. processes that can be controlled and repeated. Fees for this model are more modest and are linked to Understanding the commercial viability of each delivery of outputs. Finally, in the facilitated network type of service requires analysis of the underlying model, the exchange of products and services is business model for delivery of the service. Some facilitated among peers. Customers pay into the services require up-front development, but may network; the network pays the service provider. have broad use cases beyond one FSP and thus a more standard delivery approach. Standard training Experience to date has shown that supporting the courses on financial management, ratio analysis, development of a sustainable capacity building human resource development, risk management, or service provider that delivers standardized materials other similar topics that most FSPs require would is easier than developing a firm that provides highly fall in this category. While they may have high tailored services (see Box 2). At the same time, these development costs, these services can become providers must evolve to stay relevant, otherwise commercially lucrative quickly, provided that quality their services quickly become obsolete. is high, marketing is done right, and the provider has a good reputation. Other services, such as consulting Note that not all services can be commercially viable services, require tailoring at the firm level, which on their own. As in any business, some services may Table 1. Typology of services for capacity building Type of client/Format of service delivery Firm-level services Individual-level services Standard delivery approach •  Standard training courses •  Standard training courses •  Higher education Tailored delivery approach •  In-house training •  Coaching and mentoring •  Advisory/consulting services •  Secondment/Peer to peer 6 http://hbr.org/2013/10/consulting-on-the-cusp-of-disruption/ar/1 5 Box 2: Micra in Indonesia Markets with Little Demand for Services In 2006, Mercy Corps supported the creation of an organization to provide rating and consulting services to FSPs in Indonesia: Micra. Mercy If it appears that there is little demand for capacity Corps favored establishing a domestic player building services in a particular market, it is important to help keep costs low while building on local to understand why before embarking on a course expertise. Micra obtained an operating license of action to remedy the problem. Most often, the in 2007. main causes for limited demand for services are that From the outset, Micra had a guaranteed source FSPs (a) do not perceive a need for services, either of business: the government mandated that regional providers be rated. With 50,000 providers because they lack awareness of their own needs or operating in Indonesia, Micra has conducted they lack understanding of the market potential to over 465 ratings of 324 microfinance institutions expand offerings into new markets or (b) do not have (MFIs) and 600 assessments for the government program (in collaboration with M-CRIL). Micra built the funds to pay for such services, as is the case with its business model around a standardized rating many small FSPs. Others may be comfortable with product and priced its ratings at one-third of the their current scope of operation and the returns they price of international raters. earn from their current client base. Or, they may just The standardized methodology and the analytical be followers and not leaders in their industry. rigor of the ratings proved a useful training tool for building the capacity of young talent. This allowed Micra to introduce other services—research and Facilitation would always start with identifying those consulting—and slowly build its credibility beyond FSPs that could serve as the demonstration case and ratings. Staff “graduated” from the rating work potentially crowd-in others. In markets where the to performing other services; to avoid conflicts of interest, staff did not engage in both parts of the demand for capacity building services is low, the business (ratings and other services) at the same facilitator would need to help cultivate demand for a time. service for which the potential user has no awareness. However, Micra management found it challenging Facilitators can help FSPs diagnose their needs and to raise the level of the staff to be at the cutting craft capacity development plans that are aligned edge of the needs of the market. Micra relies on with their business plans and strategic vision. a combination of international experts and local staff to provide more specialized services, but it struggles with balancing highly skilled expertise and A facilitator can also cultivate demand by supporting local affordability. exposure opportunities, which in turn helps the FSP Source: Interview with Natasa Goronja, International Finance to understand where it may benefit from external Corporation assistance. These opportunities can come in many forms, including the following: emerge as “cash cows” while others may need to • Site visits. FSPs can be funded to visit similar or be part of a suite of services to be commercially more advanced markets to see how institutions viable. Some services, for example consulting have evolved over time. These visits often provide services, can help inform and lead to the demand a way for FSPs to visualize how the market may for other services, such as training and vice versa. develop in their own country. The more advanced Understanding the potential for commercial viability institutions can serve as a resource from which the of the service up-front is important and should be a FSPs can seek information and advice in the future. key driver in determining the intervention used by • Secondments. Funding senior or mid-level staff the facilitator. from FSPs to work onsite at more advanced FSPs 6 is especially relevant for FSPs in isolated or small the market development approach, the facilitator first markets where there is little competition from needs to understand and consider the underlying which to learn. Secondments for institutions that cause(s) of the problem, rather than the perceived participate in an international network are typically symptoms. Facilitators can help address the issues easy to arrange. through a variety of means. • Peer exchanges. Peer exchanges differ from site visits as the exchanges generally involve bringing In general, supply can be weak for one of the several peers together to address specific issues reasons noted below. For each, there is a discussion such as development plans for future growth, of possible solutions although the discussion is portfolio quality and default management, or for illustrative purposes and is not intended as a strategic planning and governance. Peers often replacement for sound market analysis. create support networks or communities of practice to continue their mutual learning. • Lack of knowledge or information about the • Consulting/coaching services. In some cases, FSPs needs of FSPs that serve low-income and poor can obtain exposure through direct consulting or clients and/or the value proposition for serving coaching services. Facilitation can be useful in the such FSPs (e.g., lack of incentives to enter the initial interaction—for example, helping the FSP to market). Facilitators can provide information to identify, select, and hire the service. If necessary, capacity building providers on the market potential the facilitator can provide a subsidy (see Box 3). of serving FSPs. Facilitators can provide direct temporary funding to capacity building providers Markets with Weak that do not yet perceive pro-poor FSPs as potential Supply of Services clients. For example, many microfinance or banking associations could offer capacity building services In some markets, there is a lack of supply of capacity to their members; supporting these associations building services that meet the needs of FSPs. Under by improving their knowledge of their members’ Box 3. Cultivating demand for executive coaching Exposure to services—especially those that are new financial inclusion (MFIs and networks, investors, and or not easily accessible—can stimulate demand. An international development agencies) to build their example of this is the Leadership Program offered by human and institutional capacity. During the workshop, Women’s World Banking (WWB), a global nonprofit managers and leaders identified areas for growth and devoted to giving low-income women access to development; the executive coaching supported financial tools and resources. The Leadership Program them over six months to hone their skills to address exposes senior managers and leaders in microfinance these development goals. WWB’s program provided to in-house training, executive coaching, and peer a partial subsidy for the coaching services; participants exchanges. WWB identified coaching as a potential were required to cover partial costs of the coaching area of focus through an analysis of FSPs’ development program and pay for travel to the initial workshop. needs. The analysis showed that coaching services were Following the initial coaching, participants began to new to most of the FSPs’ CEOs, and they didn’t perceive advocate for the service and to integrate coaching the value of the services. At the same time, research has within their professional development plans for their shown that the more senior a leader becomes, the more senior teams. Creative Metier estimates that at least she needs leadership development tools. 10 percent of participants asked and paid for coaching The coaching program began with a four-day themselves and examined how the service could be workshop and was followed by six individual coaching made available within their organizations, building sessions delivered by Creative Metier, a global relationships with local, regional, or global suppliers. capacity-building provider founded in 2006 and headquartered in the United Kingdom. Creative Source: WWB, Creative Metier, and interviews with Metier works with institutions committed to increasing participants. 7 needs for such services could enhance their service means that the full price of the capacity building delivery. service should be made transparent to the FSP. • Lack of willingness to invest in light of FSPs’ lack This enables the capacity building provider to of understanding of the value proposition. For signal the commercial value of the service and to capacity building providers that already understand eventually build a brand around these services. the potential of the pro-poor FSP market, there may still be weak supply due to their skepticism regarding • Lack of experience or capacity to meet the needs the possibility of garnering interest among FSPs. of the FSPs. Subsidies can be used to provide Facilitators can provide support to develop outreach technical assistance to capacity building providers or marketing that better articulates the value that lack the experience or capacity to serve the proposition to pro-poor FSPs. While this approach of specific needs of pro-poor FSPs. The facilitator working with one or more capacity building providers must decide whether to provide the subsidy to the (“picking winners”) has its limitations, it may also FSP(s) or the capacity building provider(s). Funding serve to crowd-in interest from other providers to an FSP will enable them to pay for capacity building enter the market. Additionally, facilitators may help services. But funding a capacity building service capacity building providers capture “change stories” provider is a surer means of getting the provider that can be used to demonstrate the effectiveness to improve the quality of its services. Improving the of their services to FSPs’ top management. This quality of services should (when such improvement requires that either the facilitator or the capacity is known by those who need the services) lead to building providers have a follow-on plan to monitor increased demand, which then can lead to new (and and measure progress long after their services have needed) services and innovative methodologies. been delivered. 7 • Lack of investment by capacity building providers Facilitators may consider funding a lead firm9 that in developing relevant services because FSPs are can deliver quality services to FSPs and capacity unable or unwilling to pay for them. Facilitators building providers alike. However, a decision to can temporarily provide subsidies to enable FSPs fund only one provider must be done carefully to access capacity building services and to select and must be based on the quality of the provider their preferred suppliers. This can be done using and its services. Support directed to only one progressive cost-sharing, with the FSP bearing an firm poses risks: distorting the market, reducing increasingly greater portion of the cost over time. providers’ incentives to develop materials, and However, on their own such subsidies will not unfairly eliminating market players. If supply is necessarily create a sustainable market for quality fragmented (i.e., there are many small and diverse capacity building services. Quality of services may capacity building service providers and quality is continue to be an issue if market standards are uneven), facilitators should try to avoid subsidizing unclear, unevenly practiced, or easily ignored, and content development for specific providers and FSPs simply seek the lowest cost service. 8 take actions that create a level playing field. While subsidies can be used to help FSPs pay for MicroSave, initially a project and now an international capacity building services, how these subsidies are financial inclusion consulting firm, is often used as delivered differentiates good from bad practice. an example of a successful capacity building service Subsidies should not distort market signals. This provider. Initially established as a facilitator to 7 It is good practice for service providers and FSPs to document changes together, establishing relationships between capacity building efforts and institutional development. 8 Addressing this issue requires additional and sometimes more costly measures to make capacity building interventions stick. These additional measures for FSPs may include coaching for senior leaders, peer learning for technical training, or working with in-house trainers. 9 Firm that has been selected by a facilitator as a partner with which to conduct a demonstration project. Lead firms are not necessarily the largest or the best in the market, but they are often those that exhibit some existing market advantage such as market share, leadership, or innovation capacity. 8 support the market for capacity building, MicroSave and the enabling environment are also critically worked directly with FSPs while also building the important. capacity of capacity building providers to provide these similar services over time. MicroSave presents Market support infrastructure. Supporting functions lessons for both what to do and what not to do when such as market information can be particularly facilitating market development for capacity building relevant to building a market for capacity building services. MicroSave succeeded in supporting many services. FSPs and capacity building providers, but in the process became a capacity building provider itself Information and research. Improving the availability, and decided to “exit” facilitation and register itself accessibility, and accuracy of market information as an independent company (see Box 4). and research on both the demand and supply side can help improve market dynamics. Information on Markets with Weak FSPs, trends in financial services, and gaps in service Support Functions and delivery are all important dimensions in helping Enabling Environment capacity building service providers recognize the potential of a market where their services can be Although the commercial viability of capacity building further developed. Such information can also help services for FSPs depends largely on the core supply- capacity building service providers make informed demand exchange, the market support infrastructure choices about technical and strategic content as Box 4. MicroSave exit from role as facilitator: Gain or loss? The MicroSave Project started in 1998 in Africa with demonstrate the value proposition of receiving high- support from UNCDF and the UK Department for quality service. International Development.a Its stated mission was “to However, in the process of working with FSPs “in the strengthen the capacity of financial service providers to laboratory,” MicroSave became a capacity builder for deliver market-led financial solutions.” As a facilitator, the African microfinance industry, rather than remaining MicroSave planned and implemented a well-thought- a facilitator. At the direction of its donors, MicroSave out business model based on articulating the value formally exited its role as facilitator in 2007 and started proposition of capacity building services to the market. to provide services directly to financial institutions Specifically, MicroSave supported the creation of beyond Africa on a commercial basis. The MicroSave capacity building providers for pro-poor FSPs. These completion report highlights this as a shortcoming in FSPs, which included Equity Bank, acted as laboratories MicroSave’s role as a facilitator, and MicroSave itself and demonstration vehicles for the rest of the industry. states that while it has profited as an organization, the Toolkits and resources for capacity building providers capacity building industry as well as many FSPs lost a were developed from working with partners and valuable resource. The report notes that a facilitator these were disseminated widely free of charge for must ensure the services and functions that it is created other capacity building providers to use. By 2007, to provide are ultimately delivered and purchased by MicroSave had significantly influenced more than 50 market actors rather than delivered by the facilitator FSPs globally that experienced business growth as and paid for by its donors. (See the “who does, who well as strategic and operational changes. pays” framework in Table 2.b) Several important lessons emerge from MicroSave’s experiences that are relevant to funders seeking to CGAP joined in 2000; the Austrian Development Agency and a.  the Norwegian Agency for Development Cooperation both support building markets for capacity building services. joined in 2003. The project also received funding from the The MicroSave experience shows how a facilitator Ford Foundation. can effectively create the market for capacity building Using such a framework is useful to diagnose who is delivering b.  services by working with both FSPs and emerging and who is paying for services over time, making the market capacity building providers. MicroSave created public facilitation role much more visible early in the process. goods, enabled FSPs to directly engage with capacity Source: MicroSave Project Completion Report (April 2008); building providers, and documented case studies to Graham Wright, Managing Director, Microsave 9 Box 5. CGAP courses and networks From 1996 through 2008, CGAP invested in a core partners adjusted the course materials, developed set of courses to help (a) build the capacity of MFIs their own content, and expanded their services to and (b) improve and standardize the quality of MFIs. However, some partners struggled to offer training on several operational microfinance topics, quality courses and to evolve over the long-term in including financial analysis, interest rates, business plan response to the challenges of managing commercial development, and delinquency management. These operations. During the life of the training initiative, courses were delivered through certified training CGAP required that the training partners offer the institutions in Africa initially, and later in Asia, Eastern courses with cost recovery. This was extremely Europe, Middle East/North Africa, and Latin America. challenging and represented a unique approach at The institutions selected by CGAP as training partners a time when many donors and others were offering included private companies, training institutes, and fully subsidized courses including travel, per diem, and MFI networks. Most training partners had already been lodging for training participants in Africa and other offering training services and viewed the CGAP courses regions. To help expand the reach of the training as an opportunity to expand their offering. Over the initiative, after eight years of offering the courses, 12 years of the initiative, more than 45 partners offered CGAP made the course materials publicly available in the CGAP courses in multiple languages. English and other languages. CGAP initially developed these courses in 1996–1999 While the CGAP courses had been effective in based on surveys of MFIs and training providers, creating a focus on training by the training partners both of which identified priority topics where MFIs and improving their credibility as valuable service were struggling with their operations. When working providers, these courses were insufficient to serve with the selected training institutions, CGAP also the commercial needs of such providers. The training provided training of trainers, workshops on course partners needed to continue to innovate and develop design, and ongoing workshops and coaching on their own content. Many lacked the capacity to do improving the quality of trainings and developing so, and the support they received did not help them follow-on technical assistance. Several global training identify new content and develop it commercially. well as their business development strategies, value Curriculum development. For some technical topics or proposition in the market, and relationships with issues, training may be a desired delivery mechanism clients. Information on services can help FSPs assess for improving capacity. But capacity building the value-for-money of capacity-building services, to providers may not have the sufficient knowledge identify and select among service providers, and to or expertise to develop training materials on these understand services that they may not even be aware topics. To spur the development of training services, exist. facilitators may want to invest in creating curricula to help capacity building providers learn about issues Often, this information and research is not available that they are currently not addressing in their services (or accessible or accurate) due to the costs involved (see Box 5). These materials can be made publically in gathering and disseminating the information. accessible to any provider or individual interested in In general and in the financial inclusion space, acquiring them. knowledge is a public good.10 Thus facilitators can play a critical role (similar to the role of the state11) Enabling environment. The market for capacity in providing access to reliable and accurate market building services for FSPs is typically not heavily information. regulated although it can benefit from certain quality- 10 A public good has two critical properties: (i) the consumption by one individual does not detract from availability and consumption by another (“non-rivalrous consumption”) and (ii) no individual can be excluded from enjoying the good” (Stiglitz 2007). 11 “The central public policy implication of public goods is that the state must play some role in the provision of such goods; otherwise they will be undersupplied” (Stiglitz 2007). 10 control mechanisms, including industry standards, in other providers to enter the market or improve certifications, and codes of conduct. the standards by which others in the market must compete. However, working with a lead firm can Industry standards. Supporting the establishment of provide the firm with an unfair advantage. Facilitators industry standards can eventually lead to improved should structure partnerships with lead firms to quality of capacity building providers. Industry mitigate this risk. The subsidy should be limited in standards help establish a common understanding as duration and size, and the firm should also invest its to what constitutes quality standards. They can help own resources in the new business. The arrangement differentiate capacity building providers that apply should also specify that the lessons learned from the the standard from those who fall short. Standards lead firm will be made publicly available. can accelerate competition among providers in a market and improve transparency around the type Sustainability. Supporting a sustainable market and quality of capacity building services offered, requires thinking beyond the delivery of a one-time which can lead to both improved quality and lower capacity building service. Regardless of whether costs for FSP clients. Facilitators can work with trade a firm is for-profit or nonprofit, it should be able associations to develop the standards by facilitating to cover its operational costs, invest in developing dialogue among capacity building providers and by new services to remain relevant in the market, and documenting the standards, making these accessible provide high-quality services that are relevant to the through public forums. emerging needs of pro-poor FSPs. Certifications. In some instances, industry standards Guidance from the Making Markets Work for the may be insufficient on their own, and certification Poor framework (DFID and SDC 2008) promotes of attainment of a specific level of quality of the use of two important questions—“who does?” performance is required. This may be needed, for and “who pays?”—to help facilitators design example, if FSPs have had poor experiences with interventions that will promote the development of a the existing set of capacity building providers and sustainable market. For the future, facilitators should there is a need to signal that these providers have envision what the end state may look like in a better made significant investment to upgrade the quality functioning market by answering these questions of service. Certifications may also be relevant in some for each function. See Table 2 for an illustration of cultures where this is the norm among professionals. a sustainability analysis in a hypothetical market. The entity providing the certification would need to In other markets, facilitators could envision other be a recognized body in the country. scenarios for the future. Codes of conduct. Codes of conduct serve as a Leadership and human development. Ultimately voluntary mechanism for signatories to agree to a large part of capacity building is about human adhere to specific practices. Typically codes of development. At both the FSP and the capacity conduct are established through a recognized body, building provider level, leadership and vision such as a trade association. Facilitators can support are needed to create the right environment for a trade association to establish codes of conduct if individuals and institutions to advance and, of this would improve the value proposition of capacity particular importance to financial inclusion efforts, building services to FSPs. to innovate. This means that facilitators should seek partners that have or demonstrate the potential to Important Considerations have strong leadership that understands the need to for Market Building invest in their human resource capacity. The lead firm advantage. Working with a lead firm is Beyond leadership, capacity building providers must often the most appealing and effective way to crowd also develop their own staff to respond to the needs 11 Table 2. Illustration of sustainability analysis for training courses Current Situation Future Vision Functions Who does? Who pays? Who does? Who pays? Curriculum Regional training Overhead charged development network on training delivery Training of trainers Universities Overhead charged and refresher courses on training Marketing Private training Overhead charged NGO/facilitator Donor provider on training Course delivery Training registration fees Updating of Profits of training curriculum provider Source: Adaption from DFID and SDC (2008) of the market. This can be difficult when the pool over time. Markets where the demand already exists of staff from which to draw has limited exposure to but where the quality of the supply is weak require financial inclusion issues. Capacity building providers a different approach. In those markets, facilitation must provide the opportunities for their staff to gain needs to diagnose the specific constraints that expertise in areas in which they themselves may have prevent the capacity building providers from never worked in the past. understanding and meeting the demand and then design interventions that help address those Conclusion constraints. In some markets, the constraint or the opportunity involves the market’s supporting Facilitating a market for capacity building services for functions (such as information) or the norms and FSPs requires actions and interventions based on the rules in the market (such as strengthening standards specific market’s dynamics. In particular, facilitators or codes of conduct). should understand the players—capacity building providers and FSPs—and the players’ knowledge and The instruments or interventions used in the process understanding of each other. Do the capacity building of facilitation—such as subsidies, information, and providers know about pro-poor FSPs, their needs, peer exchanges—are all meant to be temporary and and the value proposition of servicing them? Do the to prompt reactions from the market and the actors FSPs understand their own capacity issues and the within it. possibility of increasing capacity through engaging a capacity building provider? Do the FSPs know who Using a market development approach can benefit the providers are and how the services they offer the whole financial market as opposed to the more may be valuable? Are there industry standards that common approach of providing direct support to one apply to the capacity building providers, and if so, or a few actors in the market. Today, vibrant capacity is compliance with such standards transparent and building service markets are few and far between, meaningful in the market place? often because of the persistence of poorly delivered donor programs that subsidize the delivery of capacity Facilitation can take place only if there is an building services, reducing the incentives for capacity understanding of the market actors and market building providers to commercialize these activities dynamics. Markets with weak demand require and reducing the likelihood that FSPs pay for these interventions that help FSPs identify and learn from services themselves. Nonetheless, in the cases where more advanced markets where their institution this approach has been used, the outcomes are more needs strengthening. 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CGAP 1818 H Street, NW MSN P3-300 Washington, DC 20433 USA Tel: 202-473-9594 Fax: 202-522-3744 Email: cgap@worldbank.org © CGAP, 2014 The authors of this Focus Note are Mayada El-Zoghbi, senior thank Abigail Buktus, Estelle Lahaye, Joanna Ledgerwood, microfinance specialist, and Kate Lauer, CGAP consultant. Olga Tomilova, Peter McConaghy, and Kate McKee for their The authors thank Heather Clark and Antonique Koning for thoughtful review and comments. their research and significant contributions. The authors also The suggested citation for this Focus Note is as follows: El-Zoghbi, Mayada, and Kate Lauer. 2014. “Facilitating the Market for Capacity Building Services.” Focus Note 97. Washington, D.C.: CGAP, August. Print: ISBN 978-1-62696-052-7 epub: ISBN 978-1-62696-054-1 pdf: ISBN 978-1-62696-053-4 mobi: ISBN 978-1-62696-055-8 UKa from the British people