Promoting Inclusive Markets and Financial Systems
Key Findings and Recommendations:
Populations facing fragility often have limited trust in financial institutions and low risk tolerance : FASA have lower rates of formal salaried employment (on average 12%) equating to high informality and income insecurity, which effects household consumption and production decisions. This results in a need for a wide-range of financial services to build assets, manage risks, and smooth consumption. In fragile situations, individuals often become more risk averse and invest less. Commercial actors can find it difficult to find entry points for investments.
Fund promising trends for finance in FASA: The document advocates for investments in ID solutions and ‘fit for purpose’ regulations and seven promising trends:
Market segments: (1) Islamic finance and (2) solutions for refugees and displaced populations
Financial delivery channels: (3) impact investing and (4) payments and remittances infrastructure
Financial products and instruments: (5) inclusive insurance, (6) liquidity funds and credit guarantees, and (7) diaspora investment platforms.
Market System Solutions are Still Relevant: While each FASA situation is unique and complex, using a market systems approach is an opportunity for donors and development actors to adjust tactics but adhere to several key principles: think long-term, do not ignore the informal sector, ensure a positive business case, carefully sequence interventions, and utilize a diverse package of smart aid instruments.