Understanding the Financial Market System

For any organization involved in financial market development—for-profit companies, NGOs, governments, investors, donors, and other development practitioners—an understanding of the financial market system is important when considering their objectives and roles.

Building on a detailed understanding of market systems and a clear vision of the future of financial inclusion, the market systems approach guides stakeholders to address systemic constraints and bring about large-scale, sustainable change.

It is through the development of inclusive and sustainable financial market systems that financial services will make a meaningful difference in the lives of poor people and promote economic growth.


The financial market systems framework recognizes how different players fit within the system, including their main functions and the relationships between them. Although the central function in market systems is to provide a space for transactions, the nature and efficiency of those transactions are shaped by formal and informal rules and a range of supporting functions.


While supply-side factors (offering financial services) are crucial to making the financial system work better for the poor, achieving this goal is more complicated than a straightforward equation of supply and demand; it involves the many other functions that influence transactions—attitudes and values, skills, product and organizational development, regulations, and policies. These provide information, knowledge, and incentives that determine behavior and practices and shape relationships.


The players in the system thus extend well beyond the “simple” duopoly of clients and providers to include government, private sector service providers, associations, and communities. When the functions and players in financial market systems work well, benefits follow. When they do not, consumers, especially the poor, are likely to receive limited or temporary benefits.


Sustaining the benefits of access depends on the stability of the financial system and its ongoing ability to provide services and, indeed, ensure that people’s savings are not put at undue risk. A functioning and inclusive financial market system, therefore, is characterized by strong and sustainable performance—demonstrated by size and outreach (number of clients and number and variety of providers), depth and quality (poverty level and degree to which products meet client needs)—and the capacity and competence of rules and supporting functions, allowing the market to learn, adapt, and develop in a sustainable manner.