Co-Author: Amanda Kee
4 min read
Inclusive Business (IB) is a novel concept in Asia, but highly relevant. Aiming to catalyse social impact in a financially viable way, it provides opportunities for private and public sector players to work alongside communities at the bottom of the pyramid (BoP) to enable sustainable livelihoods for all.
For the BoP, IB models offer income generation opportunities above the market rate and/or expand access to essential goods and services. Likewise, for companies, IB models not only offer higher-profit business and investment opportunities, but also greater visibility as a member of the community. It is also a chance to access new markets and foster innovation. This is promising for governments as IBs make economic growth more inclusive for the BoP on a systemic level. By stimulating job creation and addressing essential needs of the poor at scale, IBs can lift people out of poverty.
Four key questions to assess whether a market is primed for IB growth are:
- Where are the employment opportunities for those at the base of the pyramid?
- Are there any exemplary IBs paving the way in the market?
- Who are the important players and networks that you should know?
- Does the market provide an enabling ecosystem through its policies developments, intermediary activities, and more?
Here is our assessment of 6 markets in Asia that are paving the way for inclusive business.
As the poorest country in Southeast Asia, Cambodia presents a great opportunity for impact investors and corporates looking to explore IB models. Despite great strides in poverty reduction in recent years, the Asian Development Bank estimates that almost 70% of Cambodians still live on less than $3.20 a day. A 2019 landscape study by UNESCAP and IBAN identified 20 real and potential IBs in the agribusiness, insurance, microfinance and energy services. Given the necessary support, these IBs have the potential to create 100,000 new income generating activities and provide housing and related services to 70,000 low-income households.
A leading IB in Cambodia is Amru Rice – a miller and milled rice exporter working with 60 agricultural communities and more than 10,000 families under contract farming schemes. In 2019, Amru Rice signed a $10 million loan agreement with the International Finance Corporation to expand warehousing and organic rice milling facilities and purchase paddy (unmilled rice) from farmers. Another leader in the space is Solar Green Energy, which brings affordable solar energy solutions to rural residents and educates rural communities on renewable energy solutions.
In August 2019, the first Inclusive Business Forum for Cambodia was organised by the government, UNESCAP and iBAN. In this forum a preliminary IB strategy, Inclusive Business Enabling Environment for Cambodia (IBeeC), was introduced, with a focus on creating a technical assistance facility to build the capacity of potential and existing IBs. Plans are also underway to establish a national accreditation system for IBs as well as a risk-reduction fund to facilitate impact investment. This fund is likely to be supported by the Ministry of Economy and Finance under its new SME Bank and/or the Entrepreneur Development Fund, minimising the volatility associated with investing in such a nascent space.
Indonesia has the biggest BoP market in Asia, second only to China. This presents a market opportunity of over USD 120 million or 49% of total national consumption. In a country where agriculture contributes to almost 14% of its GDP growth, it’s not surprising that more than half of the IB models in Indonesia are agribusinesses.
A prominent example is Nutrifood. Nutrifood is an innovative company that manufactures and markets international-quality health foods and beverages under leading brands. It collaborates with communities in spreading the practice of healthy lifestyles, implementing eco-friendly business practices and empowering youth to be leaders.
Smaller IBs are aplenty. Vasham, which assists smallholder farms with financing, technical expertise and income security, has created a vertically integrated agribusiness model that can be replicated by smallholder farmers. Outside of agriculture, wellness and tourism are other areas to which the Indonesian government wants to direct more IB resources.
An enabling policy ecosystem is also taking shape to promote IB in the archipelago. In April 2016, the government set up the IB and Innovation Task Force to explore IBs in the agri-commodity sectors of onion, chilies, fisheries, and forestry. In the absence of dedicated IB legal frameworks, strong CSR laws and requirements have been implemented to encourage greater disclosure of corporate environmental, social and governance performance. This provides a framework and stepping stone towards developing IB policies.
Some ecosystem enablers include New Ventures Indonesia, which supports the development of dynamic environmentally-sustainable and socially responsible small and medium enterprises.
In collaboration with Instellar, DBS Bank Indonesia will host a four-month long SE Bootcamp 2019 programme, titled ‘Strategic Finance for Scaling Up Impact’. This initiative will build the capacity of social entrepreneurs and increase their business impact through social innovations. At the end of the programme, two social entrepreneurs with the best performance during the programme will have the opportunity to win DBS Foundation – Instellar Social Impact Prize worth SGD 20,000.
With one third of the population living below the national poverty line, Myanmar is the second poorest country in Southeast Asia, after Cambodia. IB is therefore being considered by the government as a means to address poverty and enhance collective economic growth. Given the nascent market, IB opportunities in Myanmar lie largely in agribusiness, finance, education, energy, health, housing and trade.
One company reflecting IB principles is New Hope Group – a Chinese conglomerate that supplies agricultural products to improve the productivity of 50,000 farmers. Grow Asia a Singapore-based partnership platform, has set up the Myanmar Agriculture Network in collaboration with the Ministry of Agriculture, Livestock and Irrigation of Myanmar to improve the competitiveness of the country’s agricultural sector and enable sustainable livelihoods for its farmers.
Intermediaries like UK-aided DaNa Facility are playing a catalytic role to kickstart IB growth by rolling out advocacy campaigns and setting the foundation for strategic frameworks. DaNa Facility is working with 10 IBs that have scalable business models in the sectors mentioned above, and international and local players are also eager to take advantage of emerging market opportunities, start new businesses and innovate. Three recent outcomes of DaNa Facility’s engagement in IB in Myanmar include a report on the potential for IB in the country, an IBChallenge done in partnership with Myanmar Young Entrepreneurs Association, and a US$1 million investment in collaboration with Yangon-based startup incubator Phandeeyar to develop the IB ecosystem.
Amongst Southeast Asian markets, conversations around inclusive business are most mature in the Philippines. The Philippine government has identified IBs as a strategic imperative for industry support programmes. The government’s IB agenda, led by the Board of Investments (BOI), provides financial incentives for IB models in agribusiness and tourism. The BOI has also introduced capacity-building programmes for companies to start adopting IB models. As a result, since its introduction, 5 IB models in agriculture and tourism have been approved and collectively target to source $55 million worth of goods and services from MSMEs.
An interesting trend noticeable in the Philippines is the growth of women-led IBs demonstrating women’s financial inclusion and independence. Hapinoy empowers the marginalized, last-mile micro-retail sector of the Filipino economy by fostering inclusive distribution channels and business strategies. Concentrating on village mom-and-pop stores, owned mostly by female micro-entrepreneurs, Hapinoy provides small business owners with the tools to grow their businesses sustainably through training and education, leadership development, access to capital, as well as new business opportunities.
There’s also high awareness for IBs within the business community. Jollibee Group Foundation (JFC), the corporate social responsibility arm of Jollibee Group Corporation , one of the largest food service companies in the Philippines, is a large player in space. As part of its Farmers Entrepreneurship Programme (FEP) JGC trains smallholder farmer groups on agro-entrepreneurship. By building the farmers’ capacities to supply vegetables that meet the standards and requirements, JGC is able to meet some of its daily need for raw ingredients from its smallholder farmers. It does all this while ensuring the farmers themselves make a profit. Since 2008, FEP has trained more than 2,000 farmers, 600 of which are directly delivering to JFC commissaries or stores through 15 farmer cooperatives. Watch this webinar to learn more!
Ecosystem enablers in this space include BagoSphere, a social enterprise vocational training company, that trains highly motivated, rural BOP youth to become employed in call centers, increasing their incomes fourfold.
Poverty in Thailand is primarily a rural phenomenon, with over 50% of the country’s 7.3 million poor living in rural areas. An additional 6.7 million live within 20% above the national poverty line, remaining vulnerable to falling back into poverty. Despite large communities within the BoP, the actual market opportunity for IB is relatively smaller than other markets in the region, owing to the smaller size of the low-income market as well as strong government programmes for the poor. The Thai government has developed an active social enterprise promotion policy that provides strong funding for social enterprise initiatives. In 2018, 3 million MSMEs in Thailand created employment for 14 million people and contributed to 43% per cent of the country’s GDP.
Large corporations, with growing interest in sustainability related opportunities, are also engaging in CSR activities that have the potential to become IBs. A recent landscape study identified 20 companies, including Mitr Phol, that can be labeled as IB models. Mitr Phol’s Productivity Village supports more than 370 sugarcane growers and other stakeholders across 6 communities by analysing farming problems and identifying ways to resolve them. With the right technology, the farmers’ productivity has also increased from an average of 7-8 tons per rai to 10-15 tons per rai, where rai is a unit of area equal to 1,600 square metres. This has uplifted profitability by around 3,000 – 5,000 baht per rai. Cargill, similarly, equips more than 1,500 farmers in it’s Thai supply chain with agricultural technical knowledge and training. To support rural families around the company’s facilities, Cargill also works with local partners such as Save the Children Thailand to create nutrition initiatives for school-aged children and has been providing clean drinking water stations in schools
Ecosystem players are also sophisticated in their practices to support social enterprises. ChangeFusion is encouraging young people to take the lead in Thailand’s social sector work. Local Alike, one of the IBs it has incubated and supported, promotes community-based tourism to preserve local culture while providing economic opportunities to over 50 communities across Thailand. Youth in these remote communities have been engaged to operate sustainable tourism programs.
Embarking on your IB journey can be difficult as it demands a degree of intentionality that often seems counterintuitive to mainstream investment norms. Whether you are an SME or large corporation, learn how you can start engaging with IB best practices here. To take deep dives or compare between the different Asian markets and their respective social investment opportunities and challenges, explore the AVPN Social Investment Landscape Toolkit.
12% of the population in Vietnam live on less than USD 3 a day; around 67% lives on less than USD 5 a day. IBs, particularly in agribusiness and the seafood industry, hold great potential to support these communities.
In recent years, IBs have started to bloom in various sectors. Despite being generally small in size, their presence is felt beyond local borders. CricketOne is a cricket powder manufacturer that has not only trained local communities to harvest crickets sustainably, but it is also exporting its products to eight countries at a competitive price point. Rikolto, on the other hand, works with rice farmers to test innovative practices and builds evidence, working with research and finance institutes, private companies and other actors to help answer crucial questions in the rice sector – sustainability, quality and inclusivity.
Multinational corporations are also engaging IB models in Vietnam. Covestro is one such example. Headquartered in Germany, Covestro’s projects are mainly in solar energy. By using a solar dryer dome that preserves the shelf-life of commodities and thus reduces post-harvest loss, Covestro hopes to improve food security and bring more sustained positive income outcomes to farmers.
The Vietnamese government has recognised the potential that IBs presents and is developing an IB component to its SME promotion policies. Ecosystem enablers are also active in the field. For example, the Vietnam Business Council for Sustainable Development has formed a Working Group on IB that gathers leading multinational businesses to drive awareness- raising activities in IB. The Centre for Initiatives Promotion is supporting emerging social entrepreneurs and runs impact investment programmes that provide capital seeding, training and coaching, and connections with investors. In 2018, ADB conducted a scoping study of 100 companies, private equity firms and other key stakeholders in Vietnam found that 93% of these companies would be interested to finance IBs and identified financing needs of up to USD 10 million.