Co-Author: Roshini Prakash
5 min read
This article was originally featured on Philanthropy Impact.
The base of the pyramid (BoP) comprises 4 billion people living on less than USD 6 to USD 8 per day. Half of them live in Asia. They often lack income opportunities and access to basic goods and services, like water, food, healthcare or electricity.
This BoP, at the same time, offers a USD220 billion market opportunity that companies can access by embracing an Inclusive Business (IB) model or approach. These IB models have the potential to unlock 1.8 million income opportunities and support over 70 million at the BoP by 2025.
What are inclusive businesses?
Inclusive businesses are business entities that:
- Improve access to goods and services for the BoP, and/or
- Provide income and/or employment opportunities to them as producers, suppliers, distributors, employers, and/or employees;
- Must be commercially viable, and can be a stand-alone business entity or a business operation of a larger business entity;
- Differ from traditional businesses that look at financial bottom-line returns, by combining financial return and growth expectations with relevant social impact;
- Differ from Corporate Social Responsibility (CSR) which tends to be part of peripheral activities of a corporation’s core business. However, when linked to core business, CSR becomes an effective pathway toward the development of IB models.
The importance of impact investment in the IB sector
While impact investors are leveraging IB models to scale impact, actual numbers are still small as the IB ecosystem is still in a nascent stage. Impact investors are not familiar with the market and perceive higher risks in engaging doing business at the BoP. Furthermore, impact investment is typically more common for seed-stage funds, but there is a growing need for impact investment in larger ticket sizes, such as early-stage social purpose organisations that are often too small to be funded by mainstream investors.
Impact investment has the potential to close the financing gap in the market by providing funding while generating competitive financial returns, and scale the invested company through capacity building. There have been great successes in Southeast Asia, leveraging diverse investing practices to maximise impact and solve social issues.
Successful case studies in Southeast Asia
1. Who: LGT Venture Philanthropy (LGT VP) is a global impact investor supporting organizations with outstanding social and environmental impact.
What: It supports portfolio organisations through a combination of tailored financing, business and management know-how, and access to relevant networks.
How: Kennemer Foods International Inc. (KFI), a for-profit social enterprise in the Philippines, empowers smallholder cacao farmers by increasing the yield and income of their farms by as much as 4 times, and aims to integrate 35,000 farmers into its value chain by 2020. LGT VP supports KFI by being a shareholder and leveraging its network of contacts to help grow the business.
2. Who: Jollibee Food Corporation is the largest food service company in the Philippines.
What: It is integrating small farmers in its supply chain, and in doing so is promoting rural development while meeting its daily need for raw ingredients.
How: 23% of the corporation’s daily raw vegetable need is met by smallholder suppliers, who also comply with quality standards. Furthermore, the corporation’s foundation set up the ‘Farmers Entrepreneurship Program’, enabling small-scale farmers to receive education and structured vocational training in farming, as well as access to institutional markets.
There is huge potential for growth and development within the IB ecosystem. Capital providers can identify new market opportunities and best practices to integrate impact into their core value proposition; Social enterprises and intermediaries who are looking to gain financial access for poverty alleviation can also be connected with impact investors, policymakers and businesses.