Why IBs are Interesting Opportunities for Impact Investors

Date

November 15, 2019

Co-Author: Roshini Prakash

5 min read

Impact investing is growing in Asia, but identifying investable opportunities that align with your mission as an investor can be trying. The Inclusive Business (IB) sector presents a unique opportunity to address this challenge.

Inclusive businesses are for-profit organisations that deliberate incorporates the base of the pyramid in their value chains, providing sustainable livelihoods and enabling profits in the same effort. The largest sectors in Asia are Agriculture, Wellness and Tourism and Waste Management.

Adoption or even awareness of IB models and language in Asia are only now beginning to take root. Despite the nascency of this space, strong examples of success exist and make a compelling case for further investment in this space.

Here’s why you need to tap into IBs:

Contribute to breaking the poverty cycle

Nearly half the world’s poorest people reside in Asia, with 400 million living in extreme poverty on under USD 1.90 a day and 1.2 billion people living on under USD 3.20 a day in the Asia-Pacific region. Large communities of skilled and resourceful workers are unable to achieve breakthroughs in their financial situations. They are at the mercy of weather conditions and market demands. Given the unpredictability and uncontrollability of these forces, there are often long periods of time when they are completely unproductive.

IBs are built on the fundamental goal of engaging those that are largely ignored by mainstream economic and formal production flows.

By providing alternative livelihoods through “off-peak” job opportunities or training in innovative techniques, IBs help workers diversify and expand their productivity for financial gains.

Phitrust is an investment company dedicated to financing and supporting projects with high social impact in Southeast Asia. In May 2017, it provided a convertible loan to Krakakoa to help it expand its business. Today, Krakakoa has developed the first premium, fair trade and organic bean to bar Indonesian chocolate. It is also engaging 300 farmers in training and development to help them diversify their crops, thereby doubling their income. Read more about founder & CEO Sabrina Mustopo and Krakakoa here.

Catalyse systemic impact through partnerships

Partnerships have been proven powerful in driving change at scale, and corporates like Cargill and Jollibee Food Corporation (JFC) are role models in how this can be achieved.

When they initiated a joint USD235 million venture to open C-Joy, Philippines’s largest poultry processing plant, they aimed to not only expand Cargill’s supply chain business, but also to meet consumer demand for JFC brands. This effort provided local poultry farmers numerous job opportunities and training in best practices, such that in 2018, C-Joy contributed USD130,000 (USD) to further support Filipino farmers in becoming more successful through the Inclusive Business Capacity Building Fund. As a validation of its efforts to impact the community, C-Joy was accredited as an inclusive business by the Philippines Board of Investments, making it eligible for benefits including a five year income tax holiday. C-joy’s operations continue to grow and it has recently partnered with DoubleDragon, a real estate development company to expand its industrial facilities across the Philippines.

Align your personal values with your business activities

IB approaches and activities can also be incorporated within business activities, allowing you to live your values and demonstrate them to the market.

Golden Agri began its inclusive business journey as a corporate who was responding to its clientele demand for sustainable investment products. This demand led them to engage farming communities in West Kalimantan to maximise their land-use. In the past, results from across 10 villages showed that farmers were not able to earn anything during off-seasons. By diversifying their crops, however, they were no longer limited by harvesting cycles and could take full advantage of their agricultural land. In 2016, these farmers could sell their crops and earn a monthly income of INR 50,000 (SGD 50). Moreover, GoldenAgri was able to ensure their sourcing options were compliant with sustainability laws by educating these farmers on the environmental and financial detriment of slash and burn methods.

Another approach comes in the form of sustainable products that leverage innovative technologies. Hamona is a Vietnamese company that harnesses the power of technology to naturally preserve coconuts and retain their flavour for longer periods of time. As consumer demand for coconuts spike and wane across the seasons, preserving coconuts in a natural way allows Hamona to buy from farmers regularly regardless of market demand. As a result, farmers are motivated to plan their agricultural activities over the course of the year to meet their desired profit outcomes. In this way, Hamona ensures both higher productivity alongside more attractive products, thereby expanding their international market presence.

Developing your success story

To make the most of the opportunities in the IB sector, you need to take stock of your operations. How ready are you in becoming an IB or partnering with one? Depending on your level of readiness, find out how you can start incorporating an IB framework in the work that you do.


About Author
Sangeetha Watson
Sangeetha Watson Senior Knowledge Associate AVPN

Sangeetha Watson is a Senior Associate with the Knowledge Centre.

Prior to joining AVPN she worked at the Centre for Biomedical Ethics at the National University of Singapore (NUS) doing qualitative research on matters relating to pandemic preparedness and genetic data-sharing. She hopes to empower marginalized communities and support participatory models of development through research and knowledge production. She loves learning about people, ideally over a cup of coffee or chai.

Sangeetha holds a BA in Sociology from the National University of Singapore and an MA in Global Development from the University of Leeds.