Inclusive Business Policies

Crucial to Overcoming Barriers and Scaling Innovative Business Solutions

Governments have an important role in scaling up IB through the development and implementation of enabling environments for the development of inclusive business models.

The good news is that globally, there is an increase in supportive policy action on inclusive business.

2017, for example, ended with significant momentum on inclusive business policy as the G20 announced that the 2018 G20 agenda will include inclusive business as one core thematic area. Recent policy reforms in Asia show the strong political will to spur inclusive growth and improving the lives of the poor and low-income population. In November 2017, the ministers of the Asia-Pacific Economic Cooperation (APEC), in a joint-statement encouraged economies to promote inclusive business. Also, the leaders of the Association of Southeast Asian Nations (ASEAN) acknowledged the strong support for inclusive business by its member states and called for greater emphasis on creating an enabling environment for inclusive business in ASEAN, among others through conducive rules and regulations. Earlier in 2017, the Philippines, ASEAN Chair for 2017, implemented the first fiscal incentive scheme explicitly for inclusive business in the country.

Countries in the European Union and the EU support inclusive business through their overseas development aid programmes. This momentum is significant and is a clear indicator that policymakers globally aim for enabling environments for inclusive business, so that the lives of people living at the base of the pyramid will improve.

According to the G20 Inclusive Business Framework, “Inclusive businesses provide goods, services, and livelihoods on a commercially viable basis, either at scale or scalable, to people living at the base of the economic pyramid (BoP) making them part of the value chain of companies’ core business as suppliers, distributors, retailers, or customers. In addition to these commercially inclusive activities, businesses may also pursue broader socially inclusive goals. Inclusive business should promote sustainable development in all its dimensions – economic, social and environmental.” The G20 Inclusive Business Report for the 2016 Summit explains that inclusive businesses do thereby contribute to the Sustainable Development Goals in several ways. IB can reduce poverty, shrink inequality, and contribute to sustainable economic growth. The two main reasons why IBs have difficulties to scale their business are a lack of financing and capacity among the BoP. Other obstacles are a shortage of market information and sector-specific frameworks. Pioneering companies implement IB models to tackle these problems. However, government support can increase the impact even more. This can be done by enabling inclusive businesses to enter and operate in the market, supporting them to integrate the BoP into their value chains, and empowering the BoP themselves to participate in value chains.

Many countries have already recognised the potential of inclusive businesses as resources to leverage private-sector development and simultaneously help the poor.

Framework

Government support is crucial for the widespread adoption of inclusive business. The following thematic areas of contribution have been identified in the G20 IB Framework to support the development of an enabling environment:

1. Establishing conducive rules, regulations and definitions

The aim is:  

  • to review existing regulations that limit BoP participation in market activities by creating legal frameworks for the market participation of the BoP; 
  • to embed pro-poor targets into government contracts by facilitating public-private partnerships and concessions; and 
  • to introduce appropriate regulations for IBs by developing legal frameworks for businesses with a social mission. 

More information on these policy instruments can be found here.

2. Enhancing access to financial resources and providing financial incentives

Conventional finance providers often lack adequate financial products for inclusive businesses and their customers. Therefore, G20 aims to improve access to financial resources for the BoP by implementing end-user subsidies, insurance programmes, and credit facilities. In order to enhance access to finance for IBs and to provide financial incentives, the following products can be implemented: challenge funds and matching grants, public procurement, priority lending programmes, credit guarantees and emerging instruments like factoring, financing leasing and equity financing. More information on these policy instruments can be found here.

3. Providing information and raising awareness

It is crucial to compile and share BoP market data and to provide information to the BoP to raise awareness within companies, but also within the BoP. Since some basic goods are unknown in BoP markets, consumers are unaware of their benefits and since information about the BoP’s consumption is often not available, companies encounter difficulties building an inclusive business model. Award programmes, research on models and forums for peer learning can be implemented to generally raise awareness on IB. More information on these policy instruments can be found here

4. Strengthening the capacity of the BOP and of Inclusive Businesses

It is important to align vocational training for the BoP with the private sector needs since many IBs face external and internal constraints. Development partnerships can help to implement projects in partnership with the private sector and in order to support business services for IBs, business development services can be aligned. More information on these policy instruments can be found here.

Insights

In 2016, the Donor Committee for Enterprise Development (DCED) published the study “How to create an enabling environment for inclusive business”. This study presents how IB policymakers can learn from experience in the private sector development. 

Therefore, DCED analysed documents and studies from inclusive business and other private sector development programmes. 

DCED distinguishes two different sets of measures to structure possible reform options: 

1. Functional areas of business environment reform

These reforms are designed to reduce risks for all business caused by poor or changing laws and regulations. Examples include simplifying business registration and licensing, improving tax policies, enabling better access to finance, improving land titles, enhancing public-private dialogue, and developing appropriate quality standards.

Practical experiences reveal that most reforms as currently implemented can be expected to make it easier to ‘do business’ in general, and therefore also benefit inclusive business. However, inclusive businesses may not always benefit sufficiently from ‘standard’ reform initiatives but require additional measures – often based on sector assessments or tailored to the needs of individual businesses. 

Examples include licensing regimes for highly innovative inclusive business models, e.g. in sectors that feature only limited private sector participation to begin with (such as energy or health) and specific legislation that allows IB to access relevant forms of finance (e.g. impact investment), or to act as providers of finance to the poor (e.g. mobile and agent banking regulations).

2. Targeted interventions to support specific businesses, activities or sectors

Briefly, the most effective targeted government interventions share some common

principles and have a strong potential for synergies with business environment reform.

They: 

  • use public-private dialogue as a feedback mechanism to learn about business constraints;
  • establish a clear economic rationale for intervening (in addition to social objectives);
  • make support time-bound and conditional on performance; and
  • favour support to sub-sectors, activities or technologies over individual firms. 

Empirically, the best poverty reduction results have been achieved through a focus on labour-intensive industries or productivity-enhancing practices in agriculture. Mandatory inclusion rules, for example, local sourcing requirements for supermarkets should be avoided. The role of preferential public procurement for inclusive business is unclear.

IB Policies

East Asia and Pacific

Inclusive Business has firmly entered the agenda of governments and regional organizations such as the Association of the Southeast Asian Nations (ASEAN) and the Asia-Pacific Economic Cooperation in East Asia and Pacific. In 2017, for example, the ASEAN leaders acknowledged the strong support for inclusive business by its member states and called for greater emphasis on creating an enabling environment for inclusive business.
employment
Finance for Inclusive Business
Policy and Government
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North America

Enabling social enterprise initiatives to serve marginalised communities is at the forefront of policy instruments on local and national level. The US and Canada are also supporting through ODA funding inclusive business in emerging and developing countries.

South Asia

South Asia is one of the most dynamic inclusive business regions. It is experiencing policy instrument innovation on the supply side of capital for example through the legislation on CSR funding.
Policy and Government

Sub-Saharan Africa

The development of inclusive business policy instruments is at nascent state in Sub-Saharan Africa. Several countries host inclusive business eco-system building initiatives with the public sector, which has the potential to result in a more enabling environment for inclusive business.
Policy and Government