Armin BAUER

Dr. Armin Bauer is a development economist and was the former coordinator of ADB's Inclusive Business initiative.

ADB's Inclusive Business Definition

9. Mar 2015

28 February 2015

Inclusive Business Definition of the Asian Development Bank (ADB)[1]

By: Dr. Armin Bauer, Principal Economist and coordinator of the Inclusive Business initiative in the ADB

 

Why Asia needs IB: While the private sector has been a key contributor to the economic boom in Asia, it has yet to fully realize its potential in making the growth in the region more inclusive and more directly contributing to poverty reduction. Specifically, the private sector can develop more innovative business models that create – in scale - decent and well paid new jobs and provide affordable and relevant services for the poor and low income people. This helps the governments delivering better and more efficiently on social development in the region.

ADB definition: The Asian Development Bank (ADB) is defining Inclusive Business (IB as a private sector core business activity that creates – at scale – innovative and systemic solutions to the relevant problems of the poor and low-income people.

Not only for the poor: IB targeting the market at the base of the income pyramid (those living below $3-$4 poverty line; 60% of Asia’s population) by creating jobs and income, or offering affordable and relevant services to improve their living standards. IB involve the poor as suppliers, employers, consumer, or distributors. IB business models can also include the better off as long as the poor are integrated, and the benefits to the non-poor are used for creating value for the poor and low income people (e.g. through cross-subsidies or selling models). ADB’s inclusive business approach does not entail the expansion of private consumption goods that are not directly related to poverty reduction.

Profit first but not only: IB business models always follow double-bottom line, and sometimes also triple bottom line approaches. While designed to achieve social impact in scale, IB do not compromise on profit making. All IB companies make reasonable profits with internal rate of returns of 10-40%). IB solutions can be delivered by large and small companies.

Inclusive business differs from other private sector investments targeting the poor in its higher realized profit making motive. It typically aims at broader social impact (companies in the growth phase and not start-ups) in scale and depth of systemic contribution to poverty reduction. IB solutions differ from

  • social enterprises in its higher realized profit making motive and in larger scale;
  • corporate social responsibility (CSR) and philanthropy, activities by making IB part of the core business of a company;
  • impact investment and triple bottom line investments by focusing mainly on the social impact;
  • contract farming by emphasizing depth of impact (i.e. income for the poor as suppliers higher than the market rate);
  • financial inclusion and microfinance by promoting innovative investments that create new viable companies and jobs for the poor;
  • sme and informal work arrangements by emphasizing earning larger than the average market competitors;
  • the traditional base of the pyramid approach involving the poor as consumer of any goods by emphasizing services that are relevant for the poor;
  • shared value investments by emphasizing systemic business solutions to relevant problems of the poor; and
  • the larger concept of inclusive growth by emphasizing the role of business models that directly generate new jobs and affordable relevant services for the poor.

Not only for the private sector but also sovereign investments and technical assistance: ADB’s IB concept comprises not only investments in private sector companies that promote social impact, but also technical assistance and project support for the public sector to create a better enabling environment for IB.

ADB’s achievements so far: Compared to the IFC or IADB which started investing in IB since 2006, ADB is a newcomer in the IB field.

- ADB started its inclusive business initiative only in 2012 with market scoping studies in 10 Asian countries, the development of an ex-ante impact assessment tool, and the due diligence for two possible Inclusive Business (IB) funds for Southeast Asia and for South Asia.

- In December 2013, ADB's Board of Directors approved a new regional technical assistance project to help ADB's private sector departments do impact assessments and due diligence work in IB investments, support the enabling environment for IB, and promote regional exchange and knowledge. This program is cofinanced by the Government of Sweden and the Credit Suisse.

- In April 2014, ADB added Inclusive Business under its corporate Strategy 2020 Update and it is currently finalizing (by April 2015) an Action Plan for upscaling its private sector investments, sovereign work, and knowledge and partnership support for inclusive business in Asia and the Pacific.

- Since 2013 ADB has done 12 IB investments with a total sum of about $400; this is about 20% of its deals and of its investments, a massive increase from 5% between 2000 and 2012.

- It has supported the establishment of IB accreditation and policy alignment in the Philippines and planning similar work in Myanmar, Indonesia, Pakistan, and Viet Nam.

- ADB’s regional departments currently prepare – for approval in 2016 - two sovereign IB loans for job creation through IB in Pakistan ($30 million) and the Philippines ($200 million).

- ADB has done a series of studies and is meanwhile perceived as a knowledge leader on IB.

- It has engaged in various partnerships, especially with development institutions, impact investors and banks, business associations, and think tanks in and outside the region.

For more information on ADB’s IB work, please visit our ADB overview page or contact Armin Bauer (Principal Economist in ADB) at abauer@adb.org, or Tel: 0063-2-6325550

[1] This blog was written for the IB Practitioners Hub, March 2015.