Asia: Embedding Inclusive Business
Even though most Asian countries have experienced a remarkable economic growth in the last few years, in some cases as a result of industrialisation processes, many low-income people in these countries have not improved their living standards and still struggle with their day-day living. Many of them, mainly in rural areas, continue to lack access to markets, income opportunities and basic services, therefore widening the gap between the rich and the poor.
All these factors create a significant and untapped opportunity for a market-based approach for wealth creation and private sector sustainable growth while at the same time contributing to poverty eradication.
Since I moved to Asia in 2010, I have been leading several studies, providing advisory, and managing funds in the Inclusive Business arena in this region.
One of the most important Inclusive Business studies I conducted in Asia was implemented, in 2010-2012, under a partnership between SNV Netherlands Development Organisation and the Asian Development Bank to determine the feasibility and the initial parameters to set up Inclusive Business Investment Funds in Vietnam, Indonesia, Bangladesh and Pakistan.
Having interviewed over 500 CEOs of companies, fund managers, investors, donors, government officials, amongst other relevant stakeholders, it has been proven that in the Asian market:
- there is a dynamic and growing private sector, although countries like Pakistan still have a long way ahead to reach a stable business environment
- there is a vast population of billions of people that is still part of the low income markets (in some cases even up to two thirds), which represent a major potential competitive and capable suppliers, labor force and/or consumers of basic goods and services.
- Asia now counts with the world’s largest working-age population, a quarter of the world’s middles class consumers, and the largest number of poor and undernourished in the world
- one of the most prominent sector is agriculture; where in Vietnam for example these sector employs over 45 per cent of the labour force. Other major sectors include the textile industry, manufacture and services and retail.
- there is a growing group of investors and funding mechanisms that are interested in inclusive business type of deals; however, the majority of the existing financial actors is mandated to secure financial returns only
- there are still several barriers for investors and entrepreneurs when doing inclusive business
- and overall, when taking into consideration the scale of the market opportunity, there are not enough major success cases
- Asia has a great potential for the development and creation of Inclusive Business ventures
SNV has been very active in the Inclusive Business arena in Asia, where it has provided tailor made services to private sector companies (domestic and MNCs) in developing inclusive and supply chains in agriculture (pepper, coffee, tea, dairy, etc.) in Indonesia, Nepal, Vietnam, Cambodia, implementing innovative programs such as the Inclusive Garment Businesses in Bangladesh (since 2014) or the Inclusive Rattan Businesses in Indonesia, and managing investment funds such as the Vietnam Business Challenge Fund (VBCF).
The VBCF is a particularly great case to be shared, since it is a specialised investment fund fully capitalised by UK Aid and managed by SNV. As a result of a top-down and bottom-up pipeline development approach, the VBCF has received in 8 months during 2013 more than 400 applications nationwide, with a total value of USD 530 millions, with a specific funding requirement from VBCF of more than USD 150 millions. VBCF has selected 23 deals for its investment portfolio, covering fully the investment funds available.
With a combined (VBCF + Businesses) investment value of USD 33,000,000, the VBCF has developed its unique investment portfolio with visionary entrepreneurs from large (44%), medium (22%), and small (34%) size Vietnamese private companies. The innovative inclusive business models include cases in the agriculture, low carbon growth, and infrastructure and basic services sectors, such as: a) Low income consumers market development for low cost and quality amphibian housing, Mobile banking, water through centralised water treatment plants, LED bulbs, CFL bulbs for fruits production, bridges, amongst others; b) Sustainable supply chains development with smallholders for medicinal plants, F1 seeds production, scallops, freshwater seabass, japonica rice, amongst others; c) Others.
In all cases these business models advance the business objectives and create welfare opportunities for the low-income people.
The VBCF and its investees envision the creation of a systemic change with the replication of these business models and the creation of a more enabling environment and ecosystem in order to reach full potential positively and sustainably benefiting the private sector companies and the low income markets, while using the resources most efficiently.
In my five years experience in the region, I have identified several challenges that are faced in the implementation of Inclusive Business models:
- Market information gaps
- Knowledge and skills gaps
- Limited financial access
- Mind-sets, behaviours and internal buy-in barriers
- Lack of specialized technical assistance
- Poor operational environment (ecosystems)
- Poor regulatory environment when implementing IB endeavours
- Getting the businesses ready for investment
- Match-making investors and investees
Having worked in Inclusive Business in Latin America, Africa and in Asia, I can assure that despite the barriers mentioned above, inclusive business has proven that it is definitely one of the most effective and promising models for sustainable development in Asia.
Author: Javier Ayala
SNV’s Corporate Lead – Global Inclusive Business Services
Executive Manager - Vietnam Business Challenge Fund