Inclusive Business in Asia: New Opportunities for Public-Private Partnerships

Asia’s growth is not much pro-poor: Not Asia’s persistent and high growth over the last two decades were the main reason for the region’s success in poverty reduction, but the well targeted and effective poverty reduction programs delivered by committed governments. However those programs for the very poor ($1.25) did not improve the living situation of the growing number of vulnerable and low income people (those between $1.25 and $4 per capita per day) in Asia. Growth and poverty reduction programs also did not reduce the large underemployment and bad working conditions in the expanding informal job markets in the region, nor the increasing inequalities in wealth and access to social services.

Government in Asia realize that they need the private sector to make growth more inclusive: Governments in the region realize their constraints in creating sufficient jobs and providing reliable and affordable basic services for the poor and low income people. On the other side, the private sector increasingly recognizes new business opportunities with the low income groups while at the same time contributing to poverty reduction by providing jobs and income opportunities, and offering innovative solutions for the poor’s housing, health, education, transportation, finance, information, and energy demand.

Inclusive business can make growth more inclusive: Commercially profitable companies whose core business models provide innovative systemic solutions in scale to the problem of the poor and low income people under the $3 a day international poverty line[1], are defined as inclusive business (IB). IB differs from corporate social responsibility (CSR), social enterprise, microfinance, and contract farming through its business scale, growth potential, and focus on systemic changes for poor people. IB also distinguishes from impact investments in that it places the impact on poor and vulnerable people at the center, and de-emphasizes impact on the environment or good governance. Small and large, national and multinational enterprises can create inclusive business opportunities, with investments typically between USD 1 million and USD 20 million, in some cases also substantially higher.

Nascent but fast growing market for IB: ADB studies in 10 Asian countries showed that – with the exception of India – the market for inclusive business in Asia is still relatively nascent, although fast growing. Business opportunities that integrate the poor are particularly seen in agro-processing value chains, finance and IT services; however there are also new business opportunities in health care, low cost housing, tourism and renewable energy, among others.[2] While the public banking sector is still reluctant lending to IB companies due to many companies’ problems in developing sound business plans and banks’ interest in larger and better guaranteed deals, impact investors and development banks (like ADB, IFC, KfW) are newly discovering the IB markets in Asia.

Enabling environment for IB needs government leadership: While IB development is based on private sector motivation, it needs government support for creating space and legitimacy as well as standards and targets for systemic impact (and scale) for poverty reduction. With governments realizing the limitations of their role in leveling inequality and creating a more inclusive society, with official development assistance decreasing or crowding out from social investments, and with the private sector taking new responsibilities in creating “shared value” for business and society, IB is rapidly becoming a policy instrument of many Asian governments with development plans emphasizing inclusive growth. For example, the government of the Philippines is exploring an IB accreditation system which would allow such classified projects of companies to have priority access to existing government support services for industries. In other countries like Bangladesh, Indonesia, Myanmar, Pakistan and Viet Nam, ADB and other development partners support similar government plans to stimulate new IB related public-private partnerships.

Development partners’ new focus: With inclusive business, development partners, especially bi- and multilateral development organizations like the Asian Development Bank (ADB), DFAT (former AusAid), DFId (United Kingdom), IFC (World Bank group), KfW/GIZ (Germany), JICA (Japan), SIDA (Sweden) and others, have recently discovered the private sector as a conduit for poverty reduction beyond trickle down. In 2012, the ADB created its inclusive business initiative to (a) increase its public and private sector investments in IB deals and funds, (b) understand and document better social impact of such projects, (c) promote in cooperation with governments in selected countries a more conducive environment for inclusive business, and (d) support knowledge exchange and partnerships around IB. Apart from providing technical assistance to IB companies financed by ADB, the development bank is up-scaling its own investments in IB for both sovereign and non-sovereign projects: In 2013, already 6 of its 22 private sector investments (27%) could be classified as IB, up from 5% on average between 2000 and 2012; for 2014 through 2020 it could well target 15% gross. The bank also explores opportunities for public sector support to inclusive business, such as the proposed rural job creation loan for the Philippines for 2015 approval. The new emphasis on the private sector’s role for poverty reduction is also incorporated in ADB’s new corporate Strategy 2020 Update, where Inclusive Business is emphasized as one of the bank’s strategic investment areas.[3]

For questions and further information, please send your email to abauer@adb.org or call at 0063-2-6325550.

[1] This base of the income pyramid (BoP) comprises about 60% of Asia’s population.

[2] For ADB’s market scoping studies see: http://www.adb.org/sites/default/files/ib-market-scoping-studies.pdf.

[3] For more information on ADB’s IB initiative please visit the IB website at: http://www.adb.org/themes/poverty/inclusive-business-base-pyramid