One piece of a dynamic system – Inclusive Business Development Services and the IB ecosystem

By Christian Pirzer and Marie Agosta, Endeva

The Inclusive Business SunnyMoney provides pico solar lamps to remote rural communities in Africa. Consumers gain access to electricity, save money, the quality of light improves and they see an improvement in respiratory health compared to traditional kerosene and paraffin lamps. A great deal for customers and the company!

But the company struggled with the replication of their business model. The Business Development Service (BDS) provider International Center for Social Franchising, supported them with a solar replication strategy and designed medium and long-term replication models, including social franchising and joint venture franchising. They began by partnering with local schools, offering affordable study lights at a reduced price. They then expand by using local agents, such as trusted community members and head teachers, located in key regions.

Since then, SunnyMoney has expanded from Tanzania to Zambia, Uganda, Malawi, and Kenya and sales have grown significantly. They have sold over 1.6 million solar lights benefiting over 10 million people.

Inclusive businesses tackle development challenges but often struggle to reach scale

Inclusive Businesses (IB), like SunnyMoney, have emerged as a new type of development actor that helps millions of people in developed and developing countries by providing critical services in diverse sectors such as education, healthcare, energy, or agriculture. They maximize social, environmental and economic impact for their target beneficiaries rather than maximizing short-term profits for shareholders and private owners.

However, IBs often face specific barriers related to their work in low-income communities that limit their opportunities to reach scale. SunnyMoney had to create an innovative method of distribution in order to scale up. Other common challenges include unconducive regulation and policies, lack of financing solutions and an absence of BoP or sector specific information.  

Inclusive Business Development Services offer critical implementation support services

IBDS can strengthen the capacity of inclusive businesses, support them in reaching scale and make them investment-ready by providing trainings, specialized consulting services and targeted information. This helps enterprises to access capital, grow, engage partners, and leverage local capabilities to strengthen their position in the market.

While specialized services that strengthen the organizational and managerial capacity of inclusive businesses are essential to the growth and scale of businesses, IBs also need supportive policy and regulations, targeted financial solutions as well as a network of partners and educated workforce with entrepreneurial spirit.

IBDS providers are only one of many stakeholder groups that support IBs on their pathway to scale. They are embedded into a larger ecosystem of support agencies that create an enabling business environment for IBs and help them to grow.

IBDS are part of a conducive business ecosystem

In a recent World Bank Group study, commissioned to Endeva and the BoP Learning Lab, we researched the Social Enterprise support ecosystems in 7 Sub-Saharan African countries; Kenya, Malawi, Rwanda, South Africa, Tanzania, Uganda and Zambia, covering four basic service areas: education, energy, health, and water and sanitation.

As part of this research, we assessed the ecosystem maturity levels of the studied countries. One of the key findings was that the maturity of support ecosystems varies significantly across countries, with Kenya, South Africa, and Uganda leading the field.

But we also found some general trends across countries: On average, IB specific policy and regulations and financial services were more advanced than IBDS.

We also discovered that the interplay of different ecosystem stakeholders is critical for the scaling of inclusive businesses. Other key actors include national and local government institutions, international donors, financing organizations, research institutes and universities.

Policy makers, finance institutions and research institutes can support IBs to achieve scale

We found government actors to be particularly influential. Policy makers can create policies and regulations that provide IBs with political legitimacy and the legal room to function with ease. In Uganda, for example, IBs in the healthcare sector gained special recognition for their role as government partners and entities that combine social goals with commercial means through Uganda’s National HIV and AIDS Strategic Plan.

Impact investors and public or donor driven funds offer innovative financial support to IBs that is often combined with technical assistance. These services are critical for the financial sustainability of IBs, which often combine grants, debt and equity with revenues from sales of products and services. Kenya and South Africa are leading the way with a variety of grant-making institutions that specifically cater to IBs, as well as many opportunities via impact investors. The Kenyan impact investor Root Capital, for example, provides IBs in agriculture with a combination of debt capital and BDS, including financial training and stretching market connections.

Research institutes or universities can set the foundation for the development of a skilled entrepreneurial workforce through education programs and trainings. Through a partnership with the Bertha Foundation, the University of Cape Town is able to provide students with a comprehensive social enterprise curriculum. Students can specialize in Education Innovation, Inclusive Health Innovation or Innovative Finance.

Moving forward with the whole picture in mind

Each of these ecosystem stakeholders is important to create a conducive environment for IBs. IBDS play a significant role in providing implementation support for IBs and can assist companies by providing expertise.

But as our findings indicate, IBDS are just one piece of a dynamic ecosystem. Only when we keep the whole picture in mind, will IBs be able to achieve scale and have a sustainable impact.

If you are interested in figuring out the best ways to move the IB ecosystem forward, take a look at our findings in the World Bank report which will be published in October 2016.

This blog is part of the September 2016 series on Inclusive Business Development Services, in partnership with the Inclusive Business Accelerator. Don’t miss the whole series on support available to inclusive business from practitioners, donors and intermediaries including Afrilabs, DFID, Endeva, EY and many more…