Social Enterprise and Inclusive Business - Definitions from a Development Bank

Do we in the Business Innovation Facility consider Inclusive Business (IB) to be different from corporate social responsibility (CSR)? Yes, as we define IB as “profitable core business activity that also tangibly expands opportunities for the people at the base of the economic pyramid (BoP): as producers, suppliers, workers, distributors, consumers – or even as innovators”. It is part of commercial business operations and not a separate ‘add-on’ like philanthropic activity or CSR programmes.

Do we consider IB to be different from social enterprise? Not really, as in the context of the Business Innovation Facility and the technical support we are providing, our focus is not on the fine lines of definition, but on how to encourage innovation, turn ideas into practice, and turn pilots into business models that work at scale. In our current portfolio of more than 50 projects we have a diverse mix of organisation types ranging from business starts ups to established medium and large organisations. The different organisation types and IB models are part of our portfolio analysis but are not part of the key criteria for support.

At a recent conference on impact investing for inclusive business in Asia, hosted by the Asian Development Bank (ADB), it became clear that when it comes to finance rather than technical assistance, the distinction does seem to matter, both from a supply (investor) and demand (business) perspective. This is because different investors offer different types and sizes of investment and different types of (inclusive) business have different financing needs.

ADB, in its conceptual framework for the event, differentiates social enterprise from inclusive business with certain key characteristics for both, as summarised in the table below

Inclusive Businesses are defined as “commercially viable firms that either wish to grow from social enterprise status into serving broader markets and achieving higher returns, or highly profitable companies that want to deepen their reach towards more valuable social contributions”.

According to this definition, inclusive business differs from social enterprises and corporate social responsibility activities in its realized profit making motive, as well as its social impact in scale and systemic contribution to poverty reduction, and consequently, the larger size of investment needs.

The conceptual framework is worth reading not only regarding the issue of definitions I touched upon here but also for the summaries of the IB market scoping studies that ADB has commissioned in 10 Asian countries including Bangladesh, India, Indonesia, Mekong (covering Laos, Cambodia, Viet Nam, and boundary areas in Eastern Thailand), Pakistan, Philippines, and Viet Nam.

Read more about access to finance for IB on our Hub:

• Looking for finance? You might know you need it but what type of finance is right for your business? Navigate the options with our new Spotlight on what is available and how to find the best solution for you.
• Is your business investment-ready? Entrepreneurs say lack of finance is their biggest problem. Yet investors say it is lack of investment-ready businesses. Use our Checklist to make sure your business has what investors are looking for.
• A clearer picture of SME finance: Access to finance remains a fragmented picture in most developing countries. Two new Project Resources map the landscape of opportunities for SME finance in Bangladesh. Full report and summary written by Barclay O’Brien and introduced by Kieran Archer (both Challenges Consulting).
• Look to challenge funds: Even with a robust business case and clear social impacts, donor funding for inclusive business is hard to come by. Drawing on project experience in Malawi, Duncan White discusses options for accessing development finance and why challenge funds are often the best bet for inclusive business.