Inclusive business firms can help boost farmers' incomes, ensure food security.
In our February blog poll about inclusive business, we asked readers where they believe there is the most opportunity for commercially viable solutions to the poor's problems ahead of the 2nd Inclusive Business Forum for Asia.
Over 400 representatives of companies, social enterprises, investors, banks, business associations, and governments gathered last month at the forum, organized by ADB and 8 development partners, to discuss how private sector firms can create profitable businesses that make an impact on poor and low-income people. Inclusive business models target the market at the base of the income pyramid through affordable goods and services and decent jobs; this doesn't mean, however, that these companies don't turn a profit. Inclusive business is highly profitable, as inclusive business firms embrace innovation to reduce costs and enlarge their reach. Inclusive business is also part of the overall market for impact investing, estimated at over $10 billion worldwide.
The majority (37%) of our readers picked agribusiness as the sector with most potential to create inclusive business opportunities. That's no surprise, as the majority of the low-income population live in rural areas, where poverty incidence is high and jobs are badly needed. To reduce poverty and create employment, though, inclusive business companies must operate on a large scale, so business models must be scalable and capable of providing income higher than the market rate.
Likewise, agribusiness is crucial to food security in Asia and the Pacific, which will need to boost its food production systems by 70% to feed 5.2 billion people by 2030. In particular, inclusive business firms engaging smallholder farmers are making waves. A 2015 report from Hystra noted how inclusive business firms that work with smallholders help increase the income and livelihoods of farmers through sourcing produce from them or selling products to them. These companies share technology to boost yields, make smallholders less risk-averse in terms of new business models, reward 'early adopters,' and integrate farmers them into the value chain.
Governments are also becoming increasingly aware of the importance of enabling the environment for inclusive business companies, especially in agribusiness. ADB has assisted the Government of the Philippines in piloting an inclusive business accreditation system where most of the companies assessed were agribusiness firms. Governments should realign their policies to encourage more companies willing to adopt inclusive business models.
28% of poll respondents encouraged inclusive business companies in Asia to focus on renewable energy. Simpa Networks, which provides affordable pay-as-you-go solar energy solutions for poor consumers in India, benefited from early ADB support to scale up its operations, and last year secured a $6 million loan from the Clean Technology Fund to expand its off-grid solar home system service to underserved markets in rural areas.
In our survey, 20% of participants noted that businesses can provide solutions to the poor's problems and make a profit in education. An example of this is Hippocampus Learning Centers, which employs unqualified women from Indian villages and trains them to teach pre-school children and manage its learning centers. Hippocampus' business model enables low-income consumers to receive education hitherto reserved for the urban middle classes, while low-income employees to get a new source of income. The firm in turn benefits from a low-cost workforce culturally attuned to caring for small children.
Finally, 15% of respondents chose water and sanitation as an interesting sector to do inclusive business with. ADB is currently discussing with several microfinance institutions and banks ways to provide toilets for the rural poor in India.