What is IB? Inclusive Businesses (IB) are commercially viable business lines of a private sector company that create systemic, innovative and scaled-up solutions to the relevant problems of the poor and low-income people (the BoP or B40). These are business lines which are deliberately designed to create higher income or better living conditions for the bottom 40% income groups and socially excluded people. Therefore, simply engaging the poor in value chains, or working with them as suppliers, laborers, retailers, consumers or shareholders (engagement modes) is not sufficient to qualify as IB, as such “engagement” can be exploitative and may not result in systemic improvements for the poor’s income and living situation.
There are three types of IB companies
- IB models are established business lines of medium-sized and larger companies with large social impact;
- IB initiatives are done often by smaller companies and for profit social enterprises. They have smaller social reach, and their commercial viability can be small to are. Often these are also IB start-ups.
- IB activities are mostly done by larger companies (IB models), smaller companies and for-profit social enterprises (IB initiatives), as well as larger companies using their CSR in a more strategic way not as philanthropic giving but to pilot more sustainable IB models.
Types of businesses with profit and social motives
The target group are the people at the base of the socio-economic pyramid (BoP), often the bottom 40% income groups and socio-economically excluded people (the B40), hence more than the extreme poor. While targeted results are essential, IB companies also include or sell to better-off people.
Impact channels: However, the social purpose of the company needs to be offering deliberate solutions (not trickle-down assumptions or tiny contributions) for the relevant problems of the poor and low income people in scale. For those B40/BoP people, IB create solutions for the poor through two different deliberate impact channels: they either
- provide income opportunities substantially above the poverty market rate to them, or
- offer relevant, affordable and accessible goods and services to improve their living quality.
IB companies are innovative. In IB companies, the commercial viability of the business (the bottom-line) drives the social impact and vice-versa; there is no trade-off between the two. To have impact on poor and low-income people and create good bottom-line returns at the same time, companies with IB models, initiatives and activities need to be very innovative. Many IB companies deliberately address women empowerment and gender equity. Some IB companies also aim at environmental solutions, although the main focus of IB is on poor people and not the environment or the climate.
IBs are mostly medium-sized enterprises: Most IBs are medium-sized enterprises with revenues between $1-10 million. Start-ups and very small firms (with revenues below $0.1 million) often do not qualify as IB. Some larger companies have IB business lines which are different form their mainstream business.
IB investments differ from CSR and SE: IB distinguishes from social enterprises (SE) in the scale of impact and the commercial viability and revenue size of the sponsoring firms. From corporate social responsibility (CSR) activities, IB differs through the core business orientation, the commercial viability and the scale and systemic character of social impact achieved. An interesting ADB study (please link to https://www.adb.org/sites/default/files/project-documents/46240/46240-001-tacr-en.pdf) argues that there is need to encourage social enterprises to become the inclusive businesses of tomorrow.
IB is different from mainstream business in its deliberate design (not trickle-down wishful impact) to achieve social impact for the BoP/B40 in scale. All IB companies need to be responsible businesses (paying taxes, adhering to social and environmental safeguards, following good corporate governance principles), but not all responsible businesses are automatically IB. IB also differs from impact investing (Link to www.misti.gov/kh/Inclusive-Business/investments), as it is emphasizing investing for the benefits of poor people (less so the environment, or technology start-ups per se).
IB are deliberately designed for creating social solutions at the BoP
and require innovation to be successful
IB companies transition the economy. As such companies (or business lines) achieve large social impact, are innovative, have high commercial viability, promote economic growth and adapt successfully to changing markets for a long time (good sustainability and resilience), these companies contribute much to economic transition. Businesses, governments and the poor therefore are highly interested to encourage mainstream companies as well as traditional social enterprises to transition into IB. This change is what IB policy (link to the IBeeC page) can encourage.
IB create triple-wins. As IB companies help solving relevant income and living quality problems of the poor and low-income people they are of high interest for
- the government to promote to address social inclusion through private sector engagement,
- for the poor to receive systematic and sustainable help, and for the business case and
- for company’s bottom line profit to achieve higher business returns, new markets and better supply chains.
IB are of international relevance: Inclusive Businesses (IB) can be seen as the private sector’s contribution to achieving those sustainable development goals (SDGs) targeted to benefit the bottom 40% people (please link to www.sdgs.un.org). and to structural transformation. Therefore, the Inclusive Business agenda is also increasingly emphasized at international level in institutions such as G20 and ASEAN (link to www.misti.gov/kh/Inclusive-Business/ASEAN).