Over the past two decades, the Asia and the Pacific region has sharply reduced its share of population living in poverty to 21% ($1.25 per capita income/expenditure at purchasing power parity of 2005) and 47% ($2), as of 2008.
Many countries in the region have broadened their approach toward economic development – promoting inclusive and sustainable growth strategies that can benefit the poor and vulnerable. While the private sector has been a key contributor to the economic boom in Asia, it has yet to fully realize its potential in creating shared value, that is to promote business models that integrate the low-income segment in unique and innovative ways that generate growth while creating value for the low-income segment and directly contributing to poverty reduction.
As such, there is increasing consensus among experts that private sector growth can be a powerful tool in the global fight against poverty if it were to focus on creating impact at the lower income groups.
Asia's private sector is increasingly realizing that the base of the income pyramid, i.e. those living below the $3-$4 poverty line, represents an interesting business opportunity as a substantial new market for goods and services, which in turn can improve the livelihoods of the poor and vulnerable. This segment of the population, i.e. the base of the income pyramid, also doubles as a significant pool of entrepreneurship, assets, talent and productivity that can be leveraged for the supply of critical inputs, innovative distribution systems, and skilled labor.
Inclusive businesses are private sector investments specifically targeting this low income market with the double purpose of making reasonable profit (i.e. an internal rate of return of 8-20%) and creating tangible development impact through the provision of sustainable decent jobs and better income opportunities, as well as services that matter for the poor and low income people's ($3) lives.
Inclusive business differs from social enterprises and corporate social responsibility activities in its higher realized profit making motive. It also differs in terms of broader social impact in scale and depth of systemic contribution to poverty reduction.
This implies that inclusive business is often made up of larger companies with minimum annual turnovers of $5 million. Inclusive business also differs from the original base of the pyramid approach, which saw the poor mainly as a market for private ventures, automatically benefitting the poor through the provision of consumption goods. Inclusive business, however, is more about a systemic contribution to a poverty problem, rather than broadening consumption goods for the poor, which are not always addressing key poverty and vulnerability issues. Expanding private sector growth through inclusive business ventures would provide the poor with new jobs and access to quality and affordable goods and services, helping them improve their lives and reducing poverty. Inclusive business is a business model that can apply to small, medium, large, national as well as foreign companies. However, the private sector has barely explored its potential at the base of the pyramid.
View the differences between social enterprises and inclusive business as relevant for developing ADB's Inclusive Business Funds.
First approved in 2008 and refined in 2010, ADB engaged in an initiative to stimulate inclusive business in Asia and the Pacific. An initial technical assistance (TA) project aimed to develop inclusive business ventures in 6 (later broadened to 10) target Asian countries (Bangladesh, India, Indonesia, Pakistan, the Philippines and Viet Nam; later to include Cambodia, Lao PDR, Sri Lanka, and Thailand) and prepare them for project financing through the development of national/sub-regional private equity funds. The project is co-implemented, and leveraged where appropriate, with the Netherlands' Development Organization SNV and the networks and assets of the World Business Council for Sustainable Development (WBCSD). The Ford Foundation is supporting the work in Indonesia.
The initiative aims to:
This section provides information on: