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Inclusive growth in Asia and the Pacific
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.
Role of private sector in poverty reduction
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.
What is inclusive business?
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.
ADB's Inclusive Business Initiative
In late 2010 ADB engaged in an initiative to stimulate inclusive business in Asia and the Pacific. An initial technical assistance (TA) aimed to develop inclusive business ventures in 10 Asian countries (Bangladesh, Cambodia, India, Indonesia, Lao PDR, Myanmar, Pakistan, the Philippines, Sri Lanka, Thailand, and Viet Nam). It also did preparatory work for setting up two sub-regional equity and debt funds for Inclusive Business in Southeast asia and in South Asia. The project was co-implemented, and leveraged where appropriate, with the Netherlands' Development Organization SNV, the Asian Social Enterprise Initiative (ASEI), Dalberg consult, and the networks and assets of the World Business Council for Sustainable Development (WBCSD). The Ford Foundation supported the work in Indonesia.
In December 2013, ADB's Board of Directors approved a new regional technical assistance project to help ADB's private sector departments doing impact assessments and due diligence work on IB models financed by ADB, support selective countries in Asia with improving the enabling environment for IB, and with promoting regional exchange and knowledge work with IB. The TA project is co-financed by the Government of Sweden and by Credit Suisse.
Since ADB started its inclusive business initiative, the number of its investments in IB companies increased. In 2013, for example, 5 out of the 16 approved private sector projects qualify as inclusive business, up from 4% between 2000 and 2012.
ADB is looking to further deepen the direct impact of its private sector lending on poverty reduction, and also create - through its regional departments - new public-private partnerships for poverty reduction, for example in agroprocessing value chains. ADB is also increasingly seen as a knowledge leader on inclusive business in Asia and the Pacific.
The initiative aims to:
- perform market studies in 10 Asian countries with the results to be discussed in country investment roundtables and regional inclusive businesses fora;
- develop an impact assessment tool for possible ADB investments;
- build up the first inclusive businesses investment fund for the Mekong region;
- work on the creation of a technical assistance facility (2013-2016) together with other donors who support inclusive business activities in Asia; and,
- promote further knowledge exchange with development partners, including IDB, World Business Council for Sustainable development, SIDA, DFID, Ford Foundation, KfW, and development institutions in Japan, among others.
This section provides information on:
- the concept of the base of the pyramid and inclusive business;
- features of the ADB's inclusive business initiative;
- inclusive business enterprise and finance market scoping studies in 10 Asian countries;
- ADB's inclusive business funds for financing inclusive businesses in the Asia-Pacific region;
- the schedule of planned inclusive business investment fora;
- the methodology for assessing and monitoring poverty and inclusive growth impact; and
- how ADB cooperates with other development partners.