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The Base of the Pyramid and Inclusive Business Concept and Project Description
Inclusive growth is one of the three agenda items in ADB's "Strategy 2020". It is a process that is non-discriminatory and helps the disadvantaged. It aims to broaden economic and social opportunities for lower income groups, as well as for those excluded in some way from the economy's growth. While the private sector is crucial for generating growth and employment, public incentives and partnerships are needed to make its original profit motive more inclusive.
ADB's corporate Strategy 2020 foresees that 50% of ADB's investments by 2020 will be coming from either non-sovereign activities or supporting private sector development objectives. At the same time, ADB's private sector operations would need to find ways to directly support the poverty reduction and inclusive growth agenda.
Inclusive business is a private sector core business activity/venture that incorporates the low-income section of the population within a company's value chain as:
- Suppliers of goods
- Consumers of goods and services focused on sustainably improving the livelihoods of the poor
- Distributors of goods and services into new market segments
- Employees (often providing much needed skilled labor in manufacturing contexts)
Inclusive business generates value for the company (e.g., reduced costs, increased sales, greater revenue, new markets, supply chain stability, new talent pool, etc.), often measured in terms of an internal rate of return between 8-20% (or more). At the same time, it creates value for the low-income segment of the population (e.g., job creation, increased income, access to previously unavailable goods and services, improved assets, etc.) that directly contribute in a systemic way to poverty reduction in a specific region or country. ADB's inclusive business approach does not entail the expansion of private consumption goods that are not directly related to poverty reduction.
Promoting inclusive growth through business development at the base of the pyramid (BoP)
The inclusive business at the base of the pyramid project (an ADB regional technical assistance project), was approved in 2008 to support market scoping surveys, enterprise feasibility studies, information sharing, and exploring creating private equity funds for inclusive businesses in 6-10 Asian countries.
With an ADB grant funding of $650,000 and a parallel financed grant contribution of $190,000 from SNV, the program covers activities in Bangladesh, Cambodia, India, Indonesia, Lao PDR, Pakistan, Philippines, Sri Lanka, Thailand, and Viet Nam. Project implementation started in August 2010 and is scheduled to end in December 2012.
The initiative is a joint effort of ADB's Private Sector Operations Department and the poverty and inclusive growth team in the Regional and Sustainable Development Department (RSDD). In addition, ADB is also promoting a social enterprise technical assistance project to get an overview of social enterprises in various countries and promote the setting up of a social stock exchange in Singapore.
Partnerships and knowledge sharing
ADB's inclusive business initiative is carried out in partnership with the Netherlands' development organization SNV and in cooperation with World Business Council for Sustainable Development (WBCSD). ADB seeks to leverage the intellectual capital and financial resources of like-minded donor organizations, foundations, private sector, and knowledge institutions.
ADB is also cooperating with the Inter-American Development Bank to exchange experiences on inclusive business and opportunities for the majority between Asia and Latin America
Balancing systemic poverty reduction impact with business return
Research on inclusive business argues that generating employment and income opportunities for the low-income segment at the base of the pyramid can be an important and sustainable driver of poverty reduction when applied correctly. Therefore, it is important that BoP/inclusive business models emphasize mutual value creation – the benefits to the low-income segment in addition to the financial returns for the companies involved.
In addition, integrating the low-income segment as consumers can also generate mutual value, even if it does not directly contribute to income or employment opportunities for the poor. This is because the goods and services provided to the poor can reduce the costs of meeting their basic needs and improve their living conditions on a sustainable basis.
Review and development of assessment tools
Development institutions, multilateral development banks, investment funds with triple-bottom-line business, and think tanks have also developed rating tools. The IRS/GIIS has set up indicators for private sector self-reporting. WBCSD has also developed a Measuring Impact Framework, which is freely available also for this project. SNV also has a number of specific impact measurement tools and methodologies that can be used for this project.
However the existing self-reporting and rating tools are not sufficient for rating possible investments on their tangible poverty reduction impact. The ADB initiative will therefore develop those tools further into an inclusive business ex-ante impact assessment tool that serves several purposes:
- assessing the eligibility of proposals (gating);
- describing the impact channels and reporting on outcomes that can be aggregated (reporting); and
- evaluating the performance of the fund manager on promoting social impact while ensuring financial returns (rating).