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Inclusive Business Solutions: EXPANDING OPPORTUNITY and ACCESS at the BASE of the PYRAMID

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Inclusive Business Solutions: EXPANDING OPPORTUNITY and ACCESS at the BASE of the PYRAMID Inclusive Business Solutions: EXPANDING OPPORTUNITY AND ACCESS AT THE BASE OF THE PYRAMID Report of a Conference held October 7–8, 2010 in Washington, DC Written by Beth Jenkins, Eriko Ishikawa, Alexis Geaneotes, and John Paul Acknowledgements This report would not have been possible without the contributions of a wide range of colleagues. The authors owe a debt of thanks first and foremost to the IFC clients who traveled great distances to come and share their experiences at the October 7-8 event. Experts Jane Nelson (Harvard Kennedy School), Mike Kubzansky (Monitor Group), Nancy Barry (Enterprise Solutions to Poverty), and Erik Simanis (Cornell University) provided invaluable insight from their research and consulting work. Peter Tynan (Dalberg) skillfully facilitated the discussion, drawing on the wisdom of several projects with IFC in the inclusive business space. The event and this report have been a joint effort of IFC’s Inclusive Business Team and colleagues across Investment and Advisory Services (please see Annex D). Among them, the authors give special thanks to their teammates Toshi Masuoka, Sujata Lamba, Farzin Mirmotahari, Piya Baptista, Jonathan Dolan, Daniel Coutinho, and Marcela Sabino. Along with the authors, Daniel, Jonathan, Marcela, and Piya conducted a number of the interviews. Jonathan, Piya, IFC Advisory Services colleagues Soren Heitmann and Sabine Durier, and the Harvard Kennedy School’s Sam Phillips Lee were also involved in writing the case studies featured in Annex A, which are reprinted from the April 2010 report Scaling Up Inclusive Business: Advancing the Knowledge and Action Agenda, published jointly with the Harvard Kennedy School. Finally, the authors would like to thank IFC Senior Management, including Executive Vice President and CEO Lars Thunell, Vice President of Advisory Services Rachel Kyte, and Vice President of Global Industry Jyrki Koskelo, for creating time for this event in their busy Annual Meeting schedules. Their unwavering support for inclusive business sends a strong message that IFC is committed to playing a key role in this emerging and maturing space. COVER PHOTOS Jaipur Rugs, India (Eriko Ishikawa) Mi Tienda, Mexico (José Raúl Pérez) Rights and Permissions The material in this publication is copyrighted. Quoting, copying, and/or reproducing portions or all of this work is permitted provided the following citation is used: Jenkins, B., E. Ishikawa, A. Geaneotes, and J. Paul (2010). “Inclusive Business: Expanding Opportunity and Access at the Base of the Pyramid.” Report of a Conference held October 7-8, 2010 in Washington, DC. Washington, DC: IFC. Mi Tienda, Mexico (José Raúl Pérez) Table of Contents Introduction ..............................................................................................................................................................................................2 Inclusive Business Solutions ......................................................................................................................................................3 Solutions in Focus ................................................................................................................................................................................7 1. Extending Reach through Distribution Networks ........................................................................7 2. Facilitating Access to Finance ..........................................................................................................................9 3. Changing Mindsets and Behaviors to Unlock Demand ....................................................... 11 Box: Collaborating with Development Partners ..............................................................................13 Conclusion ...............................................................................................................................................................................................14 Annex A. IFC Client Case Studies .......................................................................................................................................15 Annex B. IFC Client Interviews .............................................................................................................................................45 Annex C. October 7-8, 2010 Event Participants ....................................................................................................67 Annex D. IFC and World Bank Staff Contributors ..............................................................................................70 Annex E. October 7-8, 2010 Event Agenda ...............................................................................................................71 Annex F. Inclusive Business Reading List ....................................................................................................................73 Endnotes ................................................................................................................................. 74 Introduction Around the world, the twin goals of growth and inclusion are central to the development agenda. Inclusive growth will not happen without inclusive business models: financially sustainable, scalable business models that expand access to goods, services, and livelihoods for those living at the base of the pyramid. IFC uses the term “base of the pyramid” to describe people living in poverty in the broad sense in which the poor themselves understand and experience it. In 20,000 interviews conducted for the seminal World Bank study Voices of the Poor, the poor describe not only a lack of income, but more fundamentally, a lack of access — to goods, services, and economic opportunities. ••“There is nowhere to work.” (Ecuadorian woman) ••“We need water as badly as we need air.” (Kyrgyz woman) ••“Whoever goes to the health clinic healthy comes out sick.” (Egyptian villager) Too often, people living at the base of the pyramid (or BOP) cannot get key products at the levels of quality and affordability that others rely on. They may lack steady jobs, business opportunities, clean water, electrical power, good roads, modern communications, healthcare, education, or financial services. Or, in the absence of efficient, formal markets, they pay more for such services than those living at the top of the pyramid — a phenomenon known as the “poverty penalty.” Companhia Energética do Maranhão (CEMAR), Brazil Many people view those at the BOP as responsibilities of the state or subjects of charity. But “if we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.”1 This is something many IFC clients have recognized for a long time. Around the world, IFC clients are offering goods, services, and livelihoods to the BOP as consumers, producers, distributors, and retailers. And they are doing it in commercially viable ways, through inclusive business models. “Inclusive business is interesting for companies because it can offer new opportunities for innovation, growth, and competitiveness at the same time as positive social and development impact. It is interesting for bilateral and multilateral donors, foundations, governments, and civil society organizations because it has the potential to drive development impact in self-sustaining, self-multiplying ways that do not require continuous infusions of grant funding. And it is interesting for the poor because it brings greater access, choice, and opportunity in their lives and futures.”2 IFC has embarked on a journey of engagement and learning with its clients and with partners in the development community. The October 7-8, 2010 eventInclusive Business Solutions: Expanding Opportunity and Access at the Base of the Pyramid was one step along the way, bringing more than 120 experienced professionals from different sectors together to learn from one another’s successes. The event is part of a broader effort to stimulate the flows of information and inspiration our clients need to start and scale inclusive business models faster and with even better results— for the business, and for the BOP. 2 INCLUSIVE BUSINESS SOLUTIONS: EXPANDING OPPORTUNITY AND ACCESS AT THE BASE OF THE PYRAMID Inclusive Business Solutions In fiscal year 2009 alone, IFC committed $780 million to more than 35 clients with inclusive business models. There are more than 150 active clients with inclusive business models in IFC’s portfolio. Based on client experience and a growing body of research in this area, IFC has found that companies developing inclusive business models must address five core challenges that cut across the industries they are in. Patterns in the tactics they use for each challenge are emerging. In addition, partnerships and technology commonly act as enablers. These challenges, tactics, and enablers are depicted below. CHALLENGE ENABLERS TACTIC TACTIC DESCRIPTION TACTIC EXAMPLE EXPANDING Distribution Partnering with organizations with Healthcare company sells health REACH channel-sharing existing channels to quickly expand products or services through rural reach agribusiness hubs Informal channels Using small and micro enterprises Telecom company sells prepaid operating in the informal economy as airtime cards through mom-and-pop channels shops and roadside kiosks Business-in-a-box Standardized “franchise” opportunity Village phone operators purchase for micro-entrepreneurs
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