Having worked at IFC – the world’s largest inclusive business investor – for the majority of my 20 plus years in development finance, I have seen the concept and practice of inclusive business grow and become more accepted in a very gradual manner. Over the past 10 years, IFC has committed over $11bn to companies that work to improve the lives of those at the base of the economic pyramid (BOP) – consistently investing around $1bn per year without giving it any special attention.
But I’m happy to observe that just recently, I have seen some interesting developments in the inclusive business ecosystem – from a greater market acceptance of the concept, to a more robust knowledge sharing, to a convergence of key players for coordinated action. Here are some examples:
- In late October, IFC launched a $100m Inclusive Business Bond, which was the first of its kind and which was well received by retail investors in Japan.
- Just last week, IFC released its latest report Shared Prosperity through Inclusive Business: How Successful Companies Reach the Base of the Pyramid drawing lessons from the inclusive clients it has invested in over the past 10 years.
- Also last week, the Inclusive Business Action Network was launched in Berlin bringing together many of the different players who are active in supporting this space.
To honor these new developments, I wanted to share with you what I’ve learned about inclusive business over the years – all of which I learned from my clients, or from my clients’ clients. It is not easy to sum up what I’ve learned in five easy lessons, but here they are:
Local ties are key
The success of local businesses is too often lost in the discussion of “inclusive or BOP business” to date. So many of our clients are medium to large local companies, or sometimes a local subsidiary of a foreign company, not the large multinationals that are often in the media. This is what inspired us to create our latest report. Local companies, many of them family-owned, have built their businesses to incorporate the BOP from the beginning; if they didn’t, they wouldn’t succeed. And they’re here to stay, as this is their only market.
Results are what matter
Our clients are having a direct positive impact on the BOP. Some had this intention at the onset of their business. Others did not articulate it specifically. Most don’t necessarily have a mission statement, but are good entrepreneurs who understand what makes good business. In countries where the majority of the people are poor, that population cannot be ignored. Inclusive businesses have realized that creating benefits for the local community will bring benefits to the company.
Financing and capacity building are critical
Time and again, I’ve noticed companies that succeed in BOP markets have built some combination of financing and capacity building into their business model. Whether they are tapping into BOP suppliers, retailers, or targeting BOP customers, companies realize that these two elements are critical. And when there are market failures, the company needs to figure out how to make the business work. Take Tribanco, for example, which first extended financing to small “mom-and-pop” grocery shops. This led them to establish a “retail university” to offer capacity building to shop owners. Then they realized that the individuals who frequented the shops, the BOP customers, also needed consumer financing, so they created a new private label credit card product.
Feedback loops will strengthen an inclusive business model
There is no one magic combination of tactics and solutions that will work for every business, nor is the combination static over time. Once a company has built these solutions into its business model and implemented them on the ground, it is imperative to keep testing and refining them to find the most effective combination to find out how to best service customers. ECOM is a great example of a company that has been willing to use data from farmers to improve its business model. In Nicaragua, ECOM and IFC ran a pilot survey that segmented farmers by income and established how farmers from different income segments rated their interactions with ECOM.
Success doesn’t happen overnight
Many of the companies in IFC’s portfolio are not new to BOP markets because they are mostly from emerging markets. In fact, many are family-owned companies that have survived political turmoil, devaluation and hyperinflation. As seen from recent reports on inclusive business, it may take a decade before inclusive business companies become well established. We should be careful not to expect companies to become overnight success stories when working in emerging markets and having direct impact to the people at the BOP.
For more specific lessons on how IFC’s clients on reaching the base of the pyramid, take a look at our recent report Shared Prosperity Through Inclusive Business: How Successful Companies Reach the Base of the Pyramid.
Eriko Ishikawa is the global program manager for Inclusive Business Models at the International Finance Corporation (IFC), a member of the World Bank Group.
More from the Business Call to Action partner zone:
- Four ways to build an ecosystem to support business in low-income markets
- Launching a roadmap to guide the base of the pyramid domain
- Five strategies for scaling up inclusive business at the base of the pyramid
Launched at the United Nations, the Business Call to Action (BCtA) is a global alliance hosted by the United Nations Development Programme headquarters in New York. Follow: @BCtAInitiative
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