Inclusive
IN the era of COVID-19, development organisations from the International Institute for Environment and Development to the Asian Development Bank (ADB) are pushing for inclusive business to be the ‘new normal’.
With the International Labor Organisation estimating that relative poverty is set to increase by more than 50 per cent in lower-middle-income countries, businesses need to ‘build back better’.
Donors, governments, and investors are advocating for businesses to become inclusive through incentive mechanisms such as establishing private equity funding schemes, business coaching, risk sharing, and procurement preferences.
But what should count as an ‘inclusive business’, and who is left out? This is a big deal, particularly when tax deductions and other incentives are tied to the label.
The rhetoric of large donor organisations is often to privilege large businesses over micro or small enterprises. The problem with this, as we detail below, is that in many countries, the push for ‘big’, scalable solutions excludes the vast majority of local businesses that are wellplaced to serve the poor.
Inclusive businesses are defined by the G20 as a commercially viable business model that benefits people living at the base of the economic pyramid (BoP) by including them in the company’s value chain as suppliers, distributors, retailers, or customers.
The concept, however, is interpreted and elaborated differently. Some people associate inclusive businesses with the BoP business model, with reference specifically to the poor.
Others, like the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) and the Inclusive Business Action Network (iBAN), say that inclusive businesses ‘do not exclusively focus on the poor’ but rather the bottom 40 per cent to 60 per cent of the population.
The biggest issue though is the assumption that only medium or large national or multinational companies are inclusive. Assessments of inclusive businesses are typically based on the size of a company in terms of profitability and revenue, the number of poor people reached by the business, and whether the business is innovative and addresses systemic causes of poverty. The ADB even asserts that the number of poor people reached by the business should be at least 1000.
It seems that the donor preoccupation with reach, scalability, and corporate engagement prevents the vast majority of businesses that could work with the poor from being labelled inclusive.
An ADB scoping study that looked at establishing a private equity fund to support inclusive businesses in Vietnam in 2012, for example, limited its study to medium to large national enterprises and multinational companies. A recent landscape study of inclusive businesses in Vietnam carried out by UNESCAP, iBAN, and the Agency for Enterprise Development under the Vietnamese Ministry of Planning and Investment proposes an accreditation system to recognise and provide support mechanisms for accredited businesses, such as business coaching, risk sharing and procurement preferences.
All these supports could also be provided to small businesses, but the proposed accreditation scheme gives preference to medium and large enterprises through a focus on commercial return, size, and reach of companies. Even the scholarship on inclusive business supports this bias toward large businesses, by focusing on case studies of large multinationals and their inclusive policies.