Defining IB
Aligned with concept of governments and key institutions promoting the IB agenda, we understand Inclusive Business as “… commercially viable core-business lines of private sector companies that create scaled-up, innovative and systemic solutions to the relevant income and livings standard problems of the poor and low-income people …”
IB companies have the following characteristics
- No trickle down: Deliberately targeting the poor and low-income people, the BoP)
- Creating direct social impact in scale
- Sponsored by commercially viable business lines of mostly medium-sized companies
- Innovative solutions for the relevant problems of the BoP
IB promotion
While IB make good business returns, governments have good reasons to promote such companies through smart policies and programs. Such programs typically comprise a dedicated IB enabling environment strategy, IB advocacy, IB accreditation, IB business coaching, IB incentives (tax, procurement, trade), IB financing, IB budgeting, IB monitoring and reporting, and linking to the CSR- social enterprise- and impact investing agenda.
Read more about IB features:
- The BoP: The poor and low-income people are often referred to as the Base of the socio-economic pyramid (BoP) and they are typically the bottom 40% income groups (B40). For clarifying targeting of companies
- The BoP engagement mode: In emerging economies many companies engage the poor as consumer, supplier, laborer, distributor or even shareholder. However not all companies engaging the BoP are automatically also Inclusive Business. In fact only a small share of mainstream companies are, namely those creating income opportunities above the market rate or delivering goods and services that are affordable, accessible and particularly relevant. Furthermore, companies need to have a good commercial return, growth and profitability and reach many people to be sustainable (as a business) and systemic (in its social impact). Therefore the main criteria to qualify whether a company is an IB are its commercial viability and its deliberate and direct social impact in terms of reach, depth and systemic transformation for poverty.
- The IB route to impact: There are two key challenges for the poor and low income people:
a) insufficient income opportunity to escape the poverty trap, and
b) low living standards and high social risks.
Companies with IB business models deliberately address either of these two key problems of poverty. - Systemic solutions for the B40: When companies target the poor they may do good to such people. But whether or not their business reveals systemic social impact depends on the scale (in terms of reach and targeting), the depth (in terms of income increase and quality of living standard improvement) and the transformation character of the business for geographical, sector, BoP risks. This “so what” question is crucial in a proper IB discussion, and it is particularly addressed in the IB accreditation.
- Commercial viability: Companies that are commercially not viable will not survive in the long run without subsidized inputs. Many NGO driven social enterprises and most corporate social responsibility activities are financially not sustainable. To qualify as IB the company needs to be commercially viable. Most IB actually have high returns and often profit margins above the sector average.
- Growth and scale:
- Social impact beyond reach:
- Company size does matter to achieve high social impact and to be innovative and transformative. While most IB companies are medium sized businesses (with annual revenues between $1 and $10 million, depending on the country), IB cases can also be found among small enterprises and large companies. Micro-enterprises (with revenue below 0.1 million) typically do not qualify as IB.
- Innovation: IB can be found in all sectors and most successful IB are companies investing in business innovations and reducing BoP risks. Technology innovation or doing CSR is often not sufficient to qualify as IB.
For more information on what IB is, please see the following literature list:
