ADB urges gov’t to promote inclusive business models

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The Asian Development Bank has urged the government to create an enabling, more conducive environment that will allow more companies to develop  “inclusive business” models, or those whose benefits will trickle down to the people at the grassroots level.

In a paper presented in a forum Monday, Markus Dietrich, director of the Asian Social Enterprise Incubator, and Armin Bauer, principal economist at the ADB, noted that although the country had embraced the mantra of “inclusive growth,” it had yet to make a marked improvement in poverty reduction through job generation and better delivery of services to the poor.

“In fact, poverty incidence in the Philippines remains high at 27.8 percent and up to 63 percent (of the population) living on less than $3 a day. Inclusive business (IB) offers an opportunity for the private sector to contribute towards inclusive growth,” the paper stated.

Through an inclusive business model, however, the Philippines will be able to realize its inclusive growth goals, such as generating more employment for the poor and providing them with better services in housing, health, energy and education.

According to Dietrich and Bauer, inclusive business refers to commercially viable and profitable private companies in the growth stage, whose core business is designed to address, in scale, pressing social needs of the poor. It engages those at the so-called base of the pyramid or the 60 percent  of the population living below the poverty line through decent work opportunities incorporated in the operations of the company.

A study commissioned by the ADB identified only 70 Philippine companies  across 11 industries had adapted inclusive business models. An example is Jollibee, which sources part of its raw material requirements from local farmers, who were capacitated through the company’s Farmer Entrepreneurship Program.

According to the study, the low number of companies engaged in such a model was attributed to lack of awareness, weak internal governance, issues with public governance and lack of “innovative” financing.

Many companies also confuse inclusive business with corporate social responsibility. Inclusive business is deemed more sustainable as it creates shared value and develops the ability to maintain a stable supply of inputs.

“Inclusive business is a promising concept. For it to mature and develop its full potential, an enabling eco system has to be built involving all stakeholders,” the paper stated.

However, for the inclusive business model to reach its full potential, the concept must be made more known to more companies to see the business opportunities that go with the model.

Some companies, according to Dietrich and Bauer, also need help in developing sufficiently profitable and impact-oriented business models.

They further  noted that the financial sector also needed to be educated that inclusive business investments often result in higher returns than traditional investments. New financial instruments could be developed such as a credit guarantee facility for interested banks.

Trade Secretary  Gregory L. Domingo backed the said recommendations, noting that the government, too, must also be willing to take risks and bear losses in helping ensure that an enabling environment would be set up for the inclusive business model. He also noted that while this was a highly complex issue, the critical aspect was the convergence among the private sector, the government, development partners and other stakeholders.

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