Leveraging the private sector for inclusive green growth: Inclusive business model primer and findings

THINKING beyond the canopy

Leveraging the private sector for

inclusive green growth- Inclusive business model primer and findings -


INCLUSIVE BUSINESS –

A new development fad or

transformation pathway?

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Academic publications on inclusive business


Inclusive business definitions“Entrepreneurial initiatives seeking to build bridges between business

and low-income populations for the benefit of both” (SNV/WBCSD

2008)

“Commercially viable businesses that include low-income consumers,

retailers, suppliers, and distributors in core operations” (IFC 2012)


Corporate BOP suppliers Societal

Supply supplement Access to markets Crowding in

Diversification Access to inputs Market linkages/upgrading

New (premium) marketsAccess to technical

supportFX earning and savings

Access to (cheap) capitalAccess to risk mitigation

toolsFood security

Trends in inclusive business development

• Focus not on outcomes (e.g. equity), but on the process (e.g. productive

integration)

• Downstream focus: clean water, renewable energy

• Upstream focus: agriculture

• BOP become producers of high value cash crops for businesses

• Driven by donors and development finance institutions 50+ IB

programs

• PPP (co-finance, support), inclusive enterprise finance (seed &

patient capital, equity, guarantees)

• Spatial Development Initiatives (SDI)

• Value chain approach

Purported benefits


Entity (PPP in bold)Key

proponents

Type of financial services Technical engagement

Co-

investment

Credit

facilitiesEquity Guarantee

Advisory/br

okerage

Implementati

on support

Policy

dialogue

Business Call to

Action (BCtA)

UN, Clinton,

Bilaterals✓ ✓ ✓

Inclusive Market

Development

UN ✓✓ ✓ ✓

Global Development

Alliance (GDA)

USAID ✓ ✓ ✓ ✓

Business Innovation

Facility

DFID ✓ ✓ ✓

AGDEVCO AGRA, USAID,

DFID, NORAD✓ ✓ ✓

✓✓

EuropeAID EC ✓ ✓ ✓

Dutch Good Growth

Fund

DGIS ✓ ✓ ✓ ✓

Innovation Against

Poverty (IAP)

SIDA ✓ ✓ ✓

SNV DGIS ✓ ✓ ✓

Technoserve ✓ ✓ ✓

Multilateral

Development Banks

IFC, AfDB,

ADB, IBD✓ ✓ ✓ ✓ ✓

IFAD ✓ ✓ ✓ ✓ ✓

Bilateral development

finance

SwedFund,

NorFund, FMO✓ ✓ ✓


Inclusive business models in agriculture: Features

Business model = “the core strategies and methods through which an

organization creates and delivers value” none are the same

Feature description

Eligibility criteria Criteria for participation (e.g. land title, land size, labor profile, income, credit

history)

Productive asset

ownership

Who owns productive assets (e.g. land, irrigation infrastructure, biological

assets)

Equity structures Smallholder shareholdings in commercial entity

Crop management Distribution of responsibilities (e.g. company managed, hired labor, own)

Spatial organization Organization of smallholder production units (e.g. consolidated farm blocks)

Technical support Mentorship, assistance, demonstration

Credit Provision and terms of smallholder credit facilities

Farm inputs Mechanisms and terms of access to farm inputs (e.g. fertilizers, chemicals,

energy)

Logistics Distribution of responsibilities and terms of collection and delivery

Revenue disbursement Revenue distribution mechanisms (e.g. pricing formula, payment frequency)

Autonomicity Options to enhance autonomy (e.g. end-markets, input sourcing, crop

management)

Risk mitigation Mechanisms to share risk (e.g. pricing formula, crop insurance)


Farm BlockFarmer

association

• Land

preparation

• Infrastructure

• Block

supervisor

• Soil analysis

• Land title

application

• Group

formation

• Negotiation

supportTPSP

Logistics

Cane cutting

• Harvesting

• Transport to

mill

• Sugar profits

(65%) - costs

• Inputs on

credit

• Technical

support

Finance

Private banks

Develop-ment

banks/ donors

Community

Support

NGO’s

Ministry of

agriculture

• Association

grants/loans

• Repayments

• Payments

• Land

• Members

• Labor

• Identification

of land and

associations

• Payments

Sugar Company

• Input

application

• Weeding

• Irrigation

• Land

• Labor

Sugarcane Scheme design (Mozambique)


• Technical

support

• Input supply

on credit

• FFB payments

– inputs - debt

Finance

Government banks

Support

State/ municipal

government

• Contract

development

• Infrastructure

• Environmental

management

• Smallholder

credit

repayments

• Approve

credit release

• Liaise with

company

Oil palm company

Oil palm scheme design (Brazil)

Farmers

Smallholder unions

Associations

• Credit approval

• Quarterly credit

payments

• Negotiate

contracts

• Liaise with

company

Association consortium

• Labor

• Members

• Representatives

• Representatives

• Members

• Participation

criteria


Some IBM reflections from CIFOR projects (I)

Limited inclusivity shaped by (self-) selection biases

• Companies impose participation criteria (e.g. land, title, age, labor,

income)

• Smallholder risk propensity is highly variable rarely incorporates the

BOP

Limited impact on smallholder production systems

• Reluctance to abandon subsistence production systems

• Negligible change in subsistence crop production practices and market

orientation

• Irregular revenue flows stimulates irresponsible spending little

reinvestment

Profound changes in local land use dynamics and land-property relations

• Average household land area under production increases significantly

(extensification alongside intensification) ILUC, land scarcity conflict

• Increased individualization and consolidation of land elite


Some reflections from CIFOR projects (II)

Accumulation through independent specialization and employment

• Welfare impacts of participation not pronounced no major changes in

livelihood portfolios o reinvestment in productive assets

• Independent expansion most important determinant of upwards mobility

only small proportion (<1%) with entrepreneurial capacity

• Formal (plantation) employment more effectively produces welfare

gains

High failure rates of inclusive businesses

• Rampant side-selling discourages (further) investment in IBM

• Development of financially viable IBM takes time, resources, and

external support!


Policy challenges

Scalability and replicatability

• No business model is the same! policy focus more on process than

design

• Adaptive capacity and learning produces locally responsive models

• Value chain support organizations critical, especially technical support and

patient capital sources extend profit horizon and encourage LT business

planning

• Balancing need to control supply chain and enhance smallholder autonomy

• External technical support, independent service providers, and interventions

to reduce risk of side-selling (e.g. contract enforcement support, regulation

of (rogue) trading practices, concession systems)

Inclusive business and green growth interactions underexplored

• Sustainability standards and commitments threaten to alienate low

compliance capacity producers and enhance production control imperative

• IB could be effective mechanism to advance climate smart agriculture,

promote intensification, and facilitate smallholder compliance with private

standards

• Innovative public-private governance arrangements needed to streamline



How can we make inclusive business models

more inclusive?

Can we even expect this from business?

Is this even desirable?