You are here: Home Knowledge Base Promoting Innovation to Achieve Inclusive Growth Solutions Make Inclusive Business Profitable for Companies and Acceptable to Low-Income Consumers and Producers
Symposium 2015

Solution for Promoting Innovation to Achieve Inclusive Growth

The Challenge

“Inclusive Growth” refers to sustained economic growth while at the same time improving equal access to opportunities among (groups of) individuals and reducing income disparities (ADB 2011). It ...

“Inclusive Growth” refers to sustained economic growth while at the same time improving equal access to opportunities among (groups of) individuals and reducing income disparities (ADB 2011). It aims to provide different groups of a society with equal opportunities to participate in economic development processes, thus enhancing the living standards and promoting mobility across different social groups. A key driver of future development in the world is “innovation”.

Make Inclusive Business Profitable for Companies and Acceptable to Low-Income Consumers and Producers

Inclusive Business (IB) Models go beyond corporate social responsibility and philanthropic activities. Companies are finding successful, long-term growth strategies by engaging individuals at the “base of the economic pyramid” (BOP). Inclusive businesses engage low-income individuals across the value chain—as suppliers, distributors, retailers and consumers. In doing so, inclusive businesses reach untapped markets, diversify their supply sources and access new channels for retail and distribution. As they achieve commercial sustainability and growth, they also benefit the poor. Since 2005, IFC has invested over US$12.5 billion in over 450 inclusive business companies in over 90 countries. IFC’s inclusive business clients have integrated more than 250 million low-income individuals into their core business operations—including patients, students, farmers, utility customers, and micro borrowers. The Asian Development Bank and Inter-American Development Bank also have a specific focus on inclusive business. We have evidence-based case studies that validate the capacity of private companies to contribute to poverty reduction while generating financial returns. Evidence can be drawn from across the IFC portfolio—inclusive businesses are active in all regions and in the agribusiness, education, finance, health, housing, ICT, retail, and utility sectors. The impact of inclusive businesses is being acknowledged broadly. Fortune Magazine’s recent “Change in the World” list recognized 50 global companies that are doing well by doing good. The list included several of IFC’s inclusive business clients:

  • Alibaba is the largest e-commerce company in the world. The company has brought tens of millions of poor people online, and reaches some 15 million MSMEs through its microcredit platform.
  • Roshan has brought cellular service to over six million subscribers in Afghanistan. It also engages low-income entrepreneurs through its network of 33,000 agents.
  • Essilor is expanding access to eye-care to the estimated 2.5 billion people worldwide who have poor vision but lack access to corrective tools. Essilor sells “no-frills” glasses at low prices, reaching underserved populations in 22 countries.
  • Equity Bank extends financial services across Africa, serving over 10 million customers. Microfinance products, mobile banking and a strong rural presence allow it to reach unbanked individuals.

 

Inclusive business is win-win. The private sector has a critical role to play in driving inclusive and sustainable growth. Challenges persist when it comes to integrating the BOP. Yet with the right business solutions, there need not be a trade-off between financial performance and development impact. Once an IB model is established, it is sustainable on its own. IFC’s investments in inclusive businesses achieve financial returns that are on par with total portfolio returns. The 4.5 billion people living at the BOP spend small amounts individually, but on aggregate they spend US$5 trillion a year. Companies realize high growth opportunities when they engage this market effectively. Established inclusive business models have been scaled and replicated in other emerging markets.

The example of Jain Irrigation

The Company
The only Indian company included on Fortune’s list, Jain is the largest manufacturer of micro irrigation systems (MIS) worldwide, and also a leading fruit and vegetable processer. The MIS product enables small farmers to adopt water and energy-efficient irrigation systems. MIS can generate water savings of 30 to 65%, boosting crop yield and therefore farmer income.

The BOP Challenge
The longstanding practice of rainwater dependence among smallholders; lack of knowledge about MIS; relatively high cost of the product; limited access to finance.

Low productivity due to lack of access to inputs and training.

The Solution
Jain reaches farmers as both consumers and producers. It offers inputs, financing, and training so that farmers can produce more and better crops. Jain also purchases fruits and vegetables from farmers for processing and sale in international and domestic markets. Jain uses its own agronomists and engineers to engage directly with small farmers in their communities to explain the value of MIS. The company also trains its 4,500 distributors and dealers to teach farmers to use the systems. Jain taps into a 50% subsidy from the Indian government for the purchase of MIS. For the remaining 50%, Jain works with banks to facilitate financing. Jain also created a subsidiary—the Sustainable Agro Commercial Finance Ltd.—in 2011 for this purpose.

Lessons Learned
Jain needed to understand that smallholder farmers are value-conscious and price-sensitive customers. It needed a product with high value added yielding significant improvements in farm productivity and profitability. It needed a large market due to low profit margins. The company has reached 5 million small farmers in India, has established a plant in Turkey and is looking to replicate the model in other emerging markets. Marketing efforts, facilitating access to finance, providing training, and securing rural distribution channels are key to the uptake of the product.

Results
Increased farmer yields: 130% for onions; 98% for pomegranates; 90% for cabbage.
Increased farmer incomes: gross income increases per hectare of between US$500 and US$6,000.
Improved water use efficiency from 30–40% to 80–85%.
More productive supply chain through research, development and training programs.

    Related Solutions

    Solution
    Symposium 2015

    More Private-Public Cooperation for All Levels of Education

    More Private-Public Cooperation for All Levels of Education

    More Private-Public Cooperation for All Levels of Education

    Solution
    Symposium 2015

    The Role of Technology for Sustainable, Equitable Growth

    The Role of Technology for Sustainable, Equitable Growth

    The Role of Technology for Sustainable, Equitable Growth

    Solution
    Symposium 2015

    Toward Inclusive Growth: Opportunities and Outcome Distributions

    Toward Inclusive Growth: Opportunities and Outcome Distributions

    Toward Inclusive Growth: Opportunities and Outcome Distributions