Inclusive business, or doing business with low-income people for mutual value, offers a sustainable approach to economic growth and poverty reduction. And while the approach has been around for over 20 years, it has not become mainstream, yet.
Why? Clear incentives are largely missing. While doing business with the poor can create value for both sides, it is still tough. Most often, companies decide to pursue easier opportunities in established markets. What if government could promote inclusive business and reward the additional effort? Some countries in Asia are advancing in this direction. In Viet Nam, the government has launched a three-year programme to support private enterprises in sustainable business, including inclusive businesses, and has launched a pilot accreditation process for inclusive businesses earlier this year. The goal of the accreditation programme is to identify and target inclusive businesses with specific financial and non-financial incentives, and to promote inclusive growth. Additionally, ASEAN is gearing towards empowering micro, small and medium enterprises for equitable growth.
Being accredited as an inclusive business has been a transformative journey for our company. The recognition we received highlights our commitment to empowering smallholder farmers and sustainable agricultural practices. It increases credibility of our brand, which strengthens our relationships with investors and clients alike. Through the accreditation process, we learnt where we can strengthen our inclusive business model, which will allow us to scale up our operations. The government support we’re now eligible for will enable us to further invest in inclusive initiatives and drive meaningful change.”
– Nguyen Minh Anh, Co-Founder, VINA SAMEX .,JSC
In India, the government is looking at replacing the minimum wage with a living wage by 2025, aiming to lift milions of people out of poverty and ensure their well-being. Telangana’s state government has also been focusing its efforts in the past few years on inclusive growth of the agricultural sector. This means inclusive businesses and the way they work with low-income people is becoming increasingly relevant to achieving policy goals, and could in the future be in the focus of business-promotion strategies in the government’s ambition to leverage the private sector to achieve the objectives it sets out for itself.
UN ESCAP supports this growing interest from governments in inclusive business by providing a manual on how to establish an Inclusive Business Accreditation System. We developed the manual on behalf of UN ESCAP, based on the rich experience in the Philippines that has been led by Armin Bauer and the Asian Development Bank.
Why establish an Inclusive Business Accreditation System?
Accreditation is the doorway into this kind of strategic support. By clearly distinguishing inclusive businesses from others, targeted support becomes possible. Targeted support rewards the positive social impact of inclusive business and thus attracts others to consider the opportunity. Showcasing existing inclusive businesses can also inspire others. Businesses can already benefit from the accreditation process, by reviewing their approach and through feedback and advice from experts. Once accredited, they can receive targeted support, gain visibility for their brands and attract impact investors.
What are the inclusive business accreditation criteria?
There are four dimensions to assess whether a business qualifies as inclusive.
The company needs to have a strategic intent for a commercially viable business that creates scalable, innovative and systemic solutions to relevant challenges of low-income populations.
The inclusive business must be commercially viable. Commercial viability ensures that businesses are sustainable, and can potentially achieve scale, resulting in a more significant impact on low-income populations. Additionally, commercial viability extends beyond profitability and includes the ability to access financial resources (such as loans and investments), which are vital to seize growth opportunities that enable the company to maintain and expand its positive social impact.
The inclusive business must create social impact in terms of reach, depth and systemic transformation for low-income populations. In the context of inclusive business, impact extends beyond risk management and simply sourcing from low-income populations, to bring them tangible value that positively transforms their lives by improving access to essential goods and services and economic opportunities.
The inclusive business must be innovative in terms of solutions for low-income populations and managing associated risks. This can be achieved through business, technology, social and environmental innovations. Constant innovation is essential in addressing challenges, staying ahead of the curve, and creating novel solutions that meet the changing needs of low-income populations while enhancing the longterm viability of the business.
While there are several certification and standard systems related to social and sustainable practices of businesses (see box 11 on p.14 of the manual), these are generally private sector led. IB Accreditation Systems, by contrast, are a product of a government’s targeted policymaking. Many of the current certification and standard systems seek to report on practices and processes, while an IB accreditation system also seeks to measure the impact of the business. Nonetheless, companies who already use one or more of these certifications can use the information from the respective assessments for their inclusive business accreditation process.
How does the accreditation process work?
Тhe graph above illustrates the different steps in order for a government to set up an national Inclusive Business Accreditation System. First, identify the responsible government agency. For example, in Viet Nam, the designated agency that oversees the accreditation process and ensures compliance with established standards is the Agency for Enterprise Development under the Ministry of Planning and Investment. Second, establish a steering committee, that would comprise of key stakeholders from government and private sectors to provide strategic direction and oversight. Third, define principles, indicators, and benchmarks, all of which are already provided in the accreditation manual. Users only need to make sure that the benchmarks used are country specific. Once this is done, it is important to, fourth, align on the accreditation process and roles with the different stakeholders. Fifth, it can be beneficial to conduct a pilot to test the accreditation system, gather feedback, and make any necessary adjustments. Sixth and last, it is crucial to obtain formal approval from relevant authorities to implement the accreditation system officially.
Institutionalizing incentive structures via accreditation to promote inclusive businesses
With an Inclusive Business Accreditation System, different types of direct and indirect government support become possible:
- Recognition is in itself a benefit. Accredited companies in Vietnam report that the validation of their positive impact on local communities has strengthened their relationships with customers and investors.
- Direct financial support may include tax breaks or access to preferential finance.
- Direct non-financial support includes access to coaching, training and networking opportunities to strengthen the approach as well as preferential public procurement.
- Indirect benefits may arise from the accreditation, e.g. when investors use it as a benchmark for impact, or when large buyers seek partners with a proven social impact.
By engaging with inclusive businesses, governments become more attuned to the challenges they face in scaling up and can devise effective support mechanisms in response. Accrediting and acknowledging inclusive businesses is a clear signal from government that these approaches are desired and needed to achieve inclusive growth.
🏆 You can learn more about the ins and outs of setting up an accreditation system, along with the its indicators and rating system in the full version of the manual here.
📩 Get in touch with Christina Tewes-Gradl (c.gradl@endeva.org) to learn more about how we help create lasting enabling environments and system change.
📖 If you are an agribusiness, you can start your inclusive business journey by reading the full version of the Grow Your Inclusive Business toolkit here.
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Footnotes:
[1] https://asean.org/wp-content/uploads/2023/08/JMS-Declaration-on-Promoting-Inclusive-Business-Models-Empowering-MSMEs-for-Equitable-Growth.pdf
[2] https://economictimes.indiatimes.com/news/how-to/india-plans-to-replace-minimum-wage-by-living-wages-by-2025-heres-what-it-could-it-mean/articleshow/108795967.cms?from=mdr
[3] https://www.thehindu.com/news/national/telangana/ts-focus-on-achieving-inclusive-growth-ktr/article65628490.ece
