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Combating rural poverty through Inclusive Business

By Katharina Muenster, iBAN

Every day, inclusive business companies overcome a myriad of challenges to improve the lives of the poor. Without sacrificing their financial sustainability, they empower people at the base of the economic pyramid to improve their livelihoods or access beneficial products and services.

Maize is the staple crop for 1.6 million smallholder farmers in Zambia. It is their main food, their source of cash – and their nemesis. Growing maize in monoculture, lacking access to inputs, and relying on traders to reach markets, most smallholder farmers stay desperately poor. According to the World Bank, more than three out of four rural Zambians live in poverty. That’s more that 1.2 million people, or roughly the population of the Netherlands, living in rural poverty.

In addition, many rural areas go without proper infrastructure and are shut off from markets. Consequently, household products are either of low quality or prohibitively expensive. Women tend to suffer the most from these circumstances: They are the ones collecting timber to light fires or risking their health at charcoal stoves.

Sounds bleak? Add to this that more than 2 billion people worldwide rely on smallholder farming and face similar problems.

Inclusive Business – Integrating low-income communities into value chains

Let’s return to Zambia. Envision lush green fields, dense forests, and thundering waterfalls.

Now, think of beans.

Sounds like a stretch of mind? Not for Sunday Silungwe, one of the heroes of this story. “Legumes are magical,” he says, “they revitalize the soil, have a high nutritional value, and fetch a large margin on the market.” They are just what’s needed to lift smallholder farmers out of poverty.

Sunday is a co-founder of Good Nature Agro, a legume company based in Zambia. GNA provides farmers with input loans, trains them in best practices, and guarantees them a premium market for their produce.

“Good Nature Agro enables farmers to grow”, says Sunday.

GNA is a rare beast in the corporate world: an Inclusive Business (IB).

Inclusive business companies intentionally integrate the base of the economic pyramid (BoP) – that’s poor and low-income communities – into their value chains. They contract them as suppliers, involve them as retailers or distributors, or develop affordable products for BoP consumers. In doing so, they create a positive and measurable impact on these communities living in rural poverty. Their operations are commercially viable and scalable.

In agriculture, that often means empowering smallholder farmers. Inclusive Business companies provide them with agricultural inputs, trainings, and secure market access at favourable conditions. Some also partner with NGOs or government agencies to create additional benefits.

This can also benefit local consumers. “If you zoom back seven years, there was a huge undersupply in the sector,” says Sunday. “There still is, but we are making a dent in it.”

Other IBs improve health care in underserved areas, venture into recycling, or offer affordable education  – all to the benefit of people at the base of the economic pyramid.

What’s the point for companies?

This is not just expensive altruism but creates real benefits for the companies themselves. Good Nature Agro, for example, controls its whole value chain from seed production to B2B marketing. As a result, the company has been profitable for the last five years. Farmer incomes have risen by a factor five.

Controlling their whole value chains has made inclusive business companies more resilient during the Covid-19 pandemic. In addition, IB unlocks a vast labour and consumer pool at the base of the pyramid: The 4.5 billion people living at the BoP represent a $5 trillion consumer market annually.

So, why is not every company inclusive?

Why is not every company inclusive?

Printing a glossy CSR report is comparatively easy. Building an Inclusive Business is not. There is a myriad of reasons for this, both sector-specific and universal. Here, we will focus on three of them: regulatory hurdles, financial viability, and access to the BoP.

  1. Regulatory hurdles

On a global scale, many countries agree that Inclusive Business is a good idea. IB was embraced in the 2015 G20 meeting, for example, and ASEAN published its “Guidelines for the Promotion of Inclusive Business” in 2020.

Still, political and regulatory hurdles abound for IBs in many countries. They may not find a fitting legal form to register under, for example. Meanwhile, institutional investors are often constrained to maximize only returns. This makes it harder for IBs to access finance.

  1. Financial viability

Finance is the main headache for many IBs. They do generate financial returns – but often with a longer pay-back time. To become profitable, they first need to scale. This comes with its own challenges. Also, many Inclusive Business entrepreneurs stress that they are looking for the right investors: those that share their values and social vision.

Inclusive businesses have found ways to become profitable anyway. Zambian honey company Nature’s Nectar, for instance, tries to sell the impact story behind its products. To do so, it traces every pot of honey from the beehive to the end consumer. Kennemer Food International, a commodity company based in the Philippines, sells carbon credits it earns through afforestation and reforestation.

  1. Accessing the BoP

Smallholder farmers and rural consumers are dispersed. They live in areas that are hard to reach, making it costly and time-consuming to deliver trainings or transport products.

When IBs do reach their target groups, the trouble is far from over: People with a low income cannot afford to squander their trust. “It is challenging to enter places where other companies have worked before and failed to follow through on their promises”, says Sunday, echoing a concern voiced by many IB entrepreneurs.

To build trust and reach scattered communities, many IBs cooperate with established players. GNA, for instance, partners with NGOs to deliver trainings and establish contact to smallholder farmers. “For them, this guarantees their long-term impact after their projects have been terminated,” explains Sunday.

Learn more about Inclusive Business

Every day, inclusive business companies overcome a myriad of challenges to improve the lives of those living un rural poverty. Without sacrificing their financial sustainability, they empower people at the base of the economic pyramid to improve their livelihoods or access beneficial products and services.

To learn more about Inclusive Business, take the free e-learning course “Introduction to Inclusive Business” or look at the IB Impact Stories, which also feature GNA, Kennemer Foods, and Nature’s Nectar. “I developed the format to support companies to communicate their impact and approach investors”, says Susann Tischendorf, Director of Communications and Digital Innovation at the Inclusive Business Action Network, “there are so many inspiring business models out there – I wanted to help make them seen.”

Editor’s Note:

Read more on rural poverty here.

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