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

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Presented by Pablo Pacheco

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

  1. 1. THINKING beyond the canopy Leveraging the private sector for inclusive green growth - Inclusive business model primer and findings -
  2. 2. THINKING beyond the canopy INCLUSIVE BUSINESS – A new development fad or transformation pathway? 0 50 100 150 200 250 300 350 400 450 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Academic publications on inclusive business
  3. 3. THINKING beyond the canopy 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)
  4. 4. THINKING beyond the canopy Corporate BOP suppliers Societal Supply supplement Access to markets Crowding in Diversification Access to inputs Market linkages/upgrading New (premium) markets Access to technical support FX earning and savings Access to (cheap) capital Access to risk mitigation tools Food 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
  5. 5. THINKING beyond the canopy Entity (PPP in bold) Key proponents Type of financial services Technical engagement Co- investment Credit facilities Equity 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 ✓ ✓ ✓
  6. 6. THINKING beyond the canopy 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)
  7. 7. THINKING beyond the canopy Farm Block Farmer 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 agricultur e • 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)
  8. 8. THINKING beyond the canopy • 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
  9. 9. THINKING beyond the canopy 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
  10. 10. THINKING beyond the canopy 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!
  11. 11. THINKING beyond the canopy 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
  12. 12. THINKING beyond the canopy
  13. 13. THINKING beyond the canopy How can we make inclusive business models more inclusive? Can we even expect this from business? Is this even desirable?

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