Scaling up inclusive business models
06 June 2012
From islands of success to seas of change
Several successful approaches to inclusive business have been developed in recent decades. What will it take to scale them up? This was the core question discussed at an international workshop held in The Hague in April 2012 as part of the Seas of Change Initiative.
The World Business Council for Sustainable Development refers to ‘inclusive business’ as business models that ‘seek to contribute towards poverty alleviation by including lower-income communities within its value chain while not losing sight of the ultimate goal of business, which is to generate profits.’ About 100 senior representatives from the business sector, international governmental organisations, farmers’ organisations, NGOs and research institutes discussed how to scale up successful inclusive business models at an international workshop held in The Hague, the Netherlands on 11–13 April. Among the many topics discussed were certification, access to credit, the role of government and partnerships.
A farmers' cooperative at work in San Luca Toliman, Guatemala
Photo credit: Lineair / Sean Sprague
Studies have shown that certification can increase the income of farmers and generate benefits for all stakeholders along the entire chain including traders, agri-business and consumers. An estimated 7.5 million farming families worldwide benefit from certification. That is a significant number but still small considering that over half a billion poor people depend on agriculture for their livelihoods.
People’s views at the workshop on the potential to scale up certification schemes diverged. The representatives of the various certification schemes – including UTZ and Fairtrade – see a great deal of potential for scaling up certification, and they pointed out that their sales volumes are still growing.
Business representatives were more sceptical. They believe certification will only work for products that consumers can associate with the raw commodity, such as cocoa, tea and coffee. One of their main concerns is that certification is costly in terms of auditing, monitoring and data collection. This is related to the fact that the unit of certification is the individual farm, mill or factory. In addition, the proliferation of logos, each of which has their own standard, confuses producers and drives up costs. The business representatives called for the harmonization of certification initiatives.
Access to credit
All farmers need access to credit, but representatives of commercial banks explained that they face a wide range of problems in reaching out to farmers at the bottom of the pyramid. Transaction costs are high compared to the size of the loans. Many small farmers do not have bank accounts, and they lack the record-keeping and financial management skills needed to successfully secure a loan from a bank. The legal framework is not conducive to taking out loans. For example, small farmers often do not have the land titles they need to serve as collateral.
Workshop participants discussed measures for tackling these stumbling blocks, such as strengthening the capacities of micro-credit schemes, establishing a farmer cooperative or using other intermediaries to liaise between the banks and the farmers. ICT was another area explored at the workshop. ICT has huge potential for improving farmers’ access to banking and other services. M-Pesa, a mobile phone-based money transfer service system, is an example of an innovative solution for giving small farmers access to bank accounts. M-Pesa was developed in Kenya and is widely used in cities and rural areas.
Role of the government
There was general consensus about the important role for governments to promote and scale up inclusive business models. A representative of the International Fund for Agricultural Development pointed out that a government’s commitment to inclusiveness and agricultural growth go together (see table).
Workshop participants also generally agreed that governments need to assume a leading role and make clear strategic choices that are simultaneously pro-poor and pro-market. Subsequently, governments need to mobilise key stakeholders around these strategic choices and create a conducive investment climate. One area of concern is poorly designed food safety regulations that can put small-scale producers out of business.
Scaling up inclusive business models is beyond the capacity of one single party and requires engaging in partnerships that involve farmers’ organisations, governments, the private sector, NGOs and research institutes. Some successful partnerships were mentioned, but it was noted that successful partnerships are not as common as one would hope.
For a partnership to work, it needs to be clear what each party can contribute. Roles may change
over time. Partnerships that focus on scaling up inclusive business models are generally temporary
and have a limited lifecycle. NGOs can play an important part during the pre-commercial stage as
capacity builders and trusted brokers between farmers’ organisations and business. When the chain
matures and farmers’ organisations have developed adequate capacity to engage in direct business
relationships with traders and processors, the roles of NGOs can shift to other concerns.
Ultimately, NGOs that played a facilitating role can exit the scene.