A social enterprise is a business that exists specifically to make money and a positive social impact at the same time, and can be for-profit or not-for-profit. An inclusive business is a specific type of social enterprise – a for-profit business that uses its value chain to raise people out of poverty. While it has all the characteristics of a social enterprise, it also brings a focus to low income communities, and is often centred around agriculture. The ASEAN definition of inclusive business is described in box 23.
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Box 32. Inclusive business Inclusive businesses (IBs) are defined as providers of goods, services and livelihoods on a commercially viable basis, either at scale or scalable, to people at the base of the economic pyramid (BOP), making them part of the value chain of a business as suppliers, distributors, retailers or customers. Awareness of the potential of IBs to contribute to poverty reduction and inclusive and sustainable economic growth is increasing in the region. Governments have an important role to play in scaling up IB through the development and implementation of enabling environments for the development of inclusive business models. Recent policy reforms in Asia show the strong political will to spur inclusive growth and improving the lives of the poor and low-income population. In 2017, the leaders of ASEAN acknowledged the strong support for inclusive business by its member States and called for greater emphasis on creating an enabling environment for inclusive business in ASEAN, among others through conducive rules and regulations. Evidence that inclusive business policies work emerged from the Philippines. In 2018, the first full year of implementation of the policy, five projects were approved which target to source $5 million worth of goods and services from the BOP and directly hire at least 185 and engage over 1,000 individuals, at least 30 per cent of which are women, from the marginalized sectors. Source: Creating and Enabling Policy Environment for Inclusive Business: The ASEAN Experience. |
According to the Asian Development Bank (ADB), Social enterprises can be segmented based on the three criteria—social impact, financial viability, and bankability and aimed at bottom of the pyramid (BOP), - referring to the poorest two-thirds of the economic human pyramid. 338 These three criteria can be described as follows:
Social impact can be defined as the net effect of an activity on a community and the well-being of individuals and families. Social impact created by social enterprises is a convergence of job creation, increased access to goods and services, improvement of household income, and overall improvement in the quality of life for the marginalized sectors and low-income population. This impact can be measured at the individual enterprise level, at the national and/or society level, and at an intermediary level.
Financial viability measures the current (or future) ability of the organization to fund its operations through the revenues it generates. It determines if the organization is (will) perpetually (be) reliant on grants.
Bankability assesses the ability of the organization to achieve financial return to the investor. It is important to assess this from the perspective of development banks, which often require generating income from their investments.
Further, social enterprises can be primarily classified into four categories. Based on the above parameters, social enterprises can be segmented into the following four categories:339
Partly commercial nongovernment organization (NGO). These social enterprise organizations are very similar to NGOs, which exist primarily to serve the needs of a particular community. Their solutions are usually limited to the local community in scale. Such organizations do have some activities that generate revenues. However, these may or may not be the same as the ones that create impact. For example, an organization that provides free health checkups for the low-income population, but generates revenues from selling merchandise and accessing government aid, is a partly commercial NGO.
Small social enterprise. Operations of such organizations are able to generate sufficient revenues to cover their cost of operations. The revenue generation model may or may not be central to the impact model. Since such organizations do not have sufficient operational margins, they are not bankable. For example, an organization that conducts health checkups for the low-income population by charging them a nominal amount just enough to cover its cost of operations is a small social enterprise.
Established social enterprise. Such an enterprise is one that usually creates an innovative solution to the problems of the vulnerable sectors (including the low-income population) in a manner that is financially viable. This organization has reached scale. It generates only modest profits, most of which are ploughed back into the operations, and hence, are not bankable. An example is an organization that conducts health checkups for the low-income population in a manner that is financially viable and is able to scale up using partnerships with already existing government dispensaries.
Leading social enterprise (potential inclusive business). Such an enterprise has a business model that integrates the bottom of pyramid (BOP) into it. The model is scalable and generates profits. The profits are split between reinvestment and shareholders. These organizations are bankable, although they often require considerable technical assistance and hand-holding to improve their business models. For example, an organization that leverages technology, conducts tele-health checkups (to reduce cost) for the low-income population by charging them a nominal amount, and is able to scale using already existing government dispensaries.
338 ADB (2017), Are Social Enterprises the Inclusive Businesses of Tomorrow? Development Banks’ Perspective
339 G20 Inclusive Business Framework. G20 Development Working Group, 2015
